The BLS Household Survey released today reports 17.035 million employed Californians, finally exceeding its pre-recession peak of 17.023 million in January 2008.
The BLS Payroll Survey reports, 14.612 million non-farm payroll jobs, still 600,000 jobs below its pre-recession peak of 15.213 million in July 2007.
Overall, economists view the payroll survey as more reliable due to a larger sample and its annual benchmarking to full payroll tax records. However, they are different measures of employment (employed people versus jobs) and the household survey is more comprehensive in that it captures self-employment and agricultural work.
There are a couple of potential explanations for this divergence. Of course, one possibility is sampling error, and one must never forget we are dealing with preliminary estimates from surveys that are subject to revision as more data becomes available.
Other explanations are a structural shift in the California economy away from payroll jobs and towards self-employment. More people could be working as independent contractors rather than employees across a variety of different industries, and I have heard plenty of anecdotal stories to support that. Self-employment is more common in professional services which has been one of the strongest growing sectors in California for some time.
In addition, some of the traditionally biggest sectors for self-employment are construction and finance (particularly real estate related finance), so the faster growth in the household survey could reflect the growing impact of the real estate recovery on the job market.
Interestingly, the household survey measure of employment did not decline as much as payrolls during the recession even though construction and real estate was the hardest hit sector. That suggests that there is likely an on-going shift towards self-employment across sectors and the household survey is no getting a second boost from the real estate recovery.
A discussion of economic, business, and environmental issues of importance in the Central Valley.
Friday, June 21, 2013
Tuesday, June 18, 2013
Unlike Stockton, Detroit targets pensions on its way to probable bankruptcy
For Stockton residents depressed about their bankrupt city, I recommend a review of Detroit's emergency managers proposal to creditors of the losses they should take to help the city avoid bankruptcy. Detroit defaulted on its pension bonds this month, a little more than a year after Stockton first defaulted on its bonds. Other parts of Detroit's dilemma will be familiar to Stocktonians: low levels of public service, high crime, and poverty.
But the driver of Detroit's municipal distress is quite different than Stockton. Detroit's biggest fundamental problem is unrelenting large-scale population decline, as people abandon the City for its safer, lower tax suburbs. Stockton continues to grow, albeit much slower than in the past. Stockton also has lower current tax rates than Detroit, and is likely to use a tax increase to help itself escape bankruptcy. Detroit can't realistically raise taxes any higher (property tax rates are about 6 times higher than California, there is a municipal income tax, and more) as there is evidence that its high taxes are part of what has been driving residents to the suburbs.
Also different is the proposed approach to the City for financial restructuring, and this is what will demand the most headlines and has the greatest potential implication for Stockton's case. Like Stockton, Detroit's emergency manager proposed big losses for the unsecured bonds, but is taking a dramatically different approach in proposing significant cuts to vested pension benefits, which he views as unsecured debt. Stockton has wiped out retiree medical benefits, but is not proposing to change pensions. It should be noted that the proposal to cut pensions in Detroit isn't coming from its elected officials or a city manager hired by an elected city council. The Governor of Michigan appointed an emergency manager for the City, and it is the appointed emergency manager that is targeting pensions.
Michigan's state constitution protects pensions, similar to California, so I doubt Detroit's unions will go along with this pre-bankruptcy proposal and will try to defend their pensions in bankruptcy court. Thus, Stockton may not be the nation's largest bankrupt city for much longer.
But the driver of Detroit's municipal distress is quite different than Stockton. Detroit's biggest fundamental problem is unrelenting large-scale population decline, as people abandon the City for its safer, lower tax suburbs. Stockton continues to grow, albeit much slower than in the past. Stockton also has lower current tax rates than Detroit, and is likely to use a tax increase to help itself escape bankruptcy. Detroit can't realistically raise taxes any higher (property tax rates are about 6 times higher than California, there is a municipal income tax, and more) as there is evidence that its high taxes are part of what has been driving residents to the suburbs.
Also different is the proposed approach to the City for financial restructuring, and this is what will demand the most headlines and has the greatest potential implication for Stockton's case. Like Stockton, Detroit's emergency manager proposed big losses for the unsecured bonds, but is taking a dramatically different approach in proposing significant cuts to vested pension benefits, which he views as unsecured debt. Stockton has wiped out retiree medical benefits, but is not proposing to change pensions. It should be noted that the proposal to cut pensions in Detroit isn't coming from its elected officials or a city manager hired by an elected city council. The Governor of Michigan appointed an emergency manager for the City, and it is the appointed emergency manager that is targeting pensions.
Michigan's state constitution protects pensions, similar to California, so I doubt Detroit's unions will go along with this pre-bankruptcy proposal and will try to defend their pensions in bankruptcy court. Thus, Stockton may not be the nation's largest bankrupt city for much longer.
Tuesday, June 11, 2013
Changing the Baseline: The Biggest Problem in the New BDCP Economic Rationalization of the Tunnels
Both environmental assessments and economic assessments of proposed major infrastructure critically depend on a baseline or no-action scenario. This scenario defines the conditions that are expected if the project is not built and is used as the basis of comparison for the projects impacts. The same no-action scenario should be used for environmental, economic and financial feasibility assessments. However, the latest BDCP documents use a different baseline for the economic analysis than the environmental impact report (EIR). When analytical consistency gets in the way of rationalizing the tunnels, BDCP just switches the baseline.
The BDCP EIR no-tunnel (i.e. no-action) scenario makes the reasonable assumption that through-Delta operations would continue under the current pumping constraints imposed by the Endangered Species Act through "biological opinions." The EIR no-action scenario estimates average water exports at initial operations of about 4.7 million acre feet (MAF) per year at initial operations declining to 4.4 MAF towards the end of the 50 year permit. The EIR estimates that with the tunnels, water exports would be 4.4MAF to 5.3 MAF in the "late long term", a change of between 0 MAF and 0.7 MAF per year.
In contrast, the economic analysis assumes that without BDCP, additional ESA regulations would bring even tougher restrictions on water exports between now and 2025 such that average water exports at initial operations would be 3.4 MAF to 3.9 MAF. Thus, building the tunnels would increase water exports by between 1.3 MAF and 1.7 MAF per year compared to no action. In other words, the economic analysis assumes that without the BDCP tunnel plan, ESA regulations would add another 20-25% cut to water supplies on top of current limits. Never mind that no such plan has been proposed, and that the California Department of Water Resources (DWR) and the water contractors are trying to weaken the current restrictions in court. Clearly, DWR has no sincere intention of implementing this more restrictive scenario, they are just conveniently adopting it for the economic analysis to rationalize building the tunnels.
This switch of the no-tunnel baseline is probably the most serious of several problems with the BDCP economic analysis, and it will create some very practical headaches for the BDCP. The fish and wildlife agencies that have to approve BDCP will certainly ask why the financial feasibility analysis depends on assumptions that are inconsistent with the EIR, and if DWR is actually proposing such restrictive operations on exports in the absence of BDCP. The inconsistency also gives BDCP opponents another issue to use in lawsuits, and it could even undermine the water contractors case in their existing litigation over the biological opinions.
Considering all the problems the state is creating for itself with this shift in baseline, why would they do it? Because they can't demonstrate financial feasibility without it. Using the BDCP's own estimates of costs and benefits, I demonstrated a year ago that the tunnels can not be financially or economically justified by comparing them to the no-action scenarios of the draft EIR. The sleight of hand with the shifting baseline is simply a clever, hidden way to bring back the "value of regulatory certainty" argument the state attempted last summer (see this blog post from last July, and this one from January where I worried that they might try this baseline shifting stunt).
The shifting baseline creates problems for the BDCP environmental approval. Why? If this more restrictive baseline were used for the EIR, the tunnels would almost certainly fail the EIR analysis. The tunnels could not be justified as a Habitat Conservation Plan (HCP) under the ESA since the no-tunnel scenario would be more protective of endangered and threatened species than the proposed tunnel project. [See Matt Weiser's article in Sunday's Sac Bee for a discussion of how the EIR finds the tunnels are not even anticipated to benefit endangered fish species compared to current conditions (i.e. the EIR baseline).]
In addition to the EIR, the tougher baseline assumption would create problems for a true statewide benefit-cost analysis. The recently released economic analysis only considers the benefits and costs of the tunnels to the water contractors. In contrast, a statewide benefit-cost analysis would include benefits and costs to the environment and to other effected parties in-Delta, upstream, and fishing. While the baseline shift creates water supply benefits from the tunnels for the contractors, the increase in water supplies raises the tunnels' costs to the environment and these other parties. Thus, the change in assumption that increases the tunnel's water supply benefits helps financial feasibility to the contractors, but would hurt the tunnels comprehensive benefit-cost justification.
I think this maneuver is a major reason why the BDCP cancelled the benefit-cost analysis and postponed the planned release of chapters 8 and 9 by a month. It is also a sign of how the BDCP is going to increasingly desperate measures to keep their sinking project afloat.
Additional Note 6/18: A BDCP steering committee presentation from March 2010 describes the requirements of the Alternative to Take analysis (ch 9 of the BDCP that contained the new economic analysis). On the last slide of the presentation, the no-action alternative is described as the existing biological opinions, consistent with the EIR approach. This further shows that the super-restrictive water supply scenario introduced in the new chapter 9 was a last minute change to increase the economic benefits attributed to the tunnels. Using the EIR no-action assumption, the tunnels would have a negative net benefit and be judged as financially infeasible.
The BDCP EIR no-tunnel (i.e. no-action) scenario makes the reasonable assumption that through-Delta operations would continue under the current pumping constraints imposed by the Endangered Species Act through "biological opinions." The EIR no-action scenario estimates average water exports at initial operations of about 4.7 million acre feet (MAF) per year at initial operations declining to 4.4 MAF towards the end of the 50 year permit. The EIR estimates that with the tunnels, water exports would be 4.4MAF to 5.3 MAF in the "late long term", a change of between 0 MAF and 0.7 MAF per year.
In contrast, the economic analysis assumes that without BDCP, additional ESA regulations would bring even tougher restrictions on water exports between now and 2025 such that average water exports at initial operations would be 3.4 MAF to 3.9 MAF. Thus, building the tunnels would increase water exports by between 1.3 MAF and 1.7 MAF per year compared to no action. In other words, the economic analysis assumes that without the BDCP tunnel plan, ESA regulations would add another 20-25% cut to water supplies on top of current limits. Never mind that no such plan has been proposed, and that the California Department of Water Resources (DWR) and the water contractors are trying to weaken the current restrictions in court. Clearly, DWR has no sincere intention of implementing this more restrictive scenario, they are just conveniently adopting it for the economic analysis to rationalize building the tunnels.
This switch of the no-tunnel baseline is probably the most serious of several problems with the BDCP economic analysis, and it will create some very practical headaches for the BDCP. The fish and wildlife agencies that have to approve BDCP will certainly ask why the financial feasibility analysis depends on assumptions that are inconsistent with the EIR, and if DWR is actually proposing such restrictive operations on exports in the absence of BDCP. The inconsistency also gives BDCP opponents another issue to use in lawsuits, and it could even undermine the water contractors case in their existing litigation over the biological opinions.
Considering all the problems the state is creating for itself with this shift in baseline, why would they do it? Because they can't demonstrate financial feasibility without it. Using the BDCP's own estimates of costs and benefits, I demonstrated a year ago that the tunnels can not be financially or economically justified by comparing them to the no-action scenarios of the draft EIR. The sleight of hand with the shifting baseline is simply a clever, hidden way to bring back the "value of regulatory certainty" argument the state attempted last summer (see this blog post from last July, and this one from January where I worried that they might try this baseline shifting stunt).
The shifting baseline creates problems for the BDCP environmental approval. Why? If this more restrictive baseline were used for the EIR, the tunnels would almost certainly fail the EIR analysis. The tunnels could not be justified as a Habitat Conservation Plan (HCP) under the ESA since the no-tunnel scenario would be more protective of endangered and threatened species than the proposed tunnel project. [See Matt Weiser's article in Sunday's Sac Bee for a discussion of how the EIR finds the tunnels are not even anticipated to benefit endangered fish species compared to current conditions (i.e. the EIR baseline).]
In addition to the EIR, the tougher baseline assumption would create problems for a true statewide benefit-cost analysis. The recently released economic analysis only considers the benefits and costs of the tunnels to the water contractors. In contrast, a statewide benefit-cost analysis would include benefits and costs to the environment and to other effected parties in-Delta, upstream, and fishing. While the baseline shift creates water supply benefits from the tunnels for the contractors, the increase in water supplies raises the tunnels' costs to the environment and these other parties. Thus, the change in assumption that increases the tunnel's water supply benefits helps financial feasibility to the contractors, but would hurt the tunnels comprehensive benefit-cost justification.
I think this maneuver is a major reason why the BDCP cancelled the benefit-cost analysis and postponed the planned release of chapters 8 and 9 by a month. It is also a sign of how the BDCP is going to increasingly desperate measures to keep their sinking project afloat.
Additional Note 6/18: A BDCP steering committee presentation from March 2010 describes the requirements of the Alternative to Take analysis (ch 9 of the BDCP that contained the new economic analysis). On the last slide of the presentation, the no-action alternative is described as the existing biological opinions, consistent with the EIR approach. This further shows that the super-restrictive water supply scenario introduced in the new chapter 9 was a last minute change to increase the economic benefits attributed to the tunnels. Using the EIR no-action assumption, the tunnels would have a negative net benefit and be judged as financially infeasible.
Friday, June 7, 2013
Will Fresno Follow Stockton Into Bankruptcy? I Don't Think So
The City of Fresno's budget for next year assumes millions of dollars in new franchise fees from trash privatization, but these fees depend on the outcome of last week's Measure Z vote. The Measure Z vote is very close, provisional ballots are still being counted, and the outcome won't be known until next week.
Some people have been saying that Fresno is the next Stockton, and that failure of the trash privatization measure would push it towards a bankruptcy filing. While I am not nearly as familiar with Fresno's budget as Stockton, I don't see a Fresno bankruptcy. There are plenty of similarities between the two cities, but Fresno's financial situation doesn't appear quite as dire as Stockton, the level of services has not been cut as low as Stockton, and there appears to be resolve in City leadership to avoid bankruptcy.
There are some obvious similarities between the two cities. Both are in the Central Valley and have similar economic statistics, although Stockton is closer to the bay area and had a bigger housing boom and bust. Both cities have a lot of debt for similar things like ballparks and mammoth pension bonds, but Fresno issued its pension bonds a long time ago rather than Stockton who dumped its bond revenue into CalPers at the top of the market and took a much larger financial loss on the deal. Fresno administers its own pension plan, whereas Stockton is in CalPers, and Fresno has somewhat lower pension costs (although they use different actuarial assumptions than CalPers so it is impossible to do an apples to apples comparison of pension liabilities) and does not offer the kind of unfunded retiree healthcare benefit that Stockton did prior to its bankruptcy filing. Here are some additional high level comparison numbers I have gathered from the two Cities' budgets and other sources (there is a bit of rounding here for simplicity).
Fresno:
Population: 500,000
General Fund Revenue: $275 mil, about $550 per capita
Police: 717 (about 1.43 per 1,000 residents)
2012 Murders: 51
Stockton:
Population: 300,000
General Fund Revenue: $160 mil, about $533 per capita
Police: 330 (about 1.1 per 1,000 residents)
2012 Murders: 71
Since both cities are spending about half of their general fund on police, the police staffing and murder statistics provide some background on the level of services. Both cities have cut police, but Stockton's cuts have been much deeper and had a larger impact on crime. Stockton's murder rate in the year of its bankruptcy filing spiked to double the Fresno rate as police staffing dropped to arguably the lowest level of any major American city. Fresno police staffing is not high, but they would have to lay off about 150 more cops to get to Stockton's level, and no one is contemplating those kind of cuts regardless of the outcome of the trash privatization measure. Stockton had more excessive employee compensation and retiree benefits, and was unable to gain significant enough restructuring without bankruptcy protection.
Through the 1990s and 2000s, Fresno was similar to Stockton but did not quite go to the same extremes. Its costs of delivering services, primarily driven by personnel costs, remained lower than Stockton. I am not sure if this is due to better management or its greater distance from the bay area and smaller economic boom reduced cost pressure. I was a little surprised to see Fresno had slightly more general fund revenue per capita, they might receive more sales tax since they are a regional service center and more isolated from alternative shopping opportunities.
Fresno certainly has severe financial problems, and that City may well have to endure one more round of painful budget cuts to fully stabilize its budget. I expect it will go that route rather than a bankruptcy filing.
However, it should be noted that an escalating public safety emergency is what made additional cuts unacceptable in Stockton and made the bankruptcy filing inevitable. Similarly, the bankruptcy outlook for Fresno could change if conditions, both financial and non-financial, change.
However, it should be noted that an escalating public safety emergency is what made additional cuts unacceptable in Stockton and made the bankruptcy filing inevitable. Similarly, the bankruptcy outlook for Fresno could change if conditions, both financial and non-financial, change.
Wednesday, June 5, 2013
New BDCP Documents Say Taxpayers May Subsidize the Delta Tunnels Due to Uncertainty Over Tunnel Impacts
The newly released BDCP documents contain the following passage labeled as a "Note to Readers". (chapter 8, page 80). (6/7 note: Some readers are having a hard time deciphering this language and its significance. This is all new language to the BDCP cost documents, and shows that the BDCP wants to change its financing assumptions to increase public subsidy of the water contractors and shift costs from agricultural to urban water users if they can get approval. None of it shows up on the glossy BDCP handouts for the media. Emphasis below added by me.)
It is difficult to interpret this language, but two things are clear. First, the water contractors want the government to pick up more of the BDCP cost that is currently allocated to them, and are trying to use uncertainty as a justification. Second, the costs of the tunnels may not be allocated among contractors proportional to the water received, directly contradicting the public statements of the Metropolitan Water District and opening the door to the urban subsidy of agricultural water. This would be a major change, but is not unexpected to me or anyone else who long ago realized that the tunnel financing assumptions simply wouldn't work.
The notion that the decision tree construct requires a public subsidy to the water contractors is ridiculous. The decision tree does not reduce water supply over what would be approved without it. As I recall, the decision tree concept, which creates a structure to postpone water supply decisions to the future, was created last year because environmental concerns about BDCP were resulting in water supplies that were too low for the contractors. It is hoped that the decision tree structure will be acceptable to environmental regulators today, and postpone water supply decisions to a later date when water contractors hope for a better outcome. I don't know that there is a scientific reason to expect a better outcome, but the framework certainly gives the water contractors a lot of leverage to apply political pressure on regulators to approve higher water supplies in the future. In other words, the decision tree itself is a creation to benefit the water contractors, and it is a poor justification for a public subsidy. The decision tree creates the possibility of higher water supplies in the future, postpones the tough environmental decisions to the future, and puts enormous pressure on future environmental regulators to approve higher water supplies after the tunnels have been built and tens of billions of dollars have been spent and borrowed.
In the interest of transparency, it seems the government officials should disclose exactly what has been proposed and is being considered. Without this information, it is fair to speculate. I fear that the subsidy funds will not be appropriated in the near term since budgets are tight, and thus the subsidy funds will be triggered in some way if the decision tree leads to a low water supply outcome. A budget trigger like that is enormously effective in applying political pressure to a regulatory decision. The incentives in the decision tree framework are bad enough as it is, we don't need to make it worse.
June 6 Note: I also found it interesting that this new subsidy language is inserted in a document that also purports to demonstrate that the tunnels create great economic benefits (don't believe it). A few pages after this note about new subsidies, BDCP says tunnel financing isn't a concern because the total costs are low relative total personal income in the region. If the tunnels are such a great deal for the water agencies, why the call for a subsidy?
Note to reader: Details of the financing and repayment described in this section from the Authorized Entities and other sources are still being determined through on‐going discussion between the state and federal governments and between the government, the state and federal water contractors and other interests. Issues still under discussion include aligning the financing and repayment responsibilities with the “beneficiary pays” principle, among other related issues.The decision tree process that is part of the of the new north Delta water conveyance facility (CM1) will determine the level of fall and spring outflow provided by BDCP for delta smelt and longfin smelt, respectively, at initial operations. The decision tree process is designed to address the scientific uncertainty surrounding these parameters. Because each branch of the decision tree has different water supply implications, there is uncertainty in the water supply provided by BDCP. To offset this uncertainty, the state and federal governments may consider additional investments in BDCP consistent with the “beneficiary pays” principle. As is typical of projects of this nature and scope, the final financial arrangements may require appropriate approvals, contractual arrangements, and additional legislative authority. If adopted, these additional investments will be incorporated into the public draft BDCP and may modify the funding assumptions presented here.
It is difficult to interpret this language, but two things are clear. First, the water contractors want the government to pick up more of the BDCP cost that is currently allocated to them, and are trying to use uncertainty as a justification. Second, the costs of the tunnels may not be allocated among contractors proportional to the water received, directly contradicting the public statements of the Metropolitan Water District and opening the door to the urban subsidy of agricultural water. This would be a major change, but is not unexpected to me or anyone else who long ago realized that the tunnel financing assumptions simply wouldn't work.
The notion that the decision tree construct requires a public subsidy to the water contractors is ridiculous. The decision tree does not reduce water supply over what would be approved without it. As I recall, the decision tree concept, which creates a structure to postpone water supply decisions to the future, was created last year because environmental concerns about BDCP were resulting in water supplies that were too low for the contractors. It is hoped that the decision tree structure will be acceptable to environmental regulators today, and postpone water supply decisions to a later date when water contractors hope for a better outcome. I don't know that there is a scientific reason to expect a better outcome, but the framework certainly gives the water contractors a lot of leverage to apply political pressure on regulators to approve higher water supplies in the future. In other words, the decision tree itself is a creation to benefit the water contractors, and it is a poor justification for a public subsidy. The decision tree creates the possibility of higher water supplies in the future, postpones the tough environmental decisions to the future, and puts enormous pressure on future environmental regulators to approve higher water supplies after the tunnels have been built and tens of billions of dollars have been spent and borrowed.
In the interest of transparency, it seems the government officials should disclose exactly what has been proposed and is being considered. Without this information, it is fair to speculate. I fear that the subsidy funds will not be appropriated in the near term since budgets are tight, and thus the subsidy funds will be triggered in some way if the decision tree leads to a low water supply outcome. A budget trigger like that is enormously effective in applying political pressure to a regulatory decision. The incentives in the decision tree framework are bad enough as it is, we don't need to make it worse.
June 6 Note: I also found it interesting that this new subsidy language is inserted in a document that also purports to demonstrate that the tunnels create great economic benefits (don't believe it). A few pages after this note about new subsidies, BDCP says tunnel financing isn't a concern because the total costs are low relative total personal income in the region. If the tunnels are such a great deal for the water agencies, why the call for a subsidy?
Tuesday, June 4, 2013
New BDCP Economic Studies Use Outdated Growth Forecasts to Project an Artificial Water Shortage
There are so many problems in the cost and economic reports released last week by the BDCP, it is hard to know where to begin. From the messages in my in-box, I am not alone in identifying some of the more serious errors in the analysis that exaggerate water supply benefits to justify the tunnels.
Some of the serious problems people are talking about include 1) a large, poorly justified shift in the No BDCP water supply scenario that is inconsistent with the Environmental Impact Report and other BDCP documents that allows them to claim higher economic benefits, 2) ignoring 1 million acre feet of alternative water supply development identified in local water plans of southern California water agencies and assuming high costs for alternative supplies, 3) ignoring the conservation targets and regional self-sufficiency requirements of the 2009 Water Package and the Delta Stewardship Council's Delta Plan, and 4) some new language (see page 8-80) that says the state and federal government are considering picking up more of the costs currently allocated to the water contractors.
This post isn't about those issues, it is about the inaccurate population and economic growth assumptions in the BDCP report that is inflating the estimated urban benefits of BDCP. To understand its significance, you have to realize that shortages from the estimated levels of urban water demand are driving the vast majority of the economic benefits BDCP is calculating. So it is critically important to estimate urban water demand with best and most current information.
Specifically, for Los Angeles, Orange, Riverside, San Bernadino and Ventura Counties, the growth projections used in BDCP are taken from their 2007 Regional Transportation Plan, and in San Diego it is based on "Series 11" from 2006. Both of these projections are out of date and have been replaced by the local planning agencies with much lower growth projections that incorporate the results of the 2010 census. Likewise, the California Department of Finance released updated projections for these counties in 2012 and again earlier this year in 2013 that are the official estimates used for state planning and are now driving housing and transportation planning at the county level. The 2050 DOF population projections for California are about 15% lower (51 million instead of 60 million) than the projections commonly used a decade ago that are still being used by the BDCP.
The BDCP sources only project population to 2035, but the BDCP study appears to extrapolate similar growth rates beyond this point. In 2035, they estimate population of 28.04 million residents in these 6 key urban counties, whereas the state's updated official projection from DOF estimates 25.25 million residents. In other words, official updated growth estimates find 2.8 million fewer water demanders in 2035 than BDCP assumes, about 10% lower. BDCP study doesn't give an exact number for 2050, but it appears that the overestimate grows to at least 15% similar to the old state projections from a decade ago. I won't detail it here, but the economic projections show commercial and industrial demand is also about 15% too high.
So what does the new BDCP say about growing urban water demand and the level of shortages?
So how does this demand decrease of 0.93 MAF from using a realistic growth forecast compare to their projected urban water shortage with the inflated forecast? The BDCP report states.
In summary, the BDCP is projecting urban water supply shortages without BDCP of 0.84 MAF. However, they are exaggerating urban water demand in 2050 by 0.93 maf through the use of aggressive growth forecasts that are 15% higher than the state's official planning forecasts. In other words, the future urban water supply shortages the BDCP predicts are unlikely to exist.
And it should be noted, these shortage calculation don't even account for the over 1 MAF of new alternative supplies the San Diego County Water Authority has identified in local planning documents that BDCP is ignoring, not to mention the underestimate of conservation. Urban water demand is not growing now and is unlikely to grow significantly in the future.
The most irritating thing to me is that the consultants and the local water agencies know they are using very high projections. Their staff knows they conflict directly with the projections being used in financial, housing and growth projections in state and local governments throughout the state. And the Metropolitan Water District knows its sales are not increasing.
June 5 Postscript: If there is no shortage as defined by the BDCP study, that does not mean the water does not have value to urban users. But the value of water supplied through the tunnels would be much less without a shortage situation. The BDCP study places the value of water that reduces these urban shortages at a whopping $1,204 to $1,414 per acre foot in 2012 dollars. If that value were much under $1,000 af, the net benefits of the tunnels would be negative even with all the other pro-tunnel assumptions in the report.
Some of the serious problems people are talking about include 1) a large, poorly justified shift in the No BDCP water supply scenario that is inconsistent with the Environmental Impact Report and other BDCP documents that allows them to claim higher economic benefits, 2) ignoring 1 million acre feet of alternative water supply development identified in local water plans of southern California water agencies and assuming high costs for alternative supplies, 3) ignoring the conservation targets and regional self-sufficiency requirements of the 2009 Water Package and the Delta Stewardship Council's Delta Plan, and 4) some new language (see page 8-80) that says the state and federal government are considering picking up more of the costs currently allocated to the water contractors.
This post isn't about those issues, it is about the inaccurate population and economic growth assumptions in the BDCP report that is inflating the estimated urban benefits of BDCP. To understand its significance, you have to realize that shortages from the estimated levels of urban water demand are driving the vast majority of the economic benefits BDCP is calculating. So it is critically important to estimate urban water demand with best and most current information.
Specifically, for Los Angeles, Orange, Riverside, San Bernadino and Ventura Counties, the growth projections used in BDCP are taken from their 2007 Regional Transportation Plan, and in San Diego it is based on "Series 11" from 2006. Both of these projections are out of date and have been replaced by the local planning agencies with much lower growth projections that incorporate the results of the 2010 census. Likewise, the California Department of Finance released updated projections for these counties in 2012 and again earlier this year in 2013 that are the official estimates used for state planning and are now driving housing and transportation planning at the county level. The 2050 DOF population projections for California are about 15% lower (51 million instead of 60 million) than the projections commonly used a decade ago that are still being used by the BDCP.
The BDCP sources only project population to 2035, but the BDCP study appears to extrapolate similar growth rates beyond this point. In 2035, they estimate population of 28.04 million residents in these 6 key urban counties, whereas the state's updated official projection from DOF estimates 25.25 million residents. In other words, official updated growth estimates find 2.8 million fewer water demanders in 2035 than BDCP assumes, about 10% lower. BDCP study doesn't give an exact number for 2050, but it appears that the overestimate grows to at least 15% similar to the old state projections from a decade ago. I won't detail it here, but the economic projections show commercial and industrial demand is also about 15% too high.
So what does the new BDCP say about growing urban water demand and the level of shortages?
In the agencies receiving SWP supplies, urban demand is projected to be 5.64 MAF in 2025 (the year CM1 would become operational) and is estimated to grow to 6.18 MAF by 2050. (chapter 8, page 102)This estimate is 15% too high due to the aggressive forecast, adjusting it would bring 2050 urban water demand to 5.25 MAF (million acre feet), a decrease of 0.93 MAF from BDCP's 2050 estimate. The BDCP study states 2012 urban demand is 5.1 MAF, so this adjusted demand growth to 5.25 MAF would reflect very slow growth over the next 40 years and be a better fit to observed water demand over the past 20 years.
So how does this demand decrease of 0.93 MAF from using a realistic growth forecast compare to their projected urban water shortage with the inflated forecast? The BDCP report states.
By 2025, without BDCP shortages in the urban agencies receiving SWP deliveries are predicted to be 0.50 MAF on average. By 2050, these mean shortages are projected to be 0.84 MAF. The BDCP would mitigate these losses by lessening the frequency and magnitude of water supply shortages.
In summary, the BDCP is projecting urban water supply shortages without BDCP of 0.84 MAF. However, they are exaggerating urban water demand in 2050 by 0.93 maf through the use of aggressive growth forecasts that are 15% higher than the state's official planning forecasts. In other words, the future urban water supply shortages the BDCP predicts are unlikely to exist.
And it should be noted, these shortage calculation don't even account for the over 1 MAF of new alternative supplies the San Diego County Water Authority has identified in local planning documents that BDCP is ignoring, not to mention the underestimate of conservation. Urban water demand is not growing now and is unlikely to grow significantly in the future.
The most irritating thing to me is that the consultants and the local water agencies know they are using very high projections. Their staff knows they conflict directly with the projections being used in financial, housing and growth projections in state and local governments throughout the state. And the Metropolitan Water District knows its sales are not increasing.
June 5 Postscript: If there is no shortage as defined by the BDCP study, that does not mean the water does not have value to urban users. But the value of water supplied through the tunnels would be much less without a shortage situation. The BDCP study places the value of water that reduces these urban shortages at a whopping $1,204 to $1,414 per acre foot in 2012 dollars. If that value were much under $1,000 af, the net benefits of the tunnels would be negative even with all the other pro-tunnel assumptions in the report.
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