High-Speed Rail is Criticized for Counting Construction Jobs the Same Way as Metropolitan Water District

This article in the San Jose Mercury News was interesting (.)  High-Speed Rail backers have been claiming it will create 1 million jobs, by adding up all the person-years of employment into one number.

California high-speed rail jobs estimate too good to be true

Though California's high-speed train faces an intensifying backlash over its $99 billion price tag, political leaders from Washington to Sacramento justify the cost by touting another huge number: 1 million jobs the rail line is supposed to create.

But like so many of the promises made to voters who approved the bullet train, those job estimates appear too good to be true...

"Job-years and jobs are like apples and Twinkies, they're not even in the same food group," said Elizabeth Alexis, a Palo Alto analyst who testified before Congress about the project last week. "It's not accurate, and it's misleading...

Government agencies routinely calculate temporary construction jobs by the year, but it's unusual for public officials to lump all those estimates together. For instance, the White House tells recipients of stimulus funds not to count workers multiple times like officials have done on the rail project...

What's more, officials have not taken into account the potential job losses from the railroad, which will displace many businesses along the train route, including several along the Caltrain corridor between San Francisco and San Jose. And within the last month, the California Legislative Analyst's Office said other state programs could cut jobs so the state can afford the $20 billion debt to pay its portion of the rail line

The Mercury News could write a virtually idential article about the Metropolitan Water District study that estimates building isolated conveyance will create 133,000 jobs.  The issues are the same.  From the MWD home page:

Construction of Tunnel for State Water Supplies Could Create Nearly 130,000 Jobs in California

The results of a report estimate that nearly 130,000 jobs would be created by the construction and operation of two conveyance system options to deliver water to Californians. The Metropolitan Water District of Southern California commissioned The Brattle Group to conduct this independent research on behalf of the Delta Habitat Conservation and Conveyance Program (DHCCP).

Personally, I am glad to see the bad press on this.  I have been complaining about the increasing trend towards reporting person-years of employment as jobs for quite a while.  I would like to see it eradicated.

Stockton, other Valley cities, at the bottom of yet another economic ranking. Few Corporate HQs in the Valley.

The Wall Street Journal's "Marketwatch" ranked Stockton last of the 102 largest metro areas in the U.S. in a ranking of "Best Cities for Business."  Inland California metro areas occupied the bottom 4 spots on the ranking: 102. Stockton, 101. Riverside, 100. Fresno, 99. Sacramento.  I hate these type of rankings, and have made fun of the Forbes "miserable city" rankings, including poking them for not posting their entire list so we can see what cities' are "least miserable."

The Marketwatch ranking is a little better, it at least publishes the whole list from top to bottom, and measures something much more specific.  It also includes some information on corporate headquarters that I have wondered and speculated about in the Valley, but never seen the data compiled.  I have often commented on the lack of a corporate, private sector presence in Sacramento compared to other places I have lived, and have also observed that many (most?) of the farming and food processing companies so important to the Valley are not headquartered here or owned locally.

The Marketwatch rankings include company rankings (S&P 500 headquaters, Forbes large private company hq, Russell 2000, etc.) and economic rankings (the usual suspects such as unemployment, job growth, etc.)  The Valley cities actually fared worse in the corporate rankings than the economic rankings.  [Detrioit, Dayton and Toledo Ohio were last in the economic rankings.]  Here are some interesting facts regarding the corporate presence in inland California according to Marketwatch.

• Riverside has the distinction of being the largest city in the U.S. without a Fortune 500 or S&P 500 company within its borders. (Riverside/San Bernadino is the 13th largest MSA in the U.S. with a population of 4.2 million.)
• Sacramento is the second-largest city, behind Riverside, with no S&P 500 or Fortune 500 firm. (Sacramento is the 24th largest MSA in the country, population of 2.1 million.)
• Fresno, the Central Valley's largest metro area, has no Fortune 500, S&P 500 nor Forbes private firms, and it is the largest city in the U.S. without a Russell 2000 company.
• Modesto is the comparative, corporate stalwart in the Valley, and the smallest of the Valley metro areas in the ranking.  Still, it isn't exactly impressive.  Marketwatch says, "Modesto does boast a decent lineup of Forbes private firms — Save Mart Supermarkets, E&J Gallo Winery and Foster Farms — but has no Fortune 500, S&P 500 or Russell 2000 companies."
• Fresno was last in the overall company rankings, followed by McAllen TX, Stockton, Bakersfield, and Sacramento. 

Governor Brown should have attended the Delta Stewardship Council meeting last Thursday

Last Thursday, Governor Brown was at a climate change conference in San Francisco.  According to the Sacramento Bee, he said regarding a potential peripheral canal/tunnel, ""It will cost money," he said. "But if we don't do that, and the levees collapse in one of these extreme events, we could run out of fresh water."  Yesterday, in a statement in support of BDCP he said, "We shouldn’t wait for a natural disaster to force our hand... This agreement takes us in the right direction to protect California’s water supply."  Governor Brown is clearly worried about earthquakes and floods in the Delta and their implication for water exports.

If he were at the DSC meeting last Thursday, he would have heard Bob Gilbert, a reknowned geotechnical engineer and risk management expert from the University of Texas.  Dr. Gilbert was on the peer review team for the DRMS study a few years ago, and chaired the recent peer review for the Delta Protection Commission's Economic Sustainability Plan.  He made these comments:

"seismic risk to the water supply really is not that significant."
"If you look at the consequences... the net present value over a 100 year window of water supply losses is about $2 billion ... does not in any way justify spending $10 billion on conveyance."
"reliability of water supply due to earthquakes is not a big threat"

(Note: the basis for the comments are the DRMS studies, quotes are from my meeting notes and may not be exact)

Dr. Gilbert was there to review the Economic Sustainability Plan, and I should note that the context of these remarks was not criticizing BDCP, he was criticizing the DPC's Economic Sustainability Plan claim that seismic levee upgrades would improve water supply reliability.  But it is interesting that much of the criticism was based on the fact that the seismic risk isn't that big (expected annual loss of $20 million a year if you believe the DRMS earthquake probabilities), and the bigger water supply risks are environmental rulings and water quality. 

In my remarks, I chimed in with a few additional relatively unknown findings from DRMS:

• Water export interruptions are only 20% of the economic cost from a large Delta earthquake that floods 10-30 islands.  (See earlier post on this here.)
• Water export interruptions are less than 2% of the economic cost from Delta flood events.
• Water export interruptions cause 0% of the loss of life from Delta earthquakes and floods.

This is why DRMS found levee investments have the highest benefit-cost ratio of all Delta risk reduction strategies (yes it's true, although DWR did not report the benefit-cost ratios), because levee improvements protect all the economic risks (energy, transportation, property, farmland, human life, recreation, water quality and water conveyance among others).  In contrast, the isolated conveyance strategy spends an enormous amount of money protecting against a relatively small portion of risk.

Governor Brown needs a better understanding of the risks from natural disaster in the Delta.  On an encouraging note, this KPBS report on the climate change conference suggests he is unbiased and knows he still has more to learn about the issue,

The governor said under California law he's not allowed to say which proposal he supports until the report is released.
"In addition, I haven't really read the damn thing. And so I don't have a bias because I don't know what the hell it is," joked Brown.

Westlands has lowest fallowing in a decade in 2011 while Mendota sets unemployment record (according to CA EDD)

Thanks to this year's abundant precipitation, Westlands' 2011 crop report shows harvested acres increased by 139,000 acres compared to 2009 (and about 70,000 acres higher than 2010).  This is the highest level of harvested acres reported by Westlands Water District since 2000.  Cotton increased by more than 70,000 acres with lower increases in wheat, onions, garlic, lettuce, almonds, and pistachios.  The increaed production undoubtedly provided an economic boost to the area.

Despite the increased farm production, according to California EDD, Mendota's unemployment rate averaged a record 42.3% in the first 10 months of 2011, but don't expect any news reports on this shocking statistic despite the fact that unemployment is 4.5 percentage points higher than the 38.7% recorded during the 1st 10 months of 2009 in the peak of the water/unemployment media frenzy.

Of course, I don't believe this estimate now any more than I believed it in 2009.  Unemployment has almost certainly dropped in Mendota.  I have explained before why this EDD methodology for estimating unemployment in small towns; especially farming towns; is enormously flawed and should be ignored.  Maybe now a few more people will believe it.

For a more reliable estimate from a valid survey, the Census Bureau's 2006-2010 ACS estimated Mendota unemployment averaged 21.6% over that 5 year period.  My rough guess is that it is probably around 25% this year, and was around 30% during 2009.

This is probably one too many posts on this topic.  Sorry for the redundancy, but with Westlands crops data and the latest 5-year ACS estimate of Mendota unemployment released this month, it seemed worth an update.

Should we raise income taxes for schools?

I am generally not a proponent of further increasing California income taxes, but this article in the Sacramento Bee about a potential new initiative that would raise income taxes for education and a little research I did over the holiday on school funding has made me more sympathetic to the idea.

I have told many people that I like everything about our move to California almost 4 years ago except the schools and its impact on my children's education.  Some of it has to do with standards, expectations and educational philosophies (schools do so much less to challenge stronger students here than I would like, even before the budget cuts), but I am increasingly convinced that most of it has to do with funding. 

I depressed myself over the weekend by researching per pupil spending at schools in the area and comparing them to the district we moved from in Maryland and the one's where my wife and I grew up in Maine and Ohio respectively.  It is embarrasing when relatives visit over Thanksgiving and your kids are trying to help with fundraisers that are trying to keep a school library open part time, while your nieces and nephews are engaged in all sorts of extra-curriculars and enrichment opportunities that your children's school doesn't even offer.

I found that typical per student spending in the region averages around $7,500 per student.  For the district we moved from in Maryland, the comparable spending was $13,000 per student and for the school districts my wife and I attended it is currently around $10,500 per student.  The educational offerrings and environment in the Maryland and the Ohio/Maine schools we experienced were pretty comparable, teacher salaries were the main reason for the difference between the $13k and $10.5k spending.  California teacher salaries, taxes and cost of living are more compariable to Maryland, but are those schools in Maryland really 73% better than California for spending 73% more per student?

California schools still teach the fundamentals, and I am sure that my kids would not be anywhere near 73% better educated if we had stayed in Maryland.  A lot of the differences are in the non-essentials, but that doesn't mean they don't have value.  I have found California schools to be comparatively joyless places, shockingly devoid of foreign language, music, art, and GT programs at middle and elementary levels.  School lunches are worse, transportation scarcely exists, typical facilities are worse, class sizes are larger, the school day is even 30 minutes shorter than we are accustomed to, and the school year is probably going to get shorter, again.  PE and football is noticably better here, and my kids are less stressed out about school which is nice sometimes (too much homework or stress over a 3rd grader failing a quiz has never been a problem here).

Although teacher salaries are higher than the national average, the data shows education salaries are among the only public employee salaries in California that are not extremely out of line with national norms.  (For example, we have fewer police per capita primarily because we pay police so much more, whereas we have fewer teachers per student primarily because we fund education so poorly).

Enough complaining.  It is a beautiful, sunny California day outside.  UOP music ensembles are playing holiday music out on the quad.  Time to go out and smell some roses.

Negative Equity Improving

The real estate market won't normalize until virtually all of the negative equity mortgages are resolved in one way or another; foreclosure, short sale, mortgage modification, or more gradually by paying down balances, possible home price appreciation, inflation, etc.  I think the negative equity and delinquency rate data available from financial firms like CoreLogic is more interesting and informative than foreclosure filings. 

Today, the Stockton Record reports CoreLogic estimate of Negative Equity for the Stockton MSA in 2011Q3 is 51.1% down from 53.3% in 2011Q2.  Going back into our archives, I see that this has come down 14 percentage points from 2010Q1 when it was reported at 65%.  That's quite a lot of progress.

For the 50 largest metro areas, you can download more detailed data directly from CoreLogic and there are some interesting comparisons in the region.  Stockton looks similar to Las Vegas, negative equity is dropping slower in Sacramento, the East Bay and Phoenix. 

Sacramento was 44.8% negative equity in 2010Q1, and dropped to 40.1% in 2011 Q3.
East Bay dropped from 34% to 29% over the same 6 quarters.
Phoenix dropped  57.5% to 51.9%, Riverside decreased from 53.5% to 43.7%.
Las Vegas dropped from an incredible 74.7% in 2010Q1 to 61% in 2011Q3, similar to Stockton but higher overall.

Here is the depressing part.  At the current pace of decline in negative equity mortages, it would take 10 years to eliminate them in Sacramento and Phoenix, and about 5 years for places like Stockton and Las Vegas that seem to be reducing negative equity mortgages at a faster rate.  It shouldn't take that long to have a more normal market since not all mortgages are severely underwater and at high-risk for default in the short-term and will resolve over time. 

Progress is good, but the road to recovery remains very long.

Cost-Benefit Analysis and the Co-Equal Goals

Cost-benefit analysis is the scientifically accepted approach to weighing the merits of complex public works projects like a $12+ billion isolated water conveyance facility in the Delta or several billion dollars invested in creating tidal marsh and other habitat in the Delta. 

The Delta Reform Act creates a very different framework for evaluating Delta plans, the co-equal goals of water supply reliability and protecting, restoring and enhancing the Delta ecosystem.  Cost-benefit analysis is inconsistent with the co-equal goals, because the co-equal goals single out two of the many types of societal benefits produced by the Delta and requires they be placed ahead of others, whereas cost-benefit analysis measures and considers all potential benefits in a consistent way.  The economic considerations that are left out of the co-equal goals are considerable, and in total greatly exceed the value of water supply reliability (as demonstrated by DWR's own DRMS risk analysis for those who read beyond the executive summary). 

I have been calling for a cost-benefit analysis of these projects since I first got involved in Delta water issues over 3 years ago, and have been encouraged to see it promoted recently from some seemingly unlikely sources, the 5 Delta Counties Coalition as well as a large group of mostly local environmental groups.  I say "unlikely sources" because one might intuitively think that a cost-benefit analysis would show the overwhelming economic value of Delta conveyance to the larger southern California economy, and therefore it would be a tool to show why the local opposition should lose to further the greater economic good. 

If a good cost-benefit analysis were to show that were truly the case and not just a political campaign, I would switch my position of opposition to large, isolated conveyance facility  in the face of the overwhelming statewide economic interest.  The fact that such an analysis does not exist (even one sponsored by water exporters) despite the enormous spending on research and planning for the Delta is pretty interesting.  Even more interesting is that the California Resources Agency has apparantly responded to the Delta Counties' request for formal cost-benefit analysis by stating they aren't going to do it because it is not required by law.  That's a pretty weak excuse in my opinion, since they are supposed to act in the best interests of the State and say they are committed to a science-driven process. It seems to me those guiding principles would compel one to conduct the scientifically accepted analysis that determines whether a project is in the best interest of the state.  Even if the law does not require you to follow the result (for good reasons in some cases such as impacts on disadvantaged communities), the analysis would still be incredibly informative.

I have quieted down on this point this year as I have come to accept the co-equal goals as law and have been working on the Delta Protection Commission's Economic Sustainability Plan.  I think the co-equal goal framework could lead to a good outcome if the constraint on the pursuit of the co-equal goals is taken seriously. ("The coequal goals shall be achieved in a manner that protects and enhances the unique cultural, recreational, natural resource, and agricultural values of the Delta as an evolving place.")  The intent of the Economic Sustainability Plan is to be consistent with the co-equal goal framework, not cost-benefit analysis.  (Although I think there is plenty of evidence to suggest it the ESP would prove superior to BDCP type plan on benefit-cost criteria, that was not the focus.)

Since the BDCP and Stewardship Council have been avoiding the question of cost-benefit analysis for a long time, I was really surprised that the Stewardship Council newsletter summary of the Delta Science Program's independent review of the ESP focused on the following quote from the review panel chair, “This report provides a good starting point to conduct a comprehensive cost-benefit analysis, but its recommendations are not well supported because the report is not itself a cost-benefit analysis.” 

I agree with the criticism, but it is not a valid reason for the Stewardship Council to reject the recommendations in the ESP.  The ESP is guided by the co-equal goals, not a cost-benefit framework.  As discussed above, those two analytical frameworks are incompatible.  The Science Program review panel stated that we addressed the co-equal goals later in the review in response to the direct question. 

Overall, the independent review of the ESP was positive.  More on that later.

[Update:  I originally misused the term ISB (Independent Science Board) in the above paragraphs and confusing the Delta Science Program with the ISB.  The Delta Science Program convened a panel of independent experts to review the ESP.  Those experts are not the ISB which is a standing board of academic scientists.  I have edited the post to fix it, and my apology for the original mix up.]

Indalex Aluminum Plant in Modesto Stripped by "Recyclers"

Time to wake up the blog.  Tales of foreclosure homes being stripped of appliances, fixtures, anything of value have been commonplace in the Valley for years.  However, the story of the bankrupt Indalex Aluminum Plant brings a whole new dimension to the Valley "recycling" industry. 

Here are some snips from articles and commentary in the Modesto Bee, and a photo of the plant after the roof collapsed due to scavengers removing steel support beams.

Jeff Jardine Commentary (Nov. 19)

I don't think the demolition of the former Indalex building in north Modesto is what anyone envisioned when coining the slogan "Recycle — It's Good for the Environment."

Really, who thought you could tear apart a structure and turn it in for California Redemption Value, like an empty Pepsi bottle?

Under any circumstances, it's embarrassing to the community. The blatant theft continues, with women taking lunches to their husbands or boyfriends at noon.

The images of Indalex exude a post-apocalyptic ambience like you'd see in "Mad Max" or any other doomsday flick. At the very least, it reminds me of an episode of M*A*S*H in which Radar O'Reilly mailed home a Jeep piece by piece.

Except these folk are stealing an entire building in broad daylight, and without fear of arrest, retribution or lawsuit. They aren't even sneaky about it. No need to work nights.

They've stolen so much metal that a large part of the roof caved in last week. The place is extremely hazardous both structurally and environmentally.

Yes, the economy is dreadful, unemployment is sky high and they have families to feed. But theft is theft, and it doesn't matter whether they're stripping an abandoned building, pilfering the copper wiring from the heating/AC units atop the United Way, which happened last year, or stealing it from taxpayer-owned parks, which happened last month.

But is it stealing if no one owns the property?  Victimless crime? Sheriff's hands tied as scavengers strip abandoned plant (October 11)

A dozen or so scrap metal scavengers "go to work" every day at an abandoned north Modesto industrial building, ripping the place apart to harvest the tin, iron, steel and other recyclables for quick cash. No one stops them.

Because nobody admits owning the 9-acre property, law enforcement officials say there is no victim, so no one can be prosecuted...

"I started scrapping here maybe eight months ago," said Michael Bennett, who uses a blow torch to melt metal pieces off the walls and roof. "I do it to feed my family. I've got two kids."


Bennett said the first guys who ripped into the building got rich removing perhaps $100,000 worth of copper.
Far less profitable metalsremain, but plenty of folks willingly help themselves to what's left.

"We have an average of 10 to 15 guys a day coming out here," said Rueben Zuiderduin, an articulate young man who said he is a trained chef. "The only reason I'm doing this is because I'm out of work."

Zuiderduin labored with a torch much of Monday to dismantle an iron grate, which he reportedly sold for a disappointing $69. During the last month, he said he hasn't made more than $1,000 off Indalex scrap.

None of the dismantlers were hiding their activities when The Bee visited the site.

Some reported earning an OK living off the building, and they don't think they're doing anything wrong.

"I'm scrapping it out for my Uncle Sam," said one shirtless man who wouldn't reveal his name. "If Uncle Sam sent people here to demolish this place, they'd be in full hazmat suits and it would cost a fortune."

After spending the day ripping apart the building's siding or other metal pieces, the man said he trucks his cargo to "any number of scrap metal places" that pay him $100 to $150 for his haul.

"I treat it like a job. I come in during the morning, work all day, haul off, cash in and go home," the man said. "Nothing here is free. It takes a lot of work to do this."

Zuiderduin also sees his efforts as noble.

"It's a hazardous eyesore, and nobody's doing anything about it but us," Zuiderduin said. "Everybody is happy we're doing this. The companies across the way, the police and the sheriff are fine with this."

He's wrong about that.

Stanislaus County Sheriff Adam Christianson said he has met with angry owners of neighboring properties about the demolition at Indalex, but there's little he can do.  "They're taking property that doesn't belong to them. That's a crime, but without a victim, I cannot arrest them and the district attorney cannot prosecute them," Christianson explained

Roof Collapses (November 16)

Metal scavengers hauled off steel support beams, causing the roof to collapse at an abandoned industrial building in north Modesto. But that hasn't stopped the unauthorized dismantling of the 125,000-square-foot Indalex aluminum manufacturing plant.

While the toxic chemicals, contaminated air and treacherous footing hasn't deterred looters, firefighters and ambulance crews are being ordered to stay outside...

The scavengers are unrepentant about helping themselves to anything of value there.

"It feeds the family," said HectorBonilla, 24, of Modesto, who has been a "recycler" for about four years.

Bonilla said he has been cutting up and collecting tin at Indalex for a week. The two loads he sold Tuesday to scrap metal dealers earned him $400. He anticipated making $200 on Wednesday.

Indalex Plant Catches Fire Again (November 23) 

Modesto fire crews responded to a blaze at the large, debris-filled shell of the old aluminum manufacturing plant at about 3:45 p.m. Wednesday. When they arrived, a 20-foot by 20-foot former paint booth inside what used to be the building was ablaze.

Modesto Regional Fire Authority Division Chief Sean Slamon said when crews arrived some 30 unauthorized metal scavengers were still working at the site, despite the nearby flames. Stanislaus County sheriff's officers had to disperse the people dismantling the plant.

Water Export Disruption is only 20% of the Economic Cost of a Big Delta Earthquake according to Department of Water Resources' DRMS studies

I doubt any of the presenters at the event Metropolitan Water District is hosting tomorrow on the risk of an earthquake to water supplies plan to mention the numbers in the headline, most probably aren't even aware.  I didn't make it up, it comes directly from the Department of Water Resources' DRMS reports.  I had noticed in the phase 1 report that it looked like most of the cost was in-Delta rather than water exports, but it wasn't until DRMS phase 2 was released that it became obvious.  Below is a table from DRMS phase 2 that breaks out some of the costs due to a big seismic event that would flood multiple islands. 

"Statewide costs" are defined as the cost of water export disruptions and costs due to damage to the 3 state highways crossing the Delta.  Even in the big earthquake scenarios that flood 10+ islands, only 3/8 of total costs are statewide, and the majority, 5/8 are in-Delta costs (i.e. losses to property, infrastructure, farm production, local water supplies and transportation, etc.) even if you don't count any state highway related losses as in-Delta losses.  51.5% of 38% is actually 19.57% of total costs from water exports, so I had to round up to get the 20% figure in the headline.

This finding that came out of the DRMS studies (and it was actually in phase 1 too) really makes one wonder why the Department of Water Resources is so focused on isolated conveyance as the answer to the seismic risk in the Delta.  DWR is pushing plans to spend $13 billion on an isolated conveyance that protects 20% of the costs of the big earthquake, and does nothing for the other 80%. 

Wouldn't any rational person staring at these numbers wonder why that risk reduction strategies are so focused on 20% of the cost, and virtually ignore the other 80%.  If it makes sense to spend $13 billion protecting 1/5 of the cost, doesn't it make sense to at least consider what benefit might result from spending $13 billion (or even $2-4 billion) on seismically-resistant levee upgrades that would protect 100% of the costs, not to mention all the potential loss of lives from the big earthquake flood scenario. 

That is what the Delta Protection Commission's Economic Sustainability Plan's levee recommendations say, the best risk reduction strategy is to spend a few billion dollars improving levees beyond PL 84-99 to be seismically resistant.  Even if the DPC ESP has understated the cost as some have claimed,* the DRMS risk numbers suggest it would still be worthwhile to invest enormously in the levees.

I could write about 20 posts on the interesting things one can glean from DRMS phase 2, and I may eventually get around to it.  (another thing that is obvious when you start to deconstruct the results is that improving Delta levees to PL 84-99 with improved emergency response clearly offers the most risk reduction bang for the buck according to DRMS phase 2 tables). 

If it actually used better scenarios, the updated tunnel conveyance and cost instead of the surface canal, and analyzed the "building blocks" individually, DRMS Phase 2 would be by far the most useful Delta study of all.  It is, after all, a cost-benefit analysis.  The Stewardship Council's ISB should do a peer review of Phase 2 like they did Phase 1, as the panel would probably call for analysis of better scenarios.

* regarding levee upgrade costs, the DPC ESP estimates a seismically-resistant upgrade of most Delta levees would be $1-2 billion above the PL 84-99 upgrade cost (which is estimated to be under a billion).  I have received some informal comments that it could be as much as double this, but even if that were the case, it doesn't change the basic argument.

New Ways of Thinking About the Delta

I am unable to attend the Delta Conservancy/Water Education Foundation/Water Contractor sponsored "Changing Our Perspective" Event today.

With no disrespect intended to "Dialogue Mapping," I will suggest (again) that the obvious missing perspective from all the Delta discussions is Cost-Benefit Analysis. 

More data on economic recovery in the 2 Californias

Although the data lags 6 months, the BLS County Employment and Wages report is one of my favorites because it is real, full population level data from tax records, as opposed to sample based estimates like in the monthly job reports that can be volatile and unreliable for counties and smaller geographies.

The latest release of data from March 2011 detailing tax filings from the 322 largest counties in the U.S., the release states,

Employment declined in 53 of the large counties from March 2010 to
March 2011. Sacramento, Calif., had the largest over-the-year
percentage decrease in employment (-1.6 percent)... Montgomery, Ala., and
Atlantic, N.J., tied for the second largest employment decrease,
followed by San Joaquin, Calif.,

On the other end of the spectrum, Santa Clara County (Silicon Valley) has been posting double digit gains in average wages for the past year.  In this report, Santa Clara had the 2nd highest wage growth of 322 counties at 12.4% (the past few reports they have been number 1, so I guess they are slacking off).

Overall, job growth in Silicon Valley has been strong but not growing anything like the income/wage data, and local unemployment is still above the national average.  There is an enormous boom going on in technology and information, but so far it doesn't seem to be spilling over much into hospitality, construction, retail, and the lower paying, lower skilled service areas - even in the hottest local economy in the state.

Does Water Efficiency Create More Jobs Than Conveyance?

From Tranforming Water: Water Efficiency as Stimulus and Long-Term Investment, a report done by David Mitchell at M.Cubed (with co-authors) who has done consulting work with David Sunding and the water contractors in the past.

Our consultant team modeled a wide range of water/energy efficiency program possibilities, across all water‐using sectors and involving indoor, outdoor, and water system efficiencies. This modeling clearly confirms that economic stimulus benefits could be broadly distributed throughout the national economy:

1. The economic output benefits range between $2.5 and $2.8 million per million dollars of direct investment.

2. GDP benefits range between $1.3 and $1.5 million per million dollars of direct investment.

3. Employment potential ranges between 15 and 22 jobs per million dollars of direct investment.

Thus, direct investment on the order of $10 billion in water/energy efficiency programs can boost U.S. GDP by $13 to $15 billion and employment by 150,000 to 220,000 jobs and could save between 6.5 and 10 trillion gallons of water, with resulting energy reductions as well.

Yesterday, David Sunding presented the employment effects of conveyance, about 10 jobs per $1 million invested, and estimated operations and maintenance of conveyance would create about 7 jobs per million spent.

Comparing 15-22 jobs per million dollars from efficiency investments to 7-10 jobs per million invested in conveyance, it looks like efficiency delivers double the job stimulus bang per buck as new conveyance.  

Whether it is building canals, low flow shower heads, schools, stadiums or anything; the problem with the one-sided job creation stimulus studies is that there is always an alternative use of the dollar, a cost to getting the dollar from someone else's pocket, and they are almost always presented without proper context.  It is something of an occupational hazard as an applied economist, we are all guilty of it to various extents.

On a positive, somewhat tangential note, I was very pleased to hear Jerry Meral announce at yesterday's BDCP meeting (in response to questions) that David Sunding is going to be working on more comprehensive analysis of BDCP effects.  Previously, I had heard that the contractors weren't interested in any real economics, so this is an interesting development and we will see if we get the real cost-benefit analysis that is desperately needed. 

Hopefully, he is allowed to properly define the alternative scenarios, rather than letting the water contractors frame the questions.  Nobody knows all the aspects of California water economics better than David, and he is generally pretty careful with the numbers even when the contractors are paying the bills.  To improve and create trust in the final product, Dr. Meral ought to form an advisory group (or another workgroup) to help ensure that David can frame the analysis correctly, define the alternatives fairly, and that the results are released no matter how it turns out.

BDCP Planning Creates 3,550 jobs in California

Understandably, lot's of people asked me what I thought of David Sunding's surprise (to me) presentation at yesterday's BDCP meeting on the employment impacts of building conveyance.

Obviously, I thought he was overly conservative.  He should also count the $250 million the water contractors will have spent on consultants and planning.  I pumped this spending through the IMPLAN model today, and it calculated the creation of 3,550 mostly high-paying jobs in California.  (I should say job-years, since the new way of reporting results in these booster studies is to report a single job that lasts 5 years as 5 jobs.  High-speed rail is especially bad about this.)  And that isn't even counting all the millions spent on lawsuits that will be on the way creating even more jobs.  Even if BDCP fails to build anything, it has been a consulting jobs bonanza for the Sacramento area.  More plans, more lawsuits, more jobs! 

Despite the sarcasm, I don't actually have a problem with the content of this presentation.  The "conveyance will create thousands of jobs" study was inevitable, and I would rather see it from him than another source that would blow it out of proportion and not properly point out the limitations and caveats.

I suppose I need to get busy calculating all the jobs created from building levees now...

Which of the PPIC Delta alternatives is most like the Economic Sustainability Plan?

Critics are calling the Economic Sustainability Plan a status quo plan.  That isn't right, but I understand how it can be misperceived since it is starting with the Delta economy and it's goal is to determine the best future for the Delta (that is consistent with the state's "co-equal goals" of water supply reliability and ecosystem restoration).

For California water wonks, it might be easier to see the ESP's recommendation through the familiar framework developed by the PPIC.  I recommend everyone go back and read chapter 8, Evaluating Delta Alternatives, of the 2007 Envisioning Futures PPIC report on the Delta.  Before reading further in this post, open up chapter 8 in another window, and go to Table 8-2, pages 166-167.

Make 2 adjustments to Table 8-2 for things that have changed since 2007.  First, go to alternatives 4 and 5, cross out costs of $2-3 billion and replace it with $12-15 billion since the estimated costs of isolated conveyance alternatives has gone way up since 2007.  Second, due to the co-equal goals being state law, you can rule out alternatives 7 and 8, because the water supply is way too unreliable for current law.

With those 2 adjustments, any reasonable person viewing the Delta problem and accepting this framework has to go back and take a much harder look at alternative 2: Fortress Delta (Dutch Standard), as well as alternative 6.

The recommendation in the ESP is not status quo (that is alternative 1).  It is most similar to alternative 2 with some significant environmental enhancements that should total less than an additional $1b (think BDCP with less tidal marsh and some compromise solutions on flood/fish bypasses). 

When you go to Table 8-3, you see alternative 2 was primarily rejected due to "great expense."  We are arguing that you could get an environmentally improved version of alternative 2 for an economically feasible $5b or less, as opposed to the current focus on an infeasible $15b isolated conveyance plan with really risky outcomes for both the Delta and the environment.

You could also argue that the 2009 Delta Reform Act also requires you to add a column to the PPIC framework for the Delta as a place/economy.  That additional adjustment further strengthens our case.

No Bananas in the Delta? MC Hammer shows DWR experts are wrong

MC Hammer, the rap-pop icon, is among the biggest celebrities of the over half million people that live in the Delta.  He lives on a few acres near Tracy, and he sometimes blogs and tweets about his beloved banana plants.  On the A&E reality show "Hammer Time", you can see his bananas, and he also takes his dad and kids fishing in the Delta.

I mention this because I have been working my way through lots of correspondence on the DPC Economic Sustainability Plan.  The Department of Water Resources wins the detail prize with 58 pages of single spaced comments.

In one surprisingly lengthy section of comments, DWR staff makes a very big deal out of the fact that we have included bananas in our appendix list of the 80 different crops in the Delta recorded in our database in an apparant attempt to discredit us and make us look silly.  They are unaware of bananas in the Delta and say they have been studying the area for years.  So, I had our analyst track down and confirm our less than 1 acre "crop" of bananas, and he tracked it to a location off 205 near Tracy.  It isn't MC Hammer, but apparantly we have some very small scale commercial growing of banana plants, perhaps to serve hobbyists like MC Hammer, or perhaps someone is trying to appeal to the growing number of locavores who crave tropical fruit.  All we know is someone is making pesticide filings for very small amounts of bananas, that it has no bearing on our results at all, and our crop data is more detailed than DWR.

But thanks to DWR picking through all the fine print, I now have learned some new Delta trivia and have the opportunity to be inspired to write this post by MC Hammer's own banana blogging (hat tip to VQ).

I love these trees (plants)...they multiply themselves continously. Each of these groups started off as one plant. The more you cut them back, the taller and stronger they grow....

In life, it is the moments that we are cut back, that we should look forward to new growth in our lives. Bigger, better, stronger and multiplying ourselves by sharing what we have learned with others....

--Hammertime

Update on the Economic Sustainability Plan for the Delta

A 15 page draft executive summary of the Economic Sustainability Plan is now available as part of the August 9 draft.  The previous drafts did not have an executive summary because the draft was too incomplete and preliminary.

The August 9 draft makes some adjustments to the recommendations in the second draft, all of which are included in the executive summary.  The individual chapters can be downloaded here, including chapter 4 on levees and flood risk that is getting the most current attention.  There are four public meetings around the Delta over the next two weeks if you want to hear more and make comments.

There are a few elements of the plan that are still under development for the September/final draft.  The most significant adjustment will be in the Legacy Community chapter which is getting reorganized with new content including better graphical illustration of concepts.  We are also fine tuning some parts of the data analysis in the agriculture chapter and developing a visual concept of what the recreation strategy could mean for a detailed area in the Delta.  None of these will change the broad recommendations in the plan, but will add detail and support. 

Should the Government Sell REOs in bulk?

The Obama administration seems to be coming up with a plan to accelerate that trend by packaging foreclosed properties together and selling them off in bulk to investment groups who will rent them out. 

I don't completely understand the logic behind the plan, and in defense of the administration, it is an RFI (Request for Information) which suggests they are still figuring out the details themselves.  It is supposed to help make rents more affordable, and although it might help speed properties into the rental market a little faster, I don't think it will do anything to help rents in the long run.  I think it is mostly about trying to help the GSEs unload their REO property, and my cynical side fears that it is a plan pushed by big private equity investors to get them access to the nice returns that can be had picking up foreclosure properties around here as rentals.  Will this be good for taxpayers by cutting the losses for Fannie/Freddie/FHA on their foreclosures?  Maybe.  I can't see how bulk sales will bring higher prices for the homes for the GSEs, but it may cut their transaction and holding costs on the properties so they net more in the end.  That's a big if. 

My first impression is that this is a bad idea for hard hit areas like the Valley.  Lots of these homes are going to the rental market anyway, some by local investors and we also have out of towners with local agents buying investment property for them.  Others are selling to local families that are buying affordable foreclosure homes, and that is the silver lining in this whole mess.  Why would we want to reduce that opportunity for locals and pass it on to some hedge fund in New York just because there is a chance that Fannie/Freddie can cut their loss by a whisker.  In the long-run we end up with even more out of town landlords.

I might be a little more supportive of it if the investors who acquired property in this advantageous way were required to include a reasonable and fair, lease-to-own option for the tenants. 

And of course, we shouldn't give up on more effective loan modification plans.  For the few folks I know who have been successful with this, the modification effectively turn the homeowners into renters of their current homes but without the damage and displacement of the foreclosure process on families or neighborhoods.

These are just my initial thoughts and it will be interesting to see the feedback to the RFI and the eventual plan.  I doubt this will be the last post on this topic.

July 2011 California and Metro Forecast

With the weekend, I forgot to post that we released our July 2011 California and Metro Forecast last Friday.  It was interpreted as gloomy, which it is, but it is actually moderately optimistic compared to some of the other forecasts for the Central Valley, particularly Sacramento, and the deepening pessimism about the national economy.  Click here to see the summary.

I remember last fall being amazed that the 10-year U.S. treasury bond was yielding a mere 2.5% during a supposed recovery, and what that said about the general lack of confidence in the recovery.  That didn't last long, and the yield has been a still low 3-3.5% for most of the year.  Today, it closed at 2.4%.  I'm not ready to predict another recession, but it is a safe bet that the October 2011 forecast will be lower.

Economic Sustainability Plan Update

The latest version of the Economic Sustainability Plan was posted last Thursday afternoon, and will be presented to the Delta Protection Commission (DPC) this Thursday in Stockton.  I am the principal, but have had a lot of help.  A few notes:

This is the first complete draft.  It includes actions, strategies, and recommendations in the final chapter which is posted on the DPC website.  All the chapters can be downloaded individually.  The recommendations are only a few pages, but too long to repost here. 

At this point, it is important to remember that the conclusions and recommendations have not been approved by the DPC.  They are consultant recommendations based on our research, interpretation of the evidence, and mandate to develop a plan that enhances and ensures economic sustainability for the Delta while also being consistent with the co-equal goals of the Stewardship Council's Delta Plan.  Since the document currently stands at 244 pages (despite moving a lot of material to appendices that will be posted soon), the last two chapters will ultimately be revised into a summary version of the Economic Sustainability Plan.

ACWA misses "de" quote

Delete the "de" from modest and the result is most. 

A recent ACWA report about the draft Economic Sustainability Plan from the Delta Protection Commission had the following incorrect quote.  "Most agricultural impacts could be offset by recreation economy gains."  The concluding chapter of the draft plan actually states,  "Modest agricultural impacts could be offset by recreation economy gains." 

Those two letters changes the meaning of the sentence quite a bit.  Maybe it is my turn to write a scathing letter to John Laird.

(The last sentence is a joke.  If you knew the pain I have endured this month for a would/could mistake that was quickly corrected, you might find it funny.)

Stockton water-technology start up moves to Milwaukee

From the inbox.  It is rare that an obscure article in the Milwaukee Business Journal touches so many different issues important to my job and this blog.  Check it out while I scream in frustration.

Water technology company plans Milwaukee plant

A California water-technology company is planning to establish a manufacturing facility and offices in Milwaukee that could create up to 300 jobs.

American Micro Detection Systems Inc., Stockton, Calif., is looking for a Milwaukee site for a $7.5-million, 2,000-square-foot manufacturing, testing, assembly and shipping facility, said Robert Keville, chairman, president and CEO...

The company, established in 2003, manufactures equipment that tests water, oil and other fluids for impurities and heavy metals...

Keville said he has not chosen a site. He said he wants the building to be near one of the two places where the University of Wisconsin-Milwaukee is establishing its School of Freshwater Sciences...

Keville said the city of Milwaukee has offered forgivable loans to the project and the state of Wisconsin is offering tax credits...

Keville said Milwaukee is attractive because its local companies can supply the services AMDS needs and because of the efforts to brand that area as a worldwide hub of companies whose products involve water.

“It’s in its infancy,” Keville said, “but it is only going to grow. Lake Michigan isn’t going to get any cleaner by itself.”

Meeusen said AMDS’s planned move to Milwaukee is further proof for skeptics that Milwaukee can become a international seat of water technology companies.

“If we were located on Lake Superior, we would call it Lake Pretty Good,” he said. “We just never believe that we are anything, and I find that very frustrating. The fact of the matter is Milwaukee is a water hub.”

Rental Housing in San Joaquin County

The Business Forecasting Center recently published a brief report on the rental housing market in San Joaquin County.  Despite the collapse in home prices that has made purchasing homes very affordable, we found rental housing in the area is still quite expensive and hard to find.

I am pleased that the report has sparked a local discussion of an important issue that isn't getting enough attention in this crazy housing market.  See these articles from the Stockton Record Sunday and today.

Reed Fuji:  High Rents Tied to Building Choices

Michael Fitzgerald: More Could, Should be Done to Revive S.J. Rental Sector.

The 4th of July and Delta Levees

[Youtube video of Delta fireworks removed for faster blog loading.]

Should Delta levees be upgraded and then repaired if they fail? Should significant areas of open-water caused by permanently flooded islands be part of the Delta’s future? It is a reasonable question and as one who believes in the value of cost/benefit analysis, I like the set-up of the levee decision analysis paper from Suddeth, Mount and Lund of UC-Davis. Unfortunately, their conclusion that the majority of Delta levees aren’t worth the investment or recovery is way too strong given the relatively low assumed values of land, infrastructure and the variety of things that they have not measured, including recreation impacts. Luckily, the editor of the SF Estuary journal appears to have forced them to include more sensitivity analysis results before publishing their paper, a result I consider better than outright rejection in this case since we can see more scenario results from a paper that was already influential.

This picture from their paper emerged from a scenario with better land and infrastructure values, and is enough to move the conversation forward.  The key result is the 6 central Delta islands that would be converted to open water over time.

Jeff Mount, a member of the Stewardship Council’s independent science board, apparently agrees, since he put the same map forward in a letter to the Stewardship Council. In my view, their earlier analysis did establish something useful: the discussion of do not resuscitate lists can be narrowed down to these six islands, plus maybe 2 or 3 very small islands scattered around the Delta like Deadhorse or Fay. (Note: If they considered the new Stockton Water Supply project, Empire Tract (#16) would be removed and it would be a five island open water area.)

In the Economic Sustainability Plan, I directed our team to take a serious look at this future open water configuration.  Given the absence of key infrastructure in this area, few residents, and low-value agriculture, these islands certainly rank the highest on the candidate list of places we might allow to be converted to open water.  On the downside, there are concerns about the impacts on levees on surrounding islands, water quality concerns related to increasing organic material for municipal and industrial water intakes. 

I thought recreation would be the wild card, and have been a little surprised at the almost universally negative response from recreationists, owners of recreation related businesses in the Delta, and recreation experts who have been studying the area for years. 

One of the first things I heard was, “It will ruin the 4th of July.” I am usually out of town on the 4th, and didn't know Barron Hilton has been hosting a large fireworks show off Mandeville Tip since 1958 near his duck club on Venice Island.  This location is directly in the middle of this open water scenario.  It is the biggest weekend of the year for Delta recreation.

The next thing I learned is that this area is the most popular area for boating, and that about half of Delta marinas surround the immediate area and in most cases would be potentially negatively impacted by the loss of wind/wave protection and the necessary levee improvements on adjacent islands. I didn’t go to all the recreation focus groups, but my understanding is that it got a very negative reaction from boaters and marina owners who anticipated high waves and winds would drive them elsewhere, possibly out of the Delta all together. Since this is the most popular area for boating and boating is by far the most important recreational activity to the Delta economy, it seems this plan could have harmful negative economic effects that aren’t considered in the Suddeth et. al. models. Few people seemed to think that sailing or other recreational opportunities would fill the void.

The last thing I learned is that it could be bad for hunting. I spoke with one farmer who grew low-value crops in this area, and I asked why he didn’t grow different crops. He explained that corn prices have in fact made growing corn high value, but the real answer was that in the Delta there are farmers, farmers who also hunt, and avid hunters who do some farming when it isn’t duck season.  He considered himself in the latter category, and insisted he would grow corn if it were 10 cents a bushel, always has, because it leads to good duck hunting and that is the top priority.  It seems there is more underlying the value of land than just the value of crops.

So, how much is all that worth? I don’t know for sure, but it is a potentially big deal, especially if it really is as negative for boating as our initial feedback suggests. We have learned that levees that protect low value agriculture may be supporting high-value recreation.

Personally, I would like there to be less talk about Delta recreation/tourism as a driver of income and jobs, and more talk about it just being unique and fun. That’s worth something, but it isn’t anywhere in the computer models about Delta levee decisions. Perhaps it should be.

Have a safe and happy 4th everyone!

[Youtube video of crazy Delta jet skier removed for faster blog loading.]

Impacts of Isolated Conveyance on Delta Agriculture: Update

I have been too busy to follow much of anything for a few days, but a concern has been raised to me that the $200 million agriculture loss from isolated conveyance reported in the post below and a newspaper article is an exagerration because it reflects a heavy pumping scenario, not what is actually proposed in the current BDCP.  This is a good point, and I agree that a "would" should have been a "could" or presented as a range and I take responsibility for that slip.  It will be corrected in presentations later this week, similar to what is written below. 

If forced to use a single number, I am using an estimated impact of agricultural revenue losses of $50 million.  How is it supported?  The models that have been developed for the report estimate annual losses ranging from $27m under current south Delta salinity standards (0.7 EC) to $64m under proposed  (1.0 EC) salinity standards currently under consideration by the SWRCB (I note that these numbers are revised modeling results with lower numbers than I was provided to include in the 1st draft).  In addition, the footprint of the tunnel conveyance is 8,000 acres which will be primarily farmland in a zone that currently averages $2,075 per acre.  Assuming some of it takes out non-farmland, a reasonable estimate is another $8m to $16m from the footprint.  That gives you a reasonable estimate of revenue losses of isolated conveyance to Delta agriculture (assuming it is operated as proposed in the draft BDCP) of $35m to $80m.  Thus, I am comfortable using $50m as a discussion number, and have rewritten the summary of this results as:

"If operated as proposed in the draft BDCP, isolated conveyance would decrease Delta agricultural production by about $50 million, and would have a negative impact on tourism development and the rural quality of life.  If a large isolated conveyance were operated to maximize water supplies, south Delta salinity could triple and agricultural production losses could increase to $200 million.  The higher scenario illustrates the risk of a large capacity conveyance to the Delta since there will be financial and political pressure to increase exports to high levels."

I also emphasize that it is a draft, results continue to be refined, but that the impacts are in fact very consistent with those Prof. Howitt estimated in 2007; $70m loss, up to $200m in high scenarios. Not much difference in this number, but the adjectives we use and our overall view of the situation is very different.

I don't intend to post every little update and revision to this report as it progresses through drafts, but felt this clarification was needed now given a concern that has been raised.

Update:  There was a typo in the original post, the upper level of salinity loss is $64m but was originally reported as $54m. 

First Administrative Draft of the Economic Sustainability Plan for the Delta

[Update Note: This is a description of preliminary results from a first, incomplete draft.  For up to date information on the most recent complete drafts of the plan, visit the Delta Protection Commission website.  I also deleted a paragraph that listed key contributors, because several of the sub-contractors have been bothered by people associated with the BDCP for their names appearing on this blog that makes critical comments about the BDCP.  In hindsight, I shouldn't have deleted the paragraph, but I can't recover it now.]

As some ValleyEcon readers know, I am the PI on the Delta Protection Commission's Economic Sustainability Plan (phase 2).  The first administrative draft of the ESP report was posted this afternoon in preparation for a DPC workshop at the Port of Stockton on June 23.  This contract was only awarded in March, and a stellar research team has been working hard to get us to this point in under 3 months.  It is work in progress, and some portions are incomplete.

...
The initial list of key findings is below:

·         Delta agriculture supports 13,700 jobs, $1.1 billion in value-added, and nearly $2.8 billion in economic output in the five Delta counties.  In addition, Delta agriculture supports nearly 23,000 jobs, over $1.9 billion in value-added, and over $4.6 billion in economic output in the state of California. (chapter 7)

·         Delta recreation and tourism supports 2,700 jobs, $152 million in value-added, and nearly $284 million in economic output in the five Delta counties.  In addition, Delta recreation and tourism generates over 4,900 jobs, $324 million in value-added, and $600 million in economic output in the state of California.  (chapter 8) 

·         Delta agriculture supports 5 times more jobs, and 7 times more value-added (income) than Delta recreation and tourism.  While recreation is an important supporting economic sector and adds to the Delta’s unique quality of life, it is unrealistic to expect that recreation and tourism could replace agriculture as the Delta’s economic driver.  (chapters 7 and 8)

·         All available indicators for Delta recreation suggest Delta tourism has been flat for one to two decades before the onset of the recession.  Regional population growth is an opportunity, but does not by itself guarantee growth in Delta recreation and tourism.  Delta boating and fishing increased rapidly in the 1980s and previous decades, but has slowed since.  Improved water quality and new investment in recreation facilities and hospitality enterprises are frequently cited as being essential to growing recreation and tourism in the Delta. (chapter 8)

·         Improving the visibility and recognition of the Delta as a place will benefit Delta tourism and agriculture.  The Delta Protection Commission should complete its feasibility assessment of National Heritage Area designation. (chapter 8)

·         Delta levees are critical to economic sustainability.  The Delta levee system protects critical water, energy, and transportation infrastructure for the state and regional economy, and supports all aspects of the Delta economy.   (chapter 4)

·         Delta levees are in better condition than often portrayed, but still need investment.  As opposed to frequent reports that cite over a thousand miles of “fragile” levees in need of billions in repairs, there are actually about 370 miles of Delta levees that need roughly $500 million in investment to reach appropriate standards.  This goal could be reached with strategic use of existing bond funds. (chapter 4)

  

·         Population trends in the primary zone are relatively flat, but uneven across regions.  North Delta population increased over the past decade, whereas South and East areas of the primary zone declined in population.  In contrast, the secondary zone population increased 25% between 2000 and 2010.  (chapter 2)

·         The current capacity of Delta tourism infrastructure and enterprises is insufficient to capture significant income from increased visitation.  If the goal of the Delta Plan is to increase Delta tourism, there needs to be greater incentives for investment in tourism businesses, not increased regulation of “covered actions” in the Delta that discourage these investments. (chapter 8)

·         Implementing the November/December 2010 draft of the Bay Delta Conservation Plan would be devastating to the Delta economy.  It would cause a 30-50% decline in Delta agriculture, and could decrease Delta recreation and tourism.  (chapters 7 and 8)

·         Large, isolated conveyance would decrease Delta agricultural production by nearly $200 million, and negatively impact Delta tourism.  Increased South Delta salinity would cause large decreases in the production of high-value truck crops, and also negatively impact high-value vineyards.  Increased salinity would also negatively impact boating, and the large scale industrialization of the Sacramento River with five large new pumping plants and intakes near historic Legacy Communities would have negative impacts on tourism development and the rural quality of life.  (chapters 7 and 8)

·         The BDCP proposal to create 65,000 acres of tidal marsh habitat would reduce annual agricultural production by a minimum of $84 million, and generate little if any compensating tourist spending.  The $84 million annual loss in agricultural production assumes targeted land acquisition to minimize impacts, and annual losses could exceed $100 million if agricultural encroachment is not minimized.  (chapter 7)

·         Several influential studies of Delta issues have significant errors in economic analysis.  The most notable problems are various PPIC reports that have misled decision makers about the Delta economy and inaccurately portray the economics of the peripheral canal and investment decisions in Delta levees.  (chapter 5)

DRMS Phase 2 report released

Interestingly, I just discovered the Department of Water Resources released the Delta Risk Management Strategy (DRMS) Phase 2 report on Monday when searching for a tidbit of information from DRMS Phase 1.

June 13, 2011 - The Department of Water Resources has released the Delta Risk Management Strategy Phase 2 Report and Executive Summary. The Delta Risk Management Strategy (DRMS) Phase 2 report builds on the knowledge gained from the DRMS Phase 1 assessment to evaluate scenarios which could reduce the risks to our State economy. The methods include a selection of improvement strategies considered at the time of the study in 2009; however, today, there are more options in play. The information in the report provides insight to methods that may be used by the Department and others to manage risk.

Among the obvious signs that the study is from 2009 are that it uses a $4.9 billion cost estimate for a peripheral canal that is dated from 2007.  The results, and I have not reviewed to see how reliable the calculations are, show that improved levee strategies and isolated conveyance rank very close, and anyone who would interpret the results as saying isolated conveyance is best should realize that any net benefit advantage from isolated conveyance completely disapears if one uses more current cost estimates.

There are many other curious aspects of the report, such as its combining conveyance scenarios with putting highways on piers and armored infrastructure corridors that confuse the issues.  At this point, the phase 2 report will probably have little impact on the debate.  However, it is hard to use the DRMS Phase 2 results to justify a peripheral canal over upgrading levees in the way that many spun Phase 1.

The timing and low profile of this release is probably the most interesting aspect of it.  Very odd.  I would be interested in hearing more about that if anyone knows and is willing to share.

Water and Jobs in the San Joaquin Valley, again...

Since Devin Nunes introduced H.R. 1837, I don't think a day has gone by when someone hasn't asked me to write a letter, op-ed, blog, press release, t.v. show, speak at a meeting/hearing, etc.  I've even had people try to make it easy for me by sending ghost-written letters and op-eds for me to approve complete with folksy quotes and flattering self-references (sorry, but I write my own stuff). 

I did have an intern call his office a few times to get a source on the 25,000 to 30,000 jobs created claim in the bills press release and promotional materials, but we never got a call back.  I think I saw the fisherman respond by pulling their own billion dollar propaganda back out, and it makes me feel as if the debate has taken a few steps backwards to a place I thought we left behind.

I typed up a FAQ style handout for a meeting earlier today, and posted it to our website here.  Not much new information, but hopefully this format is useful to the folks asking for something new.

So, what do I think of the bill anyway?  I have been interested in all the comments about how Nunes is undermining the BDCP, suggesting that his bill is bad for his own constituents.  Yes, he is undermining BDCP, but BDCP isn't shaping up to be a great deal for South Valley agriculture anyway.  The costs are much higher and the additional water is much lower than they thought it would be when the originally signed on to look at it.  I think South Valley ag. is better off under the current biops (less water than they want, but at least most of it is cheap) than under an unsubsidized BDCP (a little more water, but all the water is a lot more expensive).  If that's the case, then the best strategy for them is to try to change the pump operations through legal and political channels.

Unemployment Friday: CA down to 11.9%, but other states dropping faster

In today's report, some people are trying to make something positive of dropping below the 12% unemployment threshold to 11.9%.  They shouldn't get too excited.

What would be exciting is if we were seeing the kind of declines seen in places like Michigan and Nevada.  Unemployment used to be higher in Michigan than in California, but it is down to 10.2% there from a peak in the 14s, and Nevada is down to 12.5%, dropping 0.7% in a single month and it also peaked in the 14s.  If these trends continue, Nevada may drop below California and leave California with the highest unemployment rate in the U.S.  And then we will see a new wave of stories on California's downfall.

However, unemployment rate movement is being driven more by labor force changes than employment growth.  Michigan and the auto industry is rebounding, but it's labor force is also shrinking, down 6% over 4 years.  So, it is recovering a little better than California, but not as much as the unemployment rate would lead you to believe.

And Nevada.  The labor force there has declined by 4% over the past year, and that is what has driven the unemployment rate from 14.9% to 12.5% in a year, although tourism and the casino's are slowly picking up, employment is still down.

So when California's unemployment rate becomes tops in the nation later this year, it is an indicator that our economy stinks and recovery is lackluster.  But it also means that people aren't giving up on California's job market (whether by moving or leaving the workforce) at the same pace as Nevada or Michigan.

Within California, some of the big inland areas like Sacramento and Riverside are showing large labor force declines too, but only about half that seen in Nevada.  This month's job report mostly reflects the same patterns.  Silicon Valley, Disneyland and Hollywood are recovering.  The housing market continues to keep inland areas down; although there continues to be signs in the Valley of solid growth in agriculture, transportation/logistics, and food manufacturing; just not enough to overcome the housing and local government crash.

Squatter's Rent/Stimulus

A J.P. Morgan Chase analyst estimates that the value of "squatter's rent" will total $50 billion in the U.S.  That's a significant sum, about 0.4% of total U.S. personal income.  (Note: Squatters rent refers to the value of free "rent" enjoyed by those living in homes in foreclosure or seriously delinquent on a mortgage.)

Last spring, I made a similar estimate for San Joaquin County although I called it "squatter stimulus."  At that time, I estimated the squatter stimulus was equal to roughly 3% of the County's personal income, based on the 20% of serious delinquency rate on San Joaquin County mortgages at the time, and the estimated rental value of a typical house in the foreclosure process. 

In a bit of good news, the serious delinquency rate in San Joaquin County has declined to 15% according to the lastest data I saw.  This suggests that the total of households leaving delinquency due to a completed foreclosure, short sale, or mortgage modification is greater than new delinquencies.  Before getting too excited about the decline in delinquencies, it is important to realize that a typical historic delinquency rates on mortgages is about 2% (and a lot more of these delinquent mortgages were successfully resolved without foreclosure since a lot of these owners had equity in the homes creating a strong incentive to sell or get current).  So we are likely past the peak, but there is still a long, long way to go.

Declining delinquencies also reduce the amount of squatter stimulus in the County, and I suspect it is now about 2% of personal income.  Obviously, squatter stimulus is not a sustainable or desirable basis for consumer spending, but it is a factor to note when considering how local consumer spending will evolve in the recovery.

From the San Francisco Chronicle on squatter's rent:

"Squatter's rent," or the increase to income from withheld mortgage payments, will be an estimated $50 billion this year, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. The extra cash could represent a boost to spending that's equal to about half the estimated savings generated by cuts to payroll withholding in December's bipartisan tax plan.

"We've had a lot of government transfers to the household sector; this is a transfer from the business sector to households," Feroli said. "It's a shock absorber that has helped the consumer ride out the storm."

Delta Tourism article in Sac Bee

Overall, this is a good article and I generally agree with the main points in the article in the report.  Public access to the water in the Delta could/should be greatly improved, and there is a lot of growth potential for recreation in the Delta.

But there is an incorrect number in the article that could be misintepreted.  The Sac Bee article states.

Mandated by 2009 water reform legislation, the report says visitor spending in the Delta generates $784 million annually and supports 15,000 jobs. There is potential for much more if only there were more trails, campsites and waterfront access.

Here is what the report actually says.

Economic Activity in the Delta. The purchase of equipment and supplies for day outings helps support local economies.

Visitor spending in the Delta and Suisun Marsh counties’ recreation, art, and entertainment sectors is about $784 million annually, generating almost $388.7 million in earnings and supporting over 15,000 jobs.

Did you notice the subtle difference?   It's easy to see how this was misinterpreted by the reporter.  I think it would be by most people.

I have no idea why this number is even in the State Parks report.  The numbers are correct, but have little to do with the Delta.  It is the total of arts, entertainment, and recreation in the 5 counties that include the Delta.  I checked the numbers, and about 20% of the total is the Sacramento Kings NBA team.  The arena in Natomas may be in a flood zone, but it isn't in the Delta.  The next biggest things are 6 Flags amusement park in Vallejo, and scores of golf courses, fitness clubs, bowling centers, and arts related organizations.  Marinas are the biggest Delta-related piece of this and employ about 300 people in the 5 counties, mostly in the Delta. 

The impact of tourism and recreation in the Delta is a very hard thing to measure, and it will be important to get the number right for some of the current and upcoming policy discussions surrounding the Delta.  I am part of a group that is developing a more reliable estimate, and will share that once we have it.  A very rough ballpark would be $250 to $500 million, and the largest and fastest growing component of that spending is gasoline. 

Even defining Delta tourism and recreation is tougher than you might think.  "Sesame Street Live: Elmo's Healthy Heroes" is coming to the Stockton Arena this month and is in the legal Delta.  Would you count it?

Scranton, PA is America's Least Miserable City

Given all the local commotion about the Forbes miserable city list, I assigned a student intern to compile the data Forbes used and reverse engineer the list. Recall that Stockton topped the list that is reviled in the Valley with and Modesto, Sacramento and Merced also rating in the top 5 of Forbes misery.

Forbes didn't publish the full ratings or data, just the cities at the top of the misery chart.  We wanted to see the other end of the list, the least miserable places.  Our intern, Jesse Neumann, was successful in replicating 8 of the 10 indicators - we couldn't figure out how they measured losing sports teams and political corruption - but we were still able to match the ranking very well.  We found the full ranking to be entertaining and insightful, and my friend in university PR thought it was interesting enough to put together a news release (see below). 

Click through the link at the bottom if you want to see the full rankings in Jesse's report and see where your hometown ranks.  (Note to Sacramentans:  Sacramento actually fared a little better, down to 8th most miserable in our version, primarily because we didn't have the sports indicator so the Kings steady losing wasn't dragging you down.)

America’s Least Miserable Cities: Scranton, Pennsylvania is America’s least miserable city according to a replication of the Forbes magazine misery index (May 5, 2011) -

Earlier this year, Stockton was named the most miserable city in the United States by Forbes Magazine and was followed closely behind by Sacramento and Modesto. But what is the least miserable city in the United States according to Forbes?

Well, it's Scranton, Pa., according to a replication of the Forbes magazine miserable cities rating done by the University of the Pacific's Business Forecasting Center.

Forbes has rated Stockton, California America's most miserable city 2 of the past 3 years, but did not publish the full rankings of metropolitan statistical areas (MSAs). For the 100 largest MSAs in the U.S., the Business Forecasting Center compiled the data for 8 of the 10 indicators used by Forbes, and was able to closely match the published Forbes misery rankings.

"We were interested in what cities were on the other end of the list," said Jeff Michael, director of the Business Forecasting Center (BFC).

"I'm graduating soon, and I wanted to know where I should go to escape my misery," added BFC student researcher Jesse Neumann.

Scranton, the setting of the hit television series "The Office," was a surprise to the BFC researchers. Scranton stood out in the misery rankings for having the smallest decrease in home values, and exceptionally low foreclosure rates. "With home prices in Scranton so low for so long, who needs a mortgage?" Michael said.

Despite being the most and least miserable cities, the BFC researchers observed that Scranton and Stockton had some things in common. Both metro areas began the decade with nearly identical populations. The 2000 Census recorded the Scranton MSA population at 560,625 and the Stockton MSA at 563,598. Over the next ten years, Scranton added 3,006 people, a 0.5% growth rate. In contrast, Stockton grew by 121,708 people, a 21.6% rate.

"It seems that people are attracted to misery as Forbes defines it," Neumann observed.

After working with the data, it became apparent to the researchers that Forbes was missing a few obvious indicators. "Surprisingly, the Forbes ranking did not use a single indicator of income or wealth, or any measure of people moving out of the area," Michael said.

As an experiment, the researchers replaced four of the most problematic Forbes indicators. Specifically, they removed: 1) political corruption, 2) sports team records, 3) sales tax rate, and 4) 3-year change in home values. They replaced these indicators with 1) net domestic migration, 2) median household income, 3) property taxes, 4) housing affordability index. "Sales taxes are often used by cities to shift the misery of taxes on visitors, whereas the misery of property taxes falls entirely on residents," Michael said. The unemployment rate, foreclosure rate, crime rate, average commute time, weather, and income taxes were kept in the revised index.

In the experimental misery index, Miami was most miserable, followed by Detroit. Stockton was third, followed by Chicago, Los Angeles, and Memphis. Three of the four least miserable cities in the experimental index were in Utah.

According to the Business Forecasting Center researchers, the exercise confirmed the arbitrary and meaningless nature of these types of magazine rankings.

"Unfortunately, the Forbes ranking is causing real harm to these so-called miserable cities," Michael said. "They should publish the full ranking and data so people can better make their own judgment about the reliability of the misery rating. Until that happens, we will continue to replicate their full rankings as closely as possible."

Forbes ranked the 200 largest MSAs, whereas the BFC only compiled data for the 100 largest MSAs. Thus, smaller areas on the Forbes list such as Merced, Calif., do not appear in the replicated rankings. In addition, the BFC team was unable to replicate two indicators in the original Forbes ranking due to missing data or an unclear methodology: political corruption and winning sports teams.

The full report is available at: http://forecast.pacific.edu/articles/BFCForbesRevisit.pdf