New $15.9 bil. Delta tunnel cost estimate: Revisiting DWR's 2018 single-tunnel economic analysis with updated costs shows it is a bad investment for water agencies.

As reported in the Sacramento Bee, the cost of a single-tunnel Delta conveyance is now estimated at $15.9 billion.  In a previous 2018 analysis to support a short-lived proposal to stage the twin-tunnel WaterFix proposal, DWR estimated the single-tunnel 1st stage of WaterFix at $11.1 billion in 2017 dollars, which is equivalent to $11.7 billion in 2020 dollars.  This is a 35% increase in constant dollars, and should lead the Governor and the dwindling number of water agencies that still support the single-tunnel delta conveyance facility (DCF) to reevaluate the investment.

That 2018 analysis wildly overstated the economic benefits of a single-tunnel to participating water agencies, but for now let's accept their estimate of benefits.  The image below shows the results of that analysis (Table 5, with no federal subsidy).

Simply updating the costs to this latest estimate ($15.9 billion in 2020 dollars is equivalent to $15 billion in the 2017$) reduces the benefit-cost ratio for SWP urban agencies from 1.23 to 0.92, and for agricultural agencies from 1.17 to 0.87 in the trading scenario.

That's a bad investment, but it is actually much worse than that.  The 2018 analysis assumed the project would be operational in 13 years, whereas the new cost estimates a 20 year delivery period.  I didn't incorporate the extra 7 year wait for benefits in the above recalculations of the b-c ratio, but it would make it even lower.

At some point, we might see a revised economic analysis that manufactures new benefits to magically get the benefit-cost ratio over 1.  Readers of this blog know that DWR and MWD already have an established track record of inventing new benefits as new information reveals the delta tunnel(s) to be a worse and worse investment.  

P.S.  Thanks to Restore the Delta for archiving the 2018 analysis online for the public record.  DWR has wiped their previous links, and I couldn't find a saved copy in my files.   

Water Blueprint proposes a valley wide sales tax to fund their irrigation water plan. Is it equitable? Is it feasible?

 Earlier this month, CSU-Fresno hosted the event "Funding Water Infrastructure in the San Joaquin Valley." The vast majority of the event was focused on the so-called "Water Blueprint for the San Joaquin Valley," a high profile new investment plan for irrigation water.

At the event, the Blueprint rolled out a proposed funding plan - the centerpiece of which is a proposed 0.5% special sales tax in the 8 counties of the San Joaquin Valley.  While the sales tax would provide the vast majority of funding for the Blueprint's multi-billion investment strategy, the funding plan also includes a modest $4 per acre foot charge on water users and hoped for matching funds from the state and federal government.  In most years, the Blueprint projects the sales tax would generate 7 times more revenue than water user fees. 

The sales tax is a bold new idea in water finance, but not a good one as proposed.  It is inequitable across geography and income.  It probably isn't politically feasible either, despite the optimistic spin from a new poll presented at the event.  Below, I briefly discuss these issues and suggest some changes to the Water Blueprint to improve the equity and political prospects of their proposal.

Geographical Inequity - Taxes North San Joaquin Valley Counties Without Benefit

The tax is proposed for 8 counties, although the Blueprint plan only provides benefits to 5 counties from Madera south to Kern. The proposal would get 1/3 of its revenue from the North San Joaquin Valley counties while providing zero benefits to them - and potentially harm San Joaquin County's Delta region.

The Blueprint can correct this problem by dropping the 3 northern counties from their proposal, and leaders in the North San Joaquin Valley should demand that they do so.

I have argued for years that San Joaquin, Stanislaus, and Merced counties are ill-served by the 8-county region often used in state planning efforts.  The Blueprint, which has gained some influence with state leaders, is an excellent example of this problem.

Geographical Inequity - Benefits Wealthy Out-of-Valley Landowners 

In a previous post, I have pointed out that the biggest beneficiaries of the Blueprint agenda are farm owners, not poor farmworkers as much of the Blueprint PR claims.  Many of those farm owners, especially the wealthiest ones, live in wealthy communities far from the Valley.  These individuals can afford to pay for their own water infrastructure, and certainly shouldn't be subsidized by a sales tax imposed on the Valley's cash-strapped households.

The Blueprint can fix this adjusting their financial plan such that user fees are charged at full cost. The sales tax revenue would be used to provide water rate assistance to water users who live within 50 miles of their farm.  Income and acreage limits on the recipients of the sales tax funded water rate assistance should also be considered.

Inequity Across Industries - Agriculture Is Exempt From Sales Tax, But Other Industries Pay

There are many exemptions to sales tax, most notably to services and food.  Farming inputs and supplies are also exempt from sales tax, whereas most non-agricultural businesses in the Valley pay sales taxes.  It is bold for the Blueprint to propose a special sales tax benefit for an industry that already has an exemption from paying sales tax.

Income Inequity - Regressive Sales Tax Primarily Benefits Well-Off Landowners

The primary general argument against sales taxes are that they are regressive.  Lower-income households pay a higher share of their income in sales taxes than higher-income households.  The situation is the same here, and it is particularly problematic in this case as the largest beneficiary of the tax are the owners of farms - who generally have above average incomes in the Valley and include some truly rich out-of-Valley landowners as described above.

The Blueprint can improve this inequity by including funding to repair unsafe drinking water systems in the Valley to their plan.  The tax is still regressive, but funding clean drinking water with its proceeds will at least direct more of the benefits to low-income communities.

Political Feasibility - Will it Pass?

The Valley is not an easy place to get voter approval for a tax increase.  And as a special tax, I believe the Blueprint proposal would require a 2/3 vote to pass.  That's a tough hurdle, and the poll results are interesting if reliable.

First, while the poll focused on the sales tax proposal - in the one question that presented both a "water consumption tax surcharge based on use" and a "special sales tax" - respondents favored the use charge over the sales tax by a nearly 2-to-1 margin.  My read on this is that a proposal as I suggested above - user charges to cover the full cost with special tax revenue to defray costs to local users meeting residency, income and acreage restrictions - would be seen as more equitable and popular to Valley voters.

Second, the poll had a note of positive news for the sales tax: 69% of the respondents said they would be "very likely" or "somewhat likely" to support a special sales tax for water.  Is this poll reliable?  Is there really that much support?  A look at the last voter poll the Institute for Leadership and Public Policy did in cooperation with Valley water users suggests there polling may be too optimistic.

In October 2018, a few weeks before the vote on the Proposition 3 water bond, the same group released a poll of likely voters in the 8 San Joaquin Valley counties that found the following support for Prop 3. 64% Yes, 10% No, and 26% Don't Know.  In reality, 50.1% of voters in the 8 counties voted No, so their polling of Valley voters missed by an enormous margin in 2018.

I believe the Blueprint's special sales tax will lose big as proposed.  It might have a chance if the Blueprint adjust it to be more equitable in the following ways.

• Eliminate the 3 North San Joaquin Valley counties.
• Add funding for safe drinking water in disadvantaged communities.
• Propose a full cost user charge with the sales tax to defray expenses for non-wealthy water users who live in the Valley.

Reaction to CalMatters essay, "A social justice perspective of the Delta tunnel project"

Gary Kremen, vice chair of the Delta Conveyance Finance Authority, argues that building the Delta conveyance tunnel promotes social justice.  His argument is built around a rhetorical question that he fails to answer correctly. Kremen asks,

In a catastrophic levee failure, who stands to be hurt the most?

Correct Answer:  The people who die!  Shockingly, Mr. Kremen completely omits any mention of fatalities, which is rather obviously the most significant harm caused by the catastrophic flood he describes.  The earthquake induced flood he describes would come with virtually no warning, and if it triggered enough widespread flooding to harm water exports - it would surely be a mass fatality event wiping out small communities, family farms, and critical transportation, energy and local water infrastructure.  A more likely smaller earthquake induced flood would still do much of this damage with minimal impacts on water exports.  But the $11+ billion tunnel Kremen is promoting would protect none of the lives and also would not protect against most economic impacts.  It would not even fully protect water exports.  In contrast, investing in levee improvements protects all of these interest - including water exporters and human lives - from this catastrophic event.  Levee investments benefit all stakeholders.  That certainly sounds more like social equity to me.

I had high hopes that this kind of disaster rhetoric would die down after the Oroville disaster nearly killed thousands and wiped communities after the map.  Especially after post-Oroville reviews slammed the Department of Water Resources for safety lapses and prioritizing water export agencies over public safety.  Mr Kremen's commentary gives me little hope that public safety is a high priority for the Delta Conveyance Finance Authority he vice chairs. 

Since everyone has to make a COVID comparison in our commentary now, I should also point out that the state's response to COVID shows California is very willing to prioritize saving lives over maintaining economic activity during a disaster.  Building levees that protect lives and businesses would be consistent with California's clearly expressed values, whereas building a tunnel that protects certain business interests while ignoring death and destruction in vulnerable communities is not.

Here is another strange and incorrect passage from Kremen's so-called social justice argument.  He warns that not building the tunnel will reduce water to Central Valley agriculture, and

Reduced water to Central Valley agriculture would mean higher prices for food, higher carbon footprint from food importation and decreased food security. Higher food prices disparately affect those who are poor and vulnerable. It is well documented that the transportation related pollution for importing food especially damages communities of color.

First, I would point out to Mr. Kremen that the only agriculture output that would definitely be lost in the catastrophe he describes is in the Delta itself - and the tunnels would do nothing to protect it.  The droughts of 2014-15 reduced water supplies by more than double the amount exported from the Delta in a full year, and these had negligible impacts on food prices despite hundreds of thousands of acres fallowed.  The tunnels would not protect the poor from rising food prices, nor would it protect them from rising water bills.  The carbon footprint, food importation comment is just weird.  Kremen suggests central valley farm products don't travel far, and are mostly sold at your local farmers market.  In fact, Central Valley agriculture is extremely export oriented, very industrial, and ships its crops across the world.  Why would a decrease in Central Valley farm output increase global food shipping costs? 

But the really strange part of this comment is the suggestion that the tunnel is actually good for agriculture - a statement which is demonstratively false.  Many agricultural agencies - including the entire Central Valley Project and multiple agricultural state water project contractors are not participating in the Delta tunnels because it makes water too expensive for farming.  The financial plan for the tunnels that Kremen and others have developed will result in farmers not participating and giving up a portion of their water exports to urban areas due to its extreme costs.  I have heard leaders of urban agencies, including Kremen himself, suggest that tunnels that price farmers out of the state and federal water projects is a business opportunity for urban agencies to pick up their water supplies. 

As On the Public Record points out in their comments on Kremen's column, the Delta tunnel is an engineering project not a social justice project.  For years, proponents of this Delta conveyance have tried to put green wrapping paper around the project (a tradition Kremen continues here with his claims about the carbon footprint of food importation).  This attempt to wrap it in the cause of social justice is even more disturbing.  Let's hope this isn't a new trend.   

Covid-19 Pandemic Causes Historic Drop In Farm Employment

The latest employment data released by the California EDD on June 19 shows a massive decline in farm jobs since the Covid pandemic hit.  The graph below shows seasonally adjusted farm employment from January to May for each year since 2013, a period which includes some of the most severe droughts in California history.  None of those events came close to eliminating jobs like the Covid pandemic.  I am not surprised at the loss in jobs, but the magnitude caught me by surprise.  EDD estimates a loss of over 100,000 farm jobs since February (seasonally adjusted), a nearly 25% decline in farm jobs compared to a 14% decline in non-farm jobs over the same period.




This may seem surprising since farm workers are defined as "essential" and most essential industries have seen lower than average job loss - and some like grocery stores and delivery drivers have seen no loss in employment at all.  In addition, a large share of farm workers do not qualify for enhanced unemployment benefits that have discouraged some lower-wage workers from seeking employment.  So why such a large decline?  A loss of this size is probably caused by a combination of factors.

Covid rates are high in farm labor communities.  Imperial County has by far the highest Covid case per capita in the state, and many other big agricultural counties have seen big increases and increasingly rank among the hardest hit locations in the state.  Crowded living and working arrangements and poor access to health care make Covid a particularly difficult challenge for farm worker communities.  Illness among workers and their families, concern about dangerous working conditions, and increased caregiving responsibilities can all reduce the supply of people willing and able to work farm jobs.  Changes to the flow of people across the U.S.-Mexico border during the pandemic are also likely contributing to changes in labor supply, although H-2a agricultural visas have been exempted from new immigration restrictions for now.

In addition, there have likely been changes to farm labor demand as food demand has shifted from restaurants to home cooking.  Restaurant closures have substantially reduced the demand for fresh produce, and other labor intensive specialty crops. It is likely that these crops are not being harvested or planted at typical levels which reduces labor demand.   Grocery store shelves suggest most people at home are making eggs, pasta, and rice - not salad.  

I am sure there are more contributing factors to this historic shift in the data.

Finally, I should mention two notes of caution.  First, these initial employment estimates are based on samples and are subject to future revision as full employment tax filings are tabulated.  Historically, revisions have seemed higher in the farm sector than other areas so caution is always warranted.  But I have never seen a decrease anywhere this magnitude, so it seems very likely that me that there will still be very large losses even if the numbers are eventually revised higher.  Second, the graph I displayed above is seasonally adjusted data - so the decrease it shows is actually a smaller than usual seasonal increase in the unadjusted data.  Farm jobs have increased by 30,000 since March, but that is much much lower than the typical increase in spring, and California farm employment is estimated to be 20% lower (almost 100,000 fewer jobs) than last May.