Yesterday, the State Water Resource Control Board (SWRCB) opened a 3-day hearing dominated by a discussion of whether (and how much) to increase flows from San Joaquin River. It brought out the fish versus farmers debate, and I watched passionate testimonials from both sides to the board.
I have worked with all these groups at one point or another (tributary farmers and cities, delta farmers and cities, and fisherman), and all of them are part of the region that we study and serve on a daily basis in our economic research center. For me, this proceeding is pitting neighbors and family members against one another, an ugly and painful spectacle to watch.
Why did it remind me of the Hunger Games?
Exempted from the fighting arena, and undoubtedly watching the webcast on their computers, were a group of wealthy interests who are influential in the Capitol.
The state and federal water contractors divert massive amounts of water from this river system to places outside the watershed. They have junior water rights, are wealthier, not even in the river watershed, and in many cases have cost competitive alternative water supplies that they aren't adequately utilizing. They are a huge part of this problem, whether it is the lack of flow on the San Joaquin from their upstream diversions before it gets to this area, the contaminated runoff from their westside farming, and the massive diversions in the South Delta.
How can they be absent from this proceeding while the peasants (i.e. the relatively small farmers represented by relatively small water districts with senior water rights, both tributaries and Delta, the fisherman, and the environmentalists) are pounding the crap out of each other?
The state/federal contractors must be enjoying the webcast of this gruesome spectacle. I have been watching off and on, and it is making me depressed and angry.
I hope the warring neighbors can stop hitting each other for a moment and find some unity around their common problem with the state/federal contractors. They need to jointly demand a change to the narrow scope of this process.
P.S. Yes, I have teen and pre-teen daughters, so the Hunger Games books/movies have been everywhere since we moved past the Harry Potter days.
Thursday, March 21, 2013
Monday, February 4, 2013
New County Population Forecasts: Is San Joaquin County growth set to lift off in 2015?
The California Department of Finance released long-term population forecasts at the county level last week. Their last county level forecasts were issued in 2007.
Overall, their forecast is for significantly slower growth for California, less than 1% annual population growth over the next 50 years. Their forecast ends in 2060 with a statewide population of 52.7 million and annual population growth falling to below 0.5% and trending down. If you extrapolate from there, it is unlikely that California sees 60 million in population before 2100.
Despite the slow growth for California, they still predict rapid population growth in the Valley - especially for Kern and San Joaquin County.
In fact, they have San Joaquin County growth accelerating over 2% per year as soon as 2015 and sustaining over 2% growth through 2035. That is significantly faster than our forecast for San Joaquin County. According to DOF, San Joaquin County will break 1 million residents by 2030; 75,000 people more than our projection for the same year. If you use 3 people per house as a simple rule of thumb; that is 25,000 more homes that would be built in the County over the next 20 years than we project - and that is just one of the economic impacts.
While DOF has faster growth than us in some areas, it has slower growth in others, especially in the Bay Areas but also some inland areas such as the Sacramento area. I am surprised DOF doesn't see faster growth for Sacramento. For example, DOF is not projecting Placer County growth to increase substantially from the pace of recent years, remaining barely over one percent for the foreseeable future. I have a hard time seeing San Joaquin County growing twice as fast as Placer County over the next twenty years; as Placer County has often been the state's fastest growing county of late. I still see a lot of room to develop around Roseville, Rocklin and Lincoln.
Overall, their forecast is for significantly slower growth for California, less than 1% annual population growth over the next 50 years. Their forecast ends in 2060 with a statewide population of 52.7 million and annual population growth falling to below 0.5% and trending down. If you extrapolate from there, it is unlikely that California sees 60 million in population before 2100.
Despite the slow growth for California, they still predict rapid population growth in the Valley - especially for Kern and San Joaquin County.
In fact, they have San Joaquin County growth accelerating over 2% per year as soon as 2015 and sustaining over 2% growth through 2035. That is significantly faster than our forecast for San Joaquin County. According to DOF, San Joaquin County will break 1 million residents by 2030; 75,000 people more than our projection for the same year. If you use 3 people per house as a simple rule of thumb; that is 25,000 more homes that would be built in the County over the next 20 years than we project - and that is just one of the economic impacts.
While DOF has faster growth than us in some areas, it has slower growth in others, especially in the Bay Areas but also some inland areas such as the Sacramento area. I am surprised DOF doesn't see faster growth for Sacramento. For example, DOF is not projecting Placer County growth to increase substantially from the pace of recent years, remaining barely over one percent for the foreseeable future. I have a hard time seeing San Joaquin County growing twice as fast as Placer County over the next twenty years; as Placer County has often been the state's fastest growing county of late. I still see a lot of room to develop around Roseville, Rocklin and Lincoln.
Monday, January 28, 2013
BDCP Benefit-Cost Analysis Is Going Off-Track
I attended the second update on the new BDCP benefit-cost analysis on Thursday. I was optimistic after the initial meeting in November, but I am not anymore. In November, I was optimistic because they had finally agreed to do benefit-cost analysis, hired a good economist to lead it, and appeared open to feedback.
After this latest meeting, I am left with the impression that they are not responsive to feedback, and that the analysis is not really directed by the economists or established benefit-cost principles. It is directed by Jerry Meral, the Governor's chief advisor on the BDCP, who is not fair and impartial, let alone qualified to direct benefit-cost analysis. He has a clear mission to implement the Governor's vision for the twin tunnels, and he is keeping the consultants on a short leash. He does not appear to be following key elements of his agency's own benefit-cost guidelines.
In many cases when participants make good suggestions that would make the analysis more consistent with accepted guidelines, the economic consultants defer to the boss (Mr. Meral) or state that it is outside the scope of work. The scope of work should be really simple, one sentence is sufficient really. "Conduct a peer-reviewed, independent, benefit-cost analysis of the key elements of the BDCP following recently published guidelines by the Department of Water Resources (2008)." Mr Meral shouldn't be dictating anything. He should just send comment letters like everyone else.
[Update 1/29: I just became aware that the scope of work has been posted. I see nothing in this scope that changes my opinion. The lengthy scope of work is inconsistent with DWR's own guidelines for this type of analysis, contains no provisions for peer review, and provides draft documents to the water contractors first.]
Here are several areas where I feel the benefit-cost analysis is heading off-track.
Incorrectly Bundling The Tunnels Together With the Habitat
B-C principles are clear on this issue, and the principle is clearly stated in DWR's own rules. Each of the major components of the BDCP must independently satisfy the benefit-cost test. Since the big controversy surrounding the BDCP are the proposed tunnels, B-C guidelines clearly indicate that conveyance (i.e. the tunnels) should be analyzed separately.
This element of proper B-C analysis seems to bother people who see BDCP principally as an environmental restoration package. My initial draft B-C analysis was criticized for ignoring environmental benefits of BDCP, which misses the point. It was an analysis of the tunnels - not the whole BDCP.
This concern can be avoided by considering a proper range of BDCP alternatives. These alternatives, including no-tunnel with seismic levee upgrades, and various sizes and configurations of water conveyance (i.e. the NRDC small tunnel proposal) should all be paired with appropriate habitat and operations that meet the requirements of an HCP under the ESA.
All these alternatives would then have roughly equivalent environmental values. Thus, the environmental values would cancel out when comparing alternatives and allow the resources of the benefit-cost analysis to squarely focus on the critical questions of conveyance.
Unfortunately, Dr. Meral appears to be prescribing an analysis that ties the habitat improvements to building a tunnel. This is invalid, and his own consultants have even said so by stating that the ESA doesn't require the tunnels, and the habitat investments could be made without the tunnels.
Inadequate Alternatives
This is closely related and somewhat redundant with the above concern. However, it is so important it needs to be emphasized.
Mr. Meral has made it very clear that they would only be looking at one alternative, the Governor's plan, and comparing it to a no action alternative. This is a clear source of bias, and is well-known way to game benefit-cost analysis.
At minimum, there should be a strong no-tunnel BDCP scenario (similar to the DPC economic sustainability plan) and a strong small tunnel scenario (similar to the NRDC plan). The alternatives need not be limited to that, but those two are musts. If these alternatives are included, then I wouldn't complain if the No Action alternative were dropped entirely from the analysis.
I actually think an analysis of this type would be clearer, faster, and cheaper, because it would largely avoid the morass of non-market environmental valuation and allow clear apples to apples comparisons of conveyance options.
Is the Value of Regulatory Uncertainty Back? Playing games with the No Action alternative.
This meeting also raised a new red flag for me. While the consultants are restricted to only consider one alternative to achieve the BDCP goals, it sounds like the consultants have been given the liberty to play games with the No Action Alternative. I say that because Dr. Sunding kept mentioning that the results are sensitive to the level of water exports in the No Action Alternative, strongly suggesting he is going to lower water supplies in the No Action Alternative below the 4.7maf average, potentially as low as 3maf. The 4.7maf number is based on the current biological opinions governing operation of the projects, and is consistent with the BDCP's draft EIR documents and the definition of No Action that has been used in every BDCP related presentation I have seen to date.
This is a distortion of how No Action alternatives are typically defined in B-C analysis and in EIRs. The No Action alternative assumes a continuation of current conditions and policies. A future deviation from current policy would only be considered in rare cases if it is the clear direction and intention of the relevant government agency, in this case, the Department of Water Resources (DWR). However, DWR is litigating the current biops along with the Delta water exporters, and is on public record in court that they feel they are too restrictive and that higher levels of exports should be allowed. So it seems to me that the only deviation from a No Action alternative based on the current biological opinions that could be remotely justified is an increase in water exports, not a decrease in water exports, and certainly not to something as low as 3 maf.
I asked Dr. Sunding if this low water export scenario would be part of an additional HCP alternative, and he said no, it would be the No Action alternative. I wouldn't mind including a no-tunnel alternative with lower water supplies than the current Biops, but such an alternative should be a BDCP alternative (i.e. meeting the requirements of an HCP under the Endangered Species Act), packaged with habitat and levee investments that would generate comparable levels of environmental benefits and seismic risk reduction to water supplies.
With this manipulation of the No Action Alternative, I believe Dr. Sunding is trying to resurrect his value of "regulatory certainty" theory in the form of a super restrictive No Action Alternative. This hides it by not including regulatory certainty as a separate value category like he did in his July presentation on economic benefits. However, it effectively embeds the concept inside the valuation of water supplies and seismic risk.
Until this is cleared up, I am taking back my praise from 2 months ago that he has dropped the regulatory certainty argument. A No Action alternative should be relatively non controversial, but the discussion in this meeting makes me worried that they are going to adopt whatever creative definition of the No Action alternative is necessary to justify the Governor's twin tunnels.
Blowing Up Earthquake Risks
This is now the 4th time I have seen Dr. Sunding present the losses of an earthquake induced Delta collapse that conveniently occurs in 2025, the date the tunnels are assumed to be complete. Of course, assuming this perfect timing generates the largest possible numbers for his table.
In addition, he always presents the earthquake risk reduction benefits as raw numbers without multiplying by the probability it happens. The scope of work they developed for the "benefits analysis" last year stated that this would be multiplied by probabilities, but he isn't doing it in presentations. Why? Even the exagerrated DRMS estimates placed the probability at about 2% per year. He also includes 2 and 3 year outages that are thought to be highly improbable. I applied the DRMS probabilities to his tables and found the present value of earthquake risk reduction to be no more than 5% of the construction cost of the tunnels.
Most irritating to me, Dr. Sunding is assuming that the state will not eliminate the earthquake risk to water exports through seismic levee upgrades. The probability that this will be done in a No Action, No Tunnel alternative is certainly greater than zero, and I would argue this is far more likely than the 3 maf of exports he is seriously discussing as part of his no action alternative. Building the tunnels will probably mean that there will be no seismic upgrades of Delta levees which will result in unnecessary enormous losses of lives, property and economic activity in the event of the big earthquake event. From this broad perspective, I could make an argument that the Earthquake value of the tunnels is negative.
I believe my suggestion that the earthquake risk reduction benefits of the tunnels are negative (in other words it is a cost, not a benefit, since it will result in poor seismic protection for everything else that matters in the Delta) is far less of a stretch than the "regulatory certainty" theory Dr. Sunding has conjured up.
Super Low Discount Rate
The consultants presented a justification for an unusually low discount rate of 2.275%. One could present equally convincing justification for a 7% discount rate, especially when focused on opportunity costs of state funds rather than today's currently low long-term interest rates that are being manipulated in unprecendented ways by the Federal Reserve.
Another reasonable approach is to look at the DWR guidelines here. In January 2008, when DWR issued its guidelines recommending a 6% discount rate, the yield on a 30 year Treasury Bond averaged 4.33%. BDCP is arguing that todays super-low market interest rates suggest a lower discount rate should be used. At the end of last week, the 30 year Treasury bond yield was 3.14%, which is only 1.19 percentage points lower than when they released their guidelines endorsing a 6% discount rate. So I don't see how DWR can make a market interest rate argument for lowering the discount rate by much more than 1 1/4%, which would be a discount rate of 4.75%.
This is an unsettled issue in Economics, and it isn't going to be settled now. The proper way to handle this is to do a sensitivity analysis that shows the results with a range of values, say 2% to 7%.
A low discount rate is the oldest trick in the book for biasing a B-C analysis in favor of a project, and by adopting a single, super low discount rate, they are just fueling perception of a rigged study.
Concerns With the Non-Market and Recreation Values
I mentioned two of these in the meeting: the noise and visual pollution of the intakes, and accounting for the lost non-market values of prime farmland. And it isn't clear to me that BDCP would result in any net gain in recreational values. After all, the folks who are currently in the Delta recreational business are some of the biggest opponents.
I also have concerns with the benefits transfer approach, but I won't bother with that here. As discussed above, I believe this is an area of intense controversy. And it is really unnecessary, because what folks really want is a benefit-cost analysis that focuses on the tunnels.
[5:00 PM, lightly edited for clarity and grammar]
After this latest meeting, I am left with the impression that they are not responsive to feedback, and that the analysis is not really directed by the economists or established benefit-cost principles. It is directed by Jerry Meral, the Governor's chief advisor on the BDCP, who is not fair and impartial, let alone qualified to direct benefit-cost analysis. He has a clear mission to implement the Governor's vision for the twin tunnels, and he is keeping the consultants on a short leash. He does not appear to be following key elements of his agency's own benefit-cost guidelines.
In many cases when participants make good suggestions that would make the analysis more consistent with accepted guidelines, the economic consultants defer to the boss (Mr. Meral) or state that it is outside the scope of work. The scope of work should be really simple, one sentence is sufficient really. "Conduct a peer-reviewed, independent, benefit-cost analysis of the key elements of the BDCP following recently published guidelines by the Department of Water Resources (2008)." Mr Meral shouldn't be dictating anything. He should just send comment letters like everyone else.
[Update 1/29: I just became aware that the scope of work has been posted. I see nothing in this scope that changes my opinion. The lengthy scope of work is inconsistent with DWR's own guidelines for this type of analysis, contains no provisions for peer review, and provides draft documents to the water contractors first.]
Here are several areas where I feel the benefit-cost analysis is heading off-track.
Incorrectly Bundling The Tunnels Together With the Habitat
B-C principles are clear on this issue, and the principle is clearly stated in DWR's own rules. Each of the major components of the BDCP must independently satisfy the benefit-cost test. Since the big controversy surrounding the BDCP are the proposed tunnels, B-C guidelines clearly indicate that conveyance (i.e. the tunnels) should be analyzed separately.
This element of proper B-C analysis seems to bother people who see BDCP principally as an environmental restoration package. My initial draft B-C analysis was criticized for ignoring environmental benefits of BDCP, which misses the point. It was an analysis of the tunnels - not the whole BDCP.
This concern can be avoided by considering a proper range of BDCP alternatives. These alternatives, including no-tunnel with seismic levee upgrades, and various sizes and configurations of water conveyance (i.e. the NRDC small tunnel proposal) should all be paired with appropriate habitat and operations that meet the requirements of an HCP under the ESA.
All these alternatives would then have roughly equivalent environmental values. Thus, the environmental values would cancel out when comparing alternatives and allow the resources of the benefit-cost analysis to squarely focus on the critical questions of conveyance.
Unfortunately, Dr. Meral appears to be prescribing an analysis that ties the habitat improvements to building a tunnel. This is invalid, and his own consultants have even said so by stating that the ESA doesn't require the tunnels, and the habitat investments could be made without the tunnels.
Inadequate Alternatives
This is closely related and somewhat redundant with the above concern. However, it is so important it needs to be emphasized.
Mr. Meral has made it very clear that they would only be looking at one alternative, the Governor's plan, and comparing it to a no action alternative. This is a clear source of bias, and is well-known way to game benefit-cost analysis.
At minimum, there should be a strong no-tunnel BDCP scenario (similar to the DPC economic sustainability plan) and a strong small tunnel scenario (similar to the NRDC plan). The alternatives need not be limited to that, but those two are musts. If these alternatives are included, then I wouldn't complain if the No Action alternative were dropped entirely from the analysis.
I actually think an analysis of this type would be clearer, faster, and cheaper, because it would largely avoid the morass of non-market environmental valuation and allow clear apples to apples comparisons of conveyance options.
Is the Value of Regulatory Uncertainty Back? Playing games with the No Action alternative.
This meeting also raised a new red flag for me. While the consultants are restricted to only consider one alternative to achieve the BDCP goals, it sounds like the consultants have been given the liberty to play games with the No Action Alternative. I say that because Dr. Sunding kept mentioning that the results are sensitive to the level of water exports in the No Action Alternative, strongly suggesting he is going to lower water supplies in the No Action Alternative below the 4.7maf average, potentially as low as 3maf. The 4.7maf number is based on the current biological opinions governing operation of the projects, and is consistent with the BDCP's draft EIR documents and the definition of No Action that has been used in every BDCP related presentation I have seen to date.
This is a distortion of how No Action alternatives are typically defined in B-C analysis and in EIRs. The No Action alternative assumes a continuation of current conditions and policies. A future deviation from current policy would only be considered in rare cases if it is the clear direction and intention of the relevant government agency, in this case, the Department of Water Resources (DWR). However, DWR is litigating the current biops along with the Delta water exporters, and is on public record in court that they feel they are too restrictive and that higher levels of exports should be allowed. So it seems to me that the only deviation from a No Action alternative based on the current biological opinions that could be remotely justified is an increase in water exports, not a decrease in water exports, and certainly not to something as low as 3 maf.
I asked Dr. Sunding if this low water export scenario would be part of an additional HCP alternative, and he said no, it would be the No Action alternative. I wouldn't mind including a no-tunnel alternative with lower water supplies than the current Biops, but such an alternative should be a BDCP alternative (i.e. meeting the requirements of an HCP under the Endangered Species Act), packaged with habitat and levee investments that would generate comparable levels of environmental benefits and seismic risk reduction to water supplies.
With this manipulation of the No Action Alternative, I believe Dr. Sunding is trying to resurrect his value of "regulatory certainty" theory in the form of a super restrictive No Action Alternative. This hides it by not including regulatory certainty as a separate value category like he did in his July presentation on economic benefits. However, it effectively embeds the concept inside the valuation of water supplies and seismic risk.
Until this is cleared up, I am taking back my praise from 2 months ago that he has dropped the regulatory certainty argument. A No Action alternative should be relatively non controversial, but the discussion in this meeting makes me worried that they are going to adopt whatever creative definition of the No Action alternative is necessary to justify the Governor's twin tunnels.
Blowing Up Earthquake Risks
This is now the 4th time I have seen Dr. Sunding present the losses of an earthquake induced Delta collapse that conveniently occurs in 2025, the date the tunnels are assumed to be complete. Of course, assuming this perfect timing generates the largest possible numbers for his table.
In addition, he always presents the earthquake risk reduction benefits as raw numbers without multiplying by the probability it happens. The scope of work they developed for the "benefits analysis" last year stated that this would be multiplied by probabilities, but he isn't doing it in presentations. Why? Even the exagerrated DRMS estimates placed the probability at about 2% per year. He also includes 2 and 3 year outages that are thought to be highly improbable. I applied the DRMS probabilities to his tables and found the present value of earthquake risk reduction to be no more than 5% of the construction cost of the tunnels.
Most irritating to me, Dr. Sunding is assuming that the state will not eliminate the earthquake risk to water exports through seismic levee upgrades. The probability that this will be done in a No Action, No Tunnel alternative is certainly greater than zero, and I would argue this is far more likely than the 3 maf of exports he is seriously discussing as part of his no action alternative. Building the tunnels will probably mean that there will be no seismic upgrades of Delta levees which will result in unnecessary enormous losses of lives, property and economic activity in the event of the big earthquake event. From this broad perspective, I could make an argument that the Earthquake value of the tunnels is negative.
I believe my suggestion that the earthquake risk reduction benefits of the tunnels are negative (in other words it is a cost, not a benefit, since it will result in poor seismic protection for everything else that matters in the Delta) is far less of a stretch than the "regulatory certainty" theory Dr. Sunding has conjured up.
Super Low Discount Rate
The consultants presented a justification for an unusually low discount rate of 2.275%. One could present equally convincing justification for a 7% discount rate, especially when focused on opportunity costs of state funds rather than today's currently low long-term interest rates that are being manipulated in unprecendented ways by the Federal Reserve.
Another reasonable approach is to look at the DWR guidelines here. In January 2008, when DWR issued its guidelines recommending a 6% discount rate, the yield on a 30 year Treasury Bond averaged 4.33%. BDCP is arguing that todays super-low market interest rates suggest a lower discount rate should be used. At the end of last week, the 30 year Treasury bond yield was 3.14%, which is only 1.19 percentage points lower than when they released their guidelines endorsing a 6% discount rate. So I don't see how DWR can make a market interest rate argument for lowering the discount rate by much more than 1 1/4%, which would be a discount rate of 4.75%.
This is an unsettled issue in Economics, and it isn't going to be settled now. The proper way to handle this is to do a sensitivity analysis that shows the results with a range of values, say 2% to 7%.
A low discount rate is the oldest trick in the book for biasing a B-C analysis in favor of a project, and by adopting a single, super low discount rate, they are just fueling perception of a rigged study.
Concerns With the Non-Market and Recreation Values
I mentioned two of these in the meeting: the noise and visual pollution of the intakes, and accounting for the lost non-market values of prime farmland. And it isn't clear to me that BDCP would result in any net gain in recreational values. After all, the folks who are currently in the Delta recreational business are some of the biggest opponents.
I also have concerns with the benefits transfer approach, but I won't bother with that here. As discussed above, I believe this is an area of intense controversy. And it is really unnecessary, because what folks really want is a benefit-cost analysis that focuses on the tunnels.
[5:00 PM, lightly edited for clarity and grammar]
Friday, January 25, 2013
FYI for Governor Brown: Katrina and Sandy killed over a thousand people and destroyed thousands of homes
Governor Brown's state of the state speech invoked the destruction of Katrina and Sandy as the primary justification for his plan for the tunnels.
The primary tragedies of Katrina and Sandy were lost lives and destroyed homes and property. Katrina killed over a thousand Americans and Sandy killed over a hundred, and caused billions in local property damage. The state's assessment of a mass flood, Delta earthquake scenario predicts similar levels of fatalities and local property damage.
In both Katrina and Sandy, there were also some significant secondary disruptions on gasoline markets and some other effects that spread outside the affected area. For a massive Delta flood, there would be similar impacts: the focus has been on disruption to export water supplies, but there would also be costly disruptions of transportation, energy, and local water systems.
In his speech, Governor Brown declared that his plan to protect the state from a Delta flood is to worry about only one of the secondary interests (water exports) at enormous costs while ignoring the lives, homes and businesses that would be destroyed in the very unlikely but catastrophic flood event in the Delta.
Can you imagine if the Governor of Louisiana or President of the U.S. gave a speech that said that the lesson of Katrina is that we need to move oil refineries out of vulnerable areas around the Gulf without mentioning or offering to help the thousands of people who lost their lives and homes in these events? Jerry Brown just did the equivalent when discussing a Delta flood, and only showing concern for out-of-area interests in his comments and in his action plan (tunnels). Where is the backlash? The media is praising him for his visionary rhetoric while ignoring that his actions/plan show a cruel indifference to whether hundreds or thousands of Californians perish in a catastrophic flood.
In this case, Brown's speech is not only insensitive but is bad economics. The state is now sitting on 2 studies that clearly show that seismic levee improvements are cheaper than the tunnels, and provide more economic benefits because seismic levee upgrades protect water exports from interruption, and also provide additional benefits of protecting in-Delta lives and property, and significant non-water energy and transportation infrastructure.
The primary tragedies of Katrina and Sandy were lost lives and destroyed homes and property. Katrina killed over a thousand Americans and Sandy killed over a hundred, and caused billions in local property damage. The state's assessment of a mass flood, Delta earthquake scenario predicts similar levels of fatalities and local property damage.
In both Katrina and Sandy, there were also some significant secondary disruptions on gasoline markets and some other effects that spread outside the affected area. For a massive Delta flood, there would be similar impacts: the focus has been on disruption to export water supplies, but there would also be costly disruptions of transportation, energy, and local water systems.
In his speech, Governor Brown declared that his plan to protect the state from a Delta flood is to worry about only one of the secondary interests (water exports) at enormous costs while ignoring the lives, homes and businesses that would be destroyed in the very unlikely but catastrophic flood event in the Delta.
Can you imagine if the Governor of Louisiana or President of the U.S. gave a speech that said that the lesson of Katrina is that we need to move oil refineries out of vulnerable areas around the Gulf without mentioning or offering to help the thousands of people who lost their lives and homes in these events? Jerry Brown just did the equivalent when discussing a Delta flood, and only showing concern for out-of-area interests in his comments and in his action plan (tunnels). Where is the backlash? The media is praising him for his visionary rhetoric while ignoring that his actions/plan show a cruel indifference to whether hundreds or thousands of Californians perish in a catastrophic flood.
In this case, Brown's speech is not only insensitive but is bad economics. The state is now sitting on 2 studies that clearly show that seismic levee improvements are cheaper than the tunnels, and provide more economic benefits because seismic levee upgrades protect water exports from interruption, and also provide additional benefits of protecting in-Delta lives and property, and significant non-water energy and transportation infrastructure.
Wednesday, January 16, 2013
First Impression of the NRDC Portfolio Delta Plan
The "new" NRDC proposal is very similar to a
compromise based on the 3,000 cfs pipeline proposal Greg Gartrell and Jonas Minton were talking about a lot back in 2009 and 2010. I thought was the best proposal out there in 2010 and early 2011.
At that time, I thought the small tunnel was necessary for a lifeline
water supply in the event of the earthquake.
All I knew about Delta earthquakes and levees was what I read in the newspapers and heard from Dr. Doom. After working on the DPC Economic Sustainability Plan, I now realize that the earthquake risk to water exports
can be reduced by as much or more as building tunnels through the common sense approach of upgrading the levee system, an action which also has enormous non-water benefits. To their credit, this new portfolio plan doesn't make seismic risk reduction the principal justification for the 3,000 cfs tunnel and the plan does call for significant levee investments.
I didn't notice any agricultural water
agencies on the NRDC water agency support letter. I don't think their small and still very expensive tunnel, and their portfolio of alternative water supplies provides a lot of value to agriculture, both outside and inside the Delta. While the 3,000 cfs tunnel has the advantage of being cheaper and thus leaving more money to invest in the rest of the portfolio, I'm not sure a $5-7 billion, 3,000 cfs tunnel with 4 to 4.3 maf of average exports is a good investment compared to a no-tunnel BDCP with potentially more levee and habitat investment.
Farm water supplies is where I think Bob Pyke's West Delta Intake plan may have an edge over this NRDC/Barry Nelson adaptation of the Gartrell/Minton little tunnel plan, it provides more water to agricultural users who have fewer alternative investment options than urban agencies. We need further development of both of these conveyance alternatives.
Farm water supplies is where I think Bob Pyke's West Delta Intake plan may have an edge over this NRDC/Barry Nelson adaptation of the Gartrell/Minton little tunnel plan, it provides more water to agricultural users who have fewer alternative investment options than urban agencies. We need further development of both of these conveyance alternatives.
Overall, I think the new NRDC portfolio proposal is a welcome development, even if it is mostly repackaged old ideas put forward by an interesting coalition. It is clearly better than the current BDCP, and it deserves serious consideration.
At the moment, I count three credible alternatives to the current BDCP that are not receiving enough serious consideration: NRDC portfolio plan (little tunnel), DPC economic sustainability plan (no tunnel), and the West Delta Intake concept (big tunnels downstream). I am pretty sure all of them have lower costs and higher benefits than the current BDCP proposal, and that all of them satisfy the co-equal goals of state law.
Tuesday, January 15, 2013
It's Time For a Serious Study of the West Delta Intake Concept
I admit that I didn't pay much attention the first time I heard Bob Pyke describe the West Delta Intake concept nearly two years ago.
Then I started talking to local fisherman, boaters and farmers for the DPC Economic Sustainability Plan. I recall talking to one gent in Lodi who had been fishing the Delta for decades who said, "They should just put the intakes in the Carquinez Straight." I asked, "Do you know Bob Pyke?" "Nope." Over the next few months, I heard some other comments from Delta locals suggesting intakes at the Antioch Bridge, Rio Vista, etc. "Do you know Bob Pyke?" I asked. No, they said. While they claim not to know him, I am pretty convinced Bob stole his idea from some Delta locals while drinking in a local bar. It involves too much common sense to spring from the mind of a Ph.D.
Seriously, these conversations made me realize that this was a conveyance concept that might get in-Delta support, and I can't recall ever hearing a local say they should just build a little pipe (or a 3,000 cfs tunnel). West Delta intakes passes the common sense and fairness test of many people who actually live in the estuary. That's nice I thought, but it isn't a good enough reason to build it. I still mostly dismissed it as an expensive civil engineers' flight of fancy.
Over the past year, Dr. Pyke has been filling in details to the concept while the BDCP tunnel concept flounders, delivering less water and more cost with each iteration of the BDCP plan. And the more I learn, the more I think West Delta intakes could be a viable option, and apparantly I am not alone. At this point, it seems very likely to me that the West Delta concept delivers more benefits at lower cost than the BDCP tunnels.
In the recent article in the Record, the sub-headline focuses on the potential cost savings, just like most coverage of the fat, seismic-resistant levees we recommended in the Economic Sustainability Plan. But I think the key to appreciating both the fat levees and West Delta Intakes is to understand that they provide more benefits than the alternatives, rather than focus on the costs.
Of course, this all needs to be studied in detail. I agree with Larry Ruhstaller in the Record article,
Potential Benefits of the West Delta Intakes Compared to the Tunnels
1. More Water Exports. For years, I have been hearing about the "Big Gulp, Little Sip" approach to the Delta; that we need to take more water in wet years and less in dry years. That has been a selling point of the tunnels, but it appears that the tunnels aren't able to actually take that big of a gulp. Bob's design would allow a bigger gulp by having significant storage between the intakes and the aquaducts, and having ten miles of "intakes" along wide channels on Sherman island feeding conveyance tunnels with 15,000 cfs capacity as opposed to 9,000 cfs in the current BDCP plan. Because the intake location would create water quality issues in dry years, it seems there would be no choice but to take a little sip in dry years.
Overall, it seems the average level of exports would be higher than the BDCP tunnels. The failure of the current BDCP to significantly increase water exports in return for a $14 billion investment from water exports is a key reason why BDCP makes no economic sense, especially for farmers. While the tunnels offer some water quality benefits for exporters, the water supply is more important. By my rough calculations, average water exports need to get to 6.5 to 7.0 maf before a $14 billion investment in conveyance makes economic sense for water agencies. We know BDCP can't get to those levels. The West Delta concept has a shot, and it should be studied.
2. More Benefits for Fish. The West Delta "intakes" would be 10 miles of coarse sand and rock levees where water would be pulled in at much lower velocity than the proposed BDCP intakes, which might collectively add up to nearly a mile of screened intakes. The channels are much larger near Sherman island too, so it intuitively makes sense to me that salmon and other fish would pass by much more easily. And the design of the plan would put a physical constraint (not a rule that can/will be broken) on dry year water exports, which is said to be critically important to fish.
But I don't know anything about fish, so don't listen to me. Let's get the biologists to study it. While DWR has expressed concerns about Delta Smelt in this region, I seem to recall some environmental experts touted by DWR - and high-level Delta Stewardship Council officials saying things like we must accept that we might lose some species in order to improve the overall ecosystem and achive the co-equal goals. I am not saying that we should let the Smelt go or even that the West Delta concept is harmful to Smelt. I am saying that concerns about Smelt is not sufficient justification not to study the West Delta concept given that they have continuously studied conveyance concepts that are known to harm endangered species.
3. Better for in-Delta interests. There is no arguing this. And yes, they matter.
4. Better for non-water concerns such as transportation and public safety. Dr. Pyke's proposal talks about transportation improvements on Sherman Island, but I would make the larger point that his plan would build upon levee upgrades throughout much of the Delta as recommended in the Economic Sustainability Plan. If you believe that the risk of a major seismic event in the Delta is high enough to demand action, then you must realize that transportation, life loss and other infrastructure and property loss in the event of a Delta quake is a much larger risk than water exports. Real solutions to seismic risk in the Delta protect all these values, not just water exports, and the BDCP tunnels fail on this criteria. West Delta intakes aligns the water exporters interests with the rest of the state when it comes to addressing seismic risk. This is a critical issue that I will write about in the future. These levee upgrades need to be done regardless of any conveyance solution that may be implemented, but there is a real risk it won't happen if the BDCP tunnel plan goes forward.
In addition, it offers an advantage over the BDCP tunnels in that it improves all stakeholders relative to the so-called "status quo". That is an attribute with real societal value, and it also has practical value when it comes to navigating lawsuits, politics and getting a conveyance permitted and built.
Potentially Lower Costs Than the Tunnels
Would the construction costs be lower than the tunnels? I'm not sure, but it seems unlikely to be significantly higher.
The most obvious saving is that the conveyance tunnels would be less than one-half the length of the BDCP proposal. That is a large cost saving on tunnels, but the West Delta concept also includes additional costs for new storage. The reconfiguration of Sherman Island, dredging out the peat, building the 10 miles of permeable sand/rock levees and other improvements will be expensive, but might not be much more than the North Delta intakes and forebay in the BDCP plan, which are also really expensive.
So what's my preliminary conclusion on the WDIC. I think there is a significant probability that the concept has higher overall benefits than BDCP tunnels, and it is unlikely to cost more and might have lower costs than BDCP tunnels. It definitely merits a rigorous study.
For the details and a better explanation, check out Bob's accessible 13 page description of the concept and why it makes sense here. He's got a brief addendum floating around to that gives more details on permeable levees too. I don't have a link to the addendum, but will try to post one later.
Update: Here is a link to the addendum.
Then I started talking to local fisherman, boaters and farmers for the DPC Economic Sustainability Plan. I recall talking to one gent in Lodi who had been fishing the Delta for decades who said, "They should just put the intakes in the Carquinez Straight." I asked, "Do you know Bob Pyke?" "Nope." Over the next few months, I heard some other comments from Delta locals suggesting intakes at the Antioch Bridge, Rio Vista, etc. "Do you know Bob Pyke?" I asked. No, they said. While they claim not to know him, I am pretty convinced Bob stole his idea from some Delta locals while drinking in a local bar. It involves too much common sense to spring from the mind of a Ph.D.
Seriously, these conversations made me realize that this was a conveyance concept that might get in-Delta support, and I can't recall ever hearing a local say they should just build a little pipe (or a 3,000 cfs tunnel). West Delta intakes passes the common sense and fairness test of many people who actually live in the estuary. That's nice I thought, but it isn't a good enough reason to build it. I still mostly dismissed it as an expensive civil engineers' flight of fancy.
Over the past year, Dr. Pyke has been filling in details to the concept while the BDCP tunnel concept flounders, delivering less water and more cost with each iteration of the BDCP plan. And the more I learn, the more I think West Delta intakes could be a viable option, and apparantly I am not alone. At this point, it seems very likely to me that the West Delta concept delivers more benefits at lower cost than the BDCP tunnels.
In the recent article in the Record, the sub-headline focuses on the potential cost savings, just like most coverage of the fat, seismic-resistant levees we recommended in the Economic Sustainability Plan. But I think the key to appreciating both the fat levees and West Delta Intakes is to understand that they provide more benefits than the alternatives, rather than focus on the costs.
Of course, this all needs to be studied in detail. I agree with Larry Ruhstaller in the Record article,
Why should we be looking at this alternative? Take a quick look at the some of the more significant potential benefits and costs. It certainly seems promising. What's the harm in a study?Simply studying the plan can't hurt, Ruhstaller said Friday."If there's a fatal flaw, let's find it," he said. "We think there's a lot of fatal flaws" in the governor's plan.
Potential Benefits of the West Delta Intakes Compared to the Tunnels
1. More Water Exports. For years, I have been hearing about the "Big Gulp, Little Sip" approach to the Delta; that we need to take more water in wet years and less in dry years. That has been a selling point of the tunnels, but it appears that the tunnels aren't able to actually take that big of a gulp. Bob's design would allow a bigger gulp by having significant storage between the intakes and the aquaducts, and having ten miles of "intakes" along wide channels on Sherman island feeding conveyance tunnels with 15,000 cfs capacity as opposed to 9,000 cfs in the current BDCP plan. Because the intake location would create water quality issues in dry years, it seems there would be no choice but to take a little sip in dry years.
Overall, it seems the average level of exports would be higher than the BDCP tunnels. The failure of the current BDCP to significantly increase water exports in return for a $14 billion investment from water exports is a key reason why BDCP makes no economic sense, especially for farmers. While the tunnels offer some water quality benefits for exporters, the water supply is more important. By my rough calculations, average water exports need to get to 6.5 to 7.0 maf before a $14 billion investment in conveyance makes economic sense for water agencies. We know BDCP can't get to those levels. The West Delta concept has a shot, and it should be studied.
2. More Benefits for Fish. The West Delta "intakes" would be 10 miles of coarse sand and rock levees where water would be pulled in at much lower velocity than the proposed BDCP intakes, which might collectively add up to nearly a mile of screened intakes. The channels are much larger near Sherman island too, so it intuitively makes sense to me that salmon and other fish would pass by much more easily. And the design of the plan would put a physical constraint (not a rule that can/will be broken) on dry year water exports, which is said to be critically important to fish.
But I don't know anything about fish, so don't listen to me. Let's get the biologists to study it. While DWR has expressed concerns about Delta Smelt in this region, I seem to recall some environmental experts touted by DWR - and high-level Delta Stewardship Council officials saying things like we must accept that we might lose some species in order to improve the overall ecosystem and achive the co-equal goals. I am not saying that we should let the Smelt go or even that the West Delta concept is harmful to Smelt. I am saying that concerns about Smelt is not sufficient justification not to study the West Delta concept given that they have continuously studied conveyance concepts that are known to harm endangered species.
3. Better for in-Delta interests. There is no arguing this. And yes, they matter.
4. Better for non-water concerns such as transportation and public safety. Dr. Pyke's proposal talks about transportation improvements on Sherman Island, but I would make the larger point that his plan would build upon levee upgrades throughout much of the Delta as recommended in the Economic Sustainability Plan. If you believe that the risk of a major seismic event in the Delta is high enough to demand action, then you must realize that transportation, life loss and other infrastructure and property loss in the event of a Delta quake is a much larger risk than water exports. Real solutions to seismic risk in the Delta protect all these values, not just water exports, and the BDCP tunnels fail on this criteria. West Delta intakes aligns the water exporters interests with the rest of the state when it comes to addressing seismic risk. This is a critical issue that I will write about in the future. These levee upgrades need to be done regardless of any conveyance solution that may be implemented, but there is a real risk it won't happen if the BDCP tunnel plan goes forward.
In addition, it offers an advantage over the BDCP tunnels in that it improves all stakeholders relative to the so-called "status quo". That is an attribute with real societal value, and it also has practical value when it comes to navigating lawsuits, politics and getting a conveyance permitted and built.
Potentially Lower Costs Than the Tunnels
Would the construction costs be lower than the tunnels? I'm not sure, but it seems unlikely to be significantly higher.
The most obvious saving is that the conveyance tunnels would be less than one-half the length of the BDCP proposal. That is a large cost saving on tunnels, but the West Delta concept also includes additional costs for new storage. The reconfiguration of Sherman Island, dredging out the peat, building the 10 miles of permeable sand/rock levees and other improvements will be expensive, but might not be much more than the North Delta intakes and forebay in the BDCP plan, which are also really expensive.
So what's my preliminary conclusion on the WDIC. I think there is a significant probability that the concept has higher overall benefits than BDCP tunnels, and it is unlikely to cost more and might have lower costs than BDCP tunnels. It definitely merits a rigorous study.
For the details and a better explanation, check out Bob's accessible 13 page description of the concept and why it makes sense here. He's got a brief addendum floating around to that gives more details on permeable levees too. I don't have a link to the addendum, but will try to post one later.
Update: Here is a link to the addendum.
Thursday, January 10, 2013
Thoughts on the (Yawn) Governor's Budget Proposal
Well, that was boring. First time in years that the Governor's budget proposal didn't include huge budget cutting or a major new proposal which makes sense because it is his 3rd budget and he has already laid out much of his policy vision.
And with Prop. 30 passing and the economy hasn't thrown any major surprises over the last year, the budget is more or less balanced along the lines of last year. So no need for new slashing, and no new money for major initiatives or restoring old cuts.
The big story is going to be the weighted student funding formula that would direct most of the new funding to schools with lots of english language learners and poor kids. That was initially proposed last year, but implementation was contingent on increased overall funding - which meant Prop. 30 passing. I am a little surprised that opponents of Prop. 30 didn't use the weighted-student funding proposal more in their campaign against the taxes (something like "Jerry Brown's tax increase won't increase funding for all schools, politicians and bureaucrats will choose which schools get the extra funding and some schools will be left out. Do you trust Sacramento to treat your community fairly...") I wouldn't be surprised to see Democrats lower the vote thresholds for school parcel taxes to help ease resistance from suburban school districts that will be harmed by the weighted student funding formula. This issue has huge implications for the Valley, and still has to overcome a lot of resistance, so I will be watching this issue closely.
People most often ask me about the economic and revenue forecast in the budget. I think it is a little optimistic, but not unreasonable, and it is important to note that their forecast optimistically assumed the 2% payroll tax cut would be extended for 2013. That assumption obviously turned out to be wrong, and will have an effect on future forecasts for the May revision. My initial estimate is that revenues are probably going to be $1-2 billion less than their projections, a little larger than the budget's reserve.
And with Prop. 30 passing and the economy hasn't thrown any major surprises over the last year, the budget is more or less balanced along the lines of last year. So no need for new slashing, and no new money for major initiatives or restoring old cuts.
The big story is going to be the weighted student funding formula that would direct most of the new funding to schools with lots of english language learners and poor kids. That was initially proposed last year, but implementation was contingent on increased overall funding - which meant Prop. 30 passing. I am a little surprised that opponents of Prop. 30 didn't use the weighted-student funding proposal more in their campaign against the taxes (something like "Jerry Brown's tax increase won't increase funding for all schools, politicians and bureaucrats will choose which schools get the extra funding and some schools will be left out. Do you trust Sacramento to treat your community fairly...") I wouldn't be surprised to see Democrats lower the vote thresholds for school parcel taxes to help ease resistance from suburban school districts that will be harmed by the weighted student funding formula. This issue has huge implications for the Valley, and still has to overcome a lot of resistance, so I will be watching this issue closely.
People most often ask me about the economic and revenue forecast in the budget. I think it is a little optimistic, but not unreasonable, and it is important to note that their forecast optimistically assumed the 2% payroll tax cut would be extended for 2013. That assumption obviously turned out to be wrong, and will have an effect on future forecasts for the May revision. My initial estimate is that revenues are probably going to be $1-2 billion less than their projections, a little larger than the budget's reserve.
Friday, December 28, 2012
Salinity, Delta Agriculture and the PPIC: Muzzled Dogs Can't Bark
Last month, I made an initial comment on the PPIC/UC-Davis California Water Blog post that salinity effects on Delta agriculture from a proposed peripheral tunnel is a dog that doesn't bark, and the approving post that followed on the "BDCP blog". My original blog focused on the fact that both blogs deceptively suggested the PPIC had modeled the BDCP proposal, something I have complained about since the original report was released nearly a year ago.
But that post is about the spin, and this post speaks more to the substance (i.e. boring, but keep reading). This post explains why I see greater evidence (or hear barking dogs) of potential salinity impacts on Delta ag than the Davis researchers. Along the way, I will make a policy proposal and a research proposal that would go a long way towards resolving the issue.
The three steps in determining potential economic impacts from salinity are as follows:
The PPIC/Davis team claims their study is the most advanced because it used a detailed hydro-dynamic model in the first step, and their results showed little to no change in Delta salinity levels for the conveyance facility and operations they modeled. If this result is true, then obviously there is no economic impact, and debating the 2nd two steps of the analysis is a waste of time. I have no reason to doubt the result of the hydro-dynamic modeling, but I know it has left many people puzzled by the surprising results. I recommend the PPIC/Davis folks do more to explain these surprising hydro-dynamic findings to the public.
When we looked at this same question for the DPC Economic Sustainability Plan, we wanted to use hydro-dynamic modeling results too but didn't have any. We asked BDCP to share their current modeling, but they declined. Instead, we used something that is arguably more important than modeling results, the BDCP's proposed standards for Central and South Delta Salinity.
And yes, those dogs were barking loudly since the draft BDCP did not set maximum salinity standards in the central and south Delta like they did for other areas. Furthermore, at the same time, the sponsors of the BDCP, the Department of Water Resources' is currently pushing for a 41% increase in maximum south Delta salinity levels during the growing season. If DWR thinks their will be no salinity impact like the PPIC says, why are they trying to change the current standards?
So that leads to my policy proposal that follows directly from the PPIC findings of marginal salinity impacts. The BDCP should commit to maintaining the current central and south Delta salinity standards into the BDCP, and DWR should drop it's current proposal to the State Water Resource Control Board to weaken those standards. If the BDCP isn't willing to do that, then they shouldn't be promoting the PPIC/Davis findings to advance the tunnels since they will not have shown any faith in the results.
Step 2. Estimate Impact of Salinity Change on Agricultural Production
In the PPIC/Davis model of Delta agriculture, the salinity effect on crops is assumed to follow the analysis of a paper by Hoffman which DWR is using as its primary support for its proposal to weaken south Delta salinity standards from 0.7 ec (mS/cm) to 1.0 (mS/cm). Hoffman's paper does not include any actual soil or crop data from the relevant parts of the Delta, but makes some favorable assumptions regarding soil conditions to derive crop yield functions where irrigation water salinity has virtually no effect below a threshold of 1.0 ec. Under different soil assumptions, the thresholds are much lower. Hoffman provides very flimsy evidence to support his crucial soils assumption. Last year, lawyers for Delta farmers showed me maps of Delta soils that contradicted Hoffman, and Delta farmers told me they had experienced crop damage from salts that Hoffman's study assumes could not occur.
The bottom line is that this assumed yield function with a relatively high threshold before salinity impacts occur drive the UC-Davis results since their model programs in the disputed Hoffman view of the Delta. In other words, they have muzzled the dog in their model so it can't bark at current or predicted salinity levels in the Delta.
In contrast to the programming approach with an assumed salinity yield function with a 1.0 ec threshold, we used an econometric approach in the DPC Economic Sustainability Plan. This approach doesn't assume a yield function, it uses a detailed field level data set to statistically test whether Delta farmers crop choices are correlated with salinity after controlling for a variety of other factors. This statistical approach showed a strong correlation between salinity and crop choice in a data set where virtually all the observations were below Hoffman's 1.0 ec threshold. This econometric approach is preferred by most economists when the data is available (field level data needed for this kind of model is pretty new), and I should point out that the Delta Science Progam's Independent Review Panel praised this modeling in the ESP as "state of the art" and made a positive contrast between it and the programming approach used in the PPIC/Davis study.
With this background, you should see why I laughed at this passage in the recent PPIC/Davis blog post in which they offer an explanation for why their salinity effects are so low.
The bold was added by the dog barking at evidence of salinity impacts on Delta crops.
The UC-Davis researchers ignore what this data says about their model and interpret it as an explanation for why economic impacts are low. It just so happens that the low-value, salt tolerant crops are already grown in the areas that are near but below the threshold where they assume salinity affects crops. How fortuitous! So if salinity rises further and bumps against the threshold, there will be little economic impact since these fields already have low value crops.
Other scientists might look at this data, and begin to question their model assumptions.
And here is my constructive suggestion for research. While I think there is pretty compelling evidence in the crop choice data that salinity has a bigger impact than assumed by Hoffman/PPIC/Davis, I don't believe it is the final word. It would be useful to test these relationships more directly through data collection and research in the field about Delta soils and crop response to salinity. I made this suggestion at the Delta Science Conference as an area where they could sponsor some field research that would go a long way to settling these questions.
Step 3. Estimate economic impact of change in agricultural production.
In the final step, the PPIC/UC-Davis team used an IMPLAN model to translate the changes in agricultural output into economic impacts such as lost jobs and income. This is usually a relatively straight-forward step, but I will note some small inconsistencies.
In the Delta study, they find about 16 lost jobs for every $1 million decline in agricultural revenue.
This is about half the 30 lost jobs per $1 million decline in agricultural revenue that they predicted in 2009 from water shortages.
I see two differences in their Delta modeling that result in lower multipliers that I think are poorly justified. First, they have not adjusted the production functions to account for contract labor as they did in their studies of water shortages in other regions. Second, they have modeled the multiplier effects over a very narrow region, compared to the eight county San Joaquin Valley used for other agricultural regions. Their Delta zipcode region extends just outside the legal Delta boundaries but excludes many important areas where many Delta workers, suppliers, and even farmers are located including Lodi and south and east Stockton. In addition, it leaves out important shopping areas around the Delta in Lodi, Stockton, Elk Grove, the mall area in Tracy, and Sacramento. If you miss significant areas where employees live and shop, you are certainly going to underestimate the "ripple" effects in the local economy.
Despite all this criticism, I do agree with the UC-Davis researchers about one of their conclusions regarding Delta agriculture and the BDCP. As the BDCP is developing (shrinking the conveyance but not the habitat) the issue of land availability is a bigger economic threat to Delta agriculture than salinity.
But that post is about the spin, and this post speaks more to the substance (i.e. boring, but keep reading). This post explains why I see greater evidence (or hear barking dogs) of potential salinity impacts on Delta ag than the Davis researchers. Along the way, I will make a policy proposal and a research proposal that would go a long way towards resolving the issue.
The three steps in determining potential economic impacts from salinity are as follows:
- Predict salinity change from Delta conveyance.
- Estimate impact of predicted salinity change on agricultural production.
- Estimate economic effect of change in agricultural prodution.
The PPIC/Davis team claims their study is the most advanced because it used a detailed hydro-dynamic model in the first step, and their results showed little to no change in Delta salinity levels for the conveyance facility and operations they modeled. If this result is true, then obviously there is no economic impact, and debating the 2nd two steps of the analysis is a waste of time. I have no reason to doubt the result of the hydro-dynamic modeling, but I know it has left many people puzzled by the surprising results. I recommend the PPIC/Davis folks do more to explain these surprising hydro-dynamic findings to the public.
When we looked at this same question for the DPC Economic Sustainability Plan, we wanted to use hydro-dynamic modeling results too but didn't have any. We asked BDCP to share their current modeling, but they declined. Instead, we used something that is arguably more important than modeling results, the BDCP's proposed standards for Central and South Delta Salinity.
And yes, those dogs were barking loudly since the draft BDCP did not set maximum salinity standards in the central and south Delta like they did for other areas. Furthermore, at the same time, the sponsors of the BDCP, the Department of Water Resources' is currently pushing for a 41% increase in maximum south Delta salinity levels during the growing season. If DWR thinks their will be no salinity impact like the PPIC says, why are they trying to change the current standards?So that leads to my policy proposal that follows directly from the PPIC findings of marginal salinity impacts. The BDCP should commit to maintaining the current central and south Delta salinity standards into the BDCP, and DWR should drop it's current proposal to the State Water Resource Control Board to weaken those standards. If the BDCP isn't willing to do that, then they shouldn't be promoting the PPIC/Davis findings to advance the tunnels since they will not have shown any faith in the results.
Step 2. Estimate Impact of Salinity Change on Agricultural Production
In the PPIC/Davis model of Delta agriculture, the salinity effect on crops is assumed to follow the analysis of a paper by Hoffman which DWR is using as its primary support for its proposal to weaken south Delta salinity standards from 0.7 ec (mS/cm) to 1.0 (mS/cm). Hoffman's paper does not include any actual soil or crop data from the relevant parts of the Delta, but makes some favorable assumptions regarding soil conditions to derive crop yield functions where irrigation water salinity has virtually no effect below a threshold of 1.0 ec. Under different soil assumptions, the thresholds are much lower. Hoffman provides very flimsy evidence to support his crucial soils assumption. Last year, lawyers for Delta farmers showed me maps of Delta soils that contradicted Hoffman, and Delta farmers told me they had experienced crop damage from salts that Hoffman's study assumes could not occur.
The bottom line is that this assumed yield function with a relatively high threshold before salinity impacts occur drive the UC-Davis results since their model programs in the disputed Hoffman view of the Delta. In other words, they have muzzled the dog in their model so it can't bark at current or predicted salinity levels in the Delta.In contrast to the programming approach with an assumed salinity yield function with a 1.0 ec threshold, we used an econometric approach in the DPC Economic Sustainability Plan. This approach doesn't assume a yield function, it uses a detailed field level data set to statistically test whether Delta farmers crop choices are correlated with salinity after controlling for a variety of other factors. This statistical approach showed a strong correlation between salinity and crop choice in a data set where virtually all the observations were below Hoffman's 1.0 ec threshold. This econometric approach is preferred by most economists when the data is available (field level data needed for this kind of model is pretty new), and I should point out that the Delta Science Progam's Independent Review Panel praised this modeling in the ESP as "state of the art" and made a positive contrast between it and the programming approach used in the PPIC/Davis study.
With this background, you should see why I laughed at this passage in the recent PPIC/Davis blog post in which they offer an explanation for why their salinity effects are so low.
How do we account for such large cost reductions? Four factors explain the difference...
Second, we conducted the analysis island-by-island, which enabled us to show that the islands at risk are those that grow the lowest value crops. Third, these low-value crops are the most salt-tolerant.
The bold was added by the dog barking at evidence of salinity impacts on Delta crops. The UC-Davis researchers ignore what this data says about their model and interpret it as an explanation for why economic impacts are low. It just so happens that the low-value, salt tolerant crops are already grown in the areas that are near but below the threshold where they assume salinity affects crops. How fortuitous! So if salinity rises further and bumps against the threshold, there will be little economic impact since these fields already have low value crops.
Other scientists might look at this data, and begin to question their model assumptions.
And here is my constructive suggestion for research. While I think there is pretty compelling evidence in the crop choice data that salinity has a bigger impact than assumed by Hoffman/PPIC/Davis, I don't believe it is the final word. It would be useful to test these relationships more directly through data collection and research in the field about Delta soils and crop response to salinity. I made this suggestion at the Delta Science Conference as an area where they could sponsor some field research that would go a long way to settling these questions.
Step 3. Estimate economic impact of change in agricultural production.
In the final step, the PPIC/UC-Davis team used an IMPLAN model to translate the changes in agricultural output into economic impacts such as lost jobs and income. This is usually a relatively straight-forward step, but I will note some small inconsistencies.
In the Delta study, they find about 16 lost jobs for every $1 million decline in agricultural revenue.
This is about half the 30 lost jobs per $1 million decline in agricultural revenue that they predicted in 2009 from water shortages.
I see two differences in their Delta modeling that result in lower multipliers that I think are poorly justified. First, they have not adjusted the production functions to account for contract labor as they did in their studies of water shortages in other regions. Second, they have modeled the multiplier effects over a very narrow region, compared to the eight county San Joaquin Valley used for other agricultural regions. Their Delta zipcode region extends just outside the legal Delta boundaries but excludes many important areas where many Delta workers, suppliers, and even farmers are located including Lodi and south and east Stockton. In addition, it leaves out important shopping areas around the Delta in Lodi, Stockton, Elk Grove, the mall area in Tracy, and Sacramento. If you miss significant areas where employees live and shop, you are certainly going to underestimate the "ripple" effects in the local economy.
Despite all this criticism, I do agree with the UC-Davis researchers about one of their conclusions regarding Delta agriculture and the BDCP. As the BDCP is developing (shrinking the conveyance but not the habitat) the issue of land availability is a bigger economic threat to Delta agriculture than salinity.
Thursday, December 20, 2012
Differentiating Between Stockton's Creditors
The bond insurers protesting Stockton's bankruptcy have filed their protests to the City's eligibility in court. I have read their documents and don't find their case compelling. For every good point, the creditors offset it with several ridiculous arguments and omit, ignore or distort a lot of other highly relevant information. I think they have a case that the city's initial ask and pendency budget is inequitable towards them and is not an acceptable blueprint for a final plan of adjustment, but the case isn't there yet, it is still determining eligibility.
As the case proceeds past eligibility, as I expect, the amount of concessions required of various bondholders will be a key issue. Some criteria and principals are necessary for determining the level of repayment. (Note: I am not a lawyer, and I can't say whether this a sound legal argument)
In its initial ask, the City used two criteria:
1. Secured vs. Unsecured Debt. (the pension bonds were the major unsecured debt)
2. Essentiality of Assets (for secured debt): bond collateral varies from essential police stations to non-essential parking garages
These are reasonable criteria, but I would suggest two additional basis for distinguishing between the bonds:
3. the date of issue. For bonds issued in 2007 and 2009, it was already been clear that the City was in the midst of a collapsing housing bubble and recession, already had high debt, had just cut the utility users tax, and the excessive employee contracts were already in place. These lenders were taking a huge risk and were facillitating the City's excessive risk taking. I would argue should take higher losses than 2004 bonds when the City's financial and economic outlook was stronger and it had lower levels of debt.
4. whether bond underwriters proactively gave the City bad financial advice to convince them to issue ill-advised debt. As far as I know, this criteria would only apply to the pension bonds, and it gets to my earlier posts and press stories about the pension bonds, and how the bond underwriters had a special meeting to present "Pension Bonds 101" to the City Council in which they gave a deceptive and misleading presentation that did not accurately describe the enormous risk of the pension bonds (not just the probability of losses, but that those losses are correlated with times of general budget distress), encouraged bad financial practices such as deferring initial principal payments for short-run budget savings, and did not discuss that in a period of financial distress that they expected that the City would be obligated to pay the bonds first and thereby cut services and employee compensation more during tough times. Most importantly, the bond underwriters actively advised the city council not to make the pension benefit cuts, the very same cuts that their bond insurance partners now demand of the city and say the city should have done at that time. Wall Street sold the pension bonds to the city specifically as a substitute for tough budget choices and benefit cuts, and now they say the City is ineligible for failing to make the cuts that they told them they didn't need to do back in 2006-07.
So if you look at the City's 5 big ($30 million or more bonds) in this way, I think there is a strong case that the pension bonds take the largest loss.
Stockton's 5 biggest bond issues by purpose and date of issue:
1. 2004 Events Center and Arena: $45 million outstanding, secured by events center and arena, insured by National Public Finance Guaranty (NPFG)
2. 2004 Parking Facilities: $32 million outstanding, secured by parking garages, insured by NPFG, garages were already taken over by creditors prior to bankruptcy filing when City defaulted on payment.
3. 2007 Pension Obligation Bonds: $124 million outstanding, unsecured obligation, insured by Assured Guaranty.
4. 2007 400 E. Main St (former Washington Mutual building, intended to be new city hall): $40 million outstanding, insured by Assured Guaranty, building already taken over by creditors prior to bankruptcy filing when City defaulted on payment.
5. 2009 Public Facility Bonds. $35 million outstanding, secured by 2 golf courses and Oak Park property, no bond insurance.
As the case proceeds past eligibility, as I expect, the amount of concessions required of various bondholders will be a key issue. Some criteria and principals are necessary for determining the level of repayment. (Note: I am not a lawyer, and I can't say whether this a sound legal argument)
In its initial ask, the City used two criteria:
1. Secured vs. Unsecured Debt. (the pension bonds were the major unsecured debt)
2. Essentiality of Assets (for secured debt): bond collateral varies from essential police stations to non-essential parking garages
These are reasonable criteria, but I would suggest two additional basis for distinguishing between the bonds:
3. the date of issue. For bonds issued in 2007 and 2009, it was already been clear that the City was in the midst of a collapsing housing bubble and recession, already had high debt, had just cut the utility users tax, and the excessive employee contracts were already in place. These lenders were taking a huge risk and were facillitating the City's excessive risk taking. I would argue should take higher losses than 2004 bonds when the City's financial and economic outlook was stronger and it had lower levels of debt.
4. whether bond underwriters proactively gave the City bad financial advice to convince them to issue ill-advised debt. As far as I know, this criteria would only apply to the pension bonds, and it gets to my earlier posts and press stories about the pension bonds, and how the bond underwriters had a special meeting to present "Pension Bonds 101" to the City Council in which they gave a deceptive and misleading presentation that did not accurately describe the enormous risk of the pension bonds (not just the probability of losses, but that those losses are correlated with times of general budget distress), encouraged bad financial practices such as deferring initial principal payments for short-run budget savings, and did not discuss that in a period of financial distress that they expected that the City would be obligated to pay the bonds first and thereby cut services and employee compensation more during tough times. Most importantly, the bond underwriters actively advised the city council not to make the pension benefit cuts, the very same cuts that their bond insurance partners now demand of the city and say the city should have done at that time. Wall Street sold the pension bonds to the city specifically as a substitute for tough budget choices and benefit cuts, and now they say the City is ineligible for failing to make the cuts that they told them they didn't need to do back in 2006-07.
So if you look at the City's 5 big ($30 million or more bonds) in this way, I think there is a strong case that the pension bonds take the largest loss.
Stockton's 5 biggest bond issues by purpose and date of issue:
1. 2004 Events Center and Arena: $45 million outstanding, secured by events center and arena, insured by National Public Finance Guaranty (NPFG)
2. 2004 Parking Facilities: $32 million outstanding, secured by parking garages, insured by NPFG, garages were already taken over by creditors prior to bankruptcy filing when City defaulted on payment.
3. 2007 Pension Obligation Bonds: $124 million outstanding, unsecured obligation, insured by Assured Guaranty.
4. 2007 400 E. Main St (former Washington Mutual building, intended to be new city hall): $40 million outstanding, insured by Assured Guaranty, building already taken over by creditors prior to bankruptcy filing when City defaulted on payment.
5. 2009 Public Facility Bonds. $35 million outstanding, secured by 2 golf courses and Oak Park property, no bond insurance.
Thursday, November 29, 2012
Initial Thoughts on the latest BDCP Economic Analysis Presentation
I attended David Sunding's presentation at the BDCP Finance Working Group Meeting this morning, and some people have asked me to blog my reactions.
Overall, I would say he did very well, and the presentation reflects substantial improvement for the Economic Analysis of the BDCP. It was certainly much improved over the June presentation, and I commend David for the enormous amount of work he has completed, and his clear and professional presentation and answers to the many questions. It wasn't perfect, and I have a few new concerns, but they are outweighed by the improvements.
Notable improvements since the last time include:
Time Horizon: Rather than estimating benefits of conveyance only up to 2050 (28 years of operations), Dr. Sunding is now extending the benefits to infinity (yes forever). While cutting off at 2050 was too short, extending the benefits analysis to infinity is erring in the opposite direction.
Here is what the CA HSR B-C analysis says about the same issue (p.8).
Discount Rate: Dr. Sunding is using a 2.275% discount rate, justified by a recent Army Corps statement that I haven't seen and current, historically low interest rates. This is down from the 3% discount rate used in his initial estimates this summer. While I am sympathetic to using something lower than the traditional 7% rate, this 2.275% assumption could get hammered in a peer-review, even if it has been approved by a federal government agency.
Current interest rates on bonds are being extraordinarily influenced by unprecedented Fed intervention and the lingering effects of a global financial crisis. I don't think you can argue that low U.S. treasury rates in the current market signal that somehow the social rate of time preference or the opportunity cost of public funding (discount rate) has dramatically declined. And what are the appropriate interest rates to guide the discount rate selection? While Federal Treasury borrowing rates are historically low, credit is still extraordinarily tight, and many individuals, businesses and state and local governments are finding it difficult to borrow at any interest rate. The appropriate opportunity costs for the BDCP is connected to who is bearing those opportunity costs, and the federal government has made it pretty clear that they are not paying for the BDCP. Many of the costs are going to be passed through directly to households through rate increases, not added to the Federal debt, so I could make an argument that real interest rates on personal loans (even credit cards) are as relevant as the current rate on Treasuries. Other BDCP costs are slated for the California General Fund through a General Obligation Water Bond. I don't think the opportunity costs of utilizing the state general fund are at historic lows. If anything, the opportunity cost of state funding is at a historic high, and the state hasn't even sold billions of already voter approved bonds due to market and budget conditions - even though interest rates are historically low. California is a state that needed a temporary tax increase (Prop 30) to pass to avoid cutting 3 additional weeks off the school year, is releasing criminals early, and cutting public health and other key services due to lack of funds. Given that the Governor has defined school days as the margin in the state budget, I could argue that the social return on investment for time in school would be the appropriate discount rate (opportunity cost).
Probably more relevant is the other mega-project financed with a combination of general fund dollars and other sources, high-speed rail. CA HSR used a 7% real discount rate for their benefit-cost analysis (p. 6). HSR actually used 4% in their initial draft B-C analysis, but moved it up to 7% in the final draft in response to criticism in the peer review. So, I would suggest that if HSR couldn't get a 4% discount rate past peer review when interest rates were equally low in 2011-12, his 2.275% assumption is going to be a tough sell. Personally, I think 7% is probably too high, and would have recommend running both the HSR and BDCP B-C studies using 3% and 6% discount rates. Dr. Sunding should perform some sensitivity analysis and prove that his results are robust to the HSR assumptions about time horizons and discount rates, and aren't just the result of assuming an infinitely lived project and a super low discount rate.
I am also still a little concerned about his approach to the seismic risk. However, I will note that he toned down the rhetoric about this since the summer, and signaled some openness to considering alternative ways to reduce the consequences of a seismic event. So this area of concern is also more positive and I have hope something good will eventually emerge. I don't think there is any doubt that his analysis will show that the earthquake benefits are much less important to justifying the project than water supply benefits. In fact, it already does.
As always, the criticisms take more space than the compliments, so I should note that I think his work in the critical urban water supply and several other areas is outstanding. I think some of the folks in the audience do not appreciate what is involved here. While I have wanted to smack him occasionally over the years (the feeling is mutual I'm sure), I have a lot of respect for Dave Sunding and remain convinced he is the best choice to lead this very important job.
Really, the biggest key to his benefit-cost analysis of the tunnels is defining a good no-tunnel alternative instead of a comparing the tunnel alternatives to a crappy, no-action, status-quo strawman. The no-tunnel alternative has to be a BDCP option, meaning that it includes the necessary habitat and through-Delta flows and water operations to satisfy the ESA. I see no reason why a no-tunnel alternative can't have comparable "regulatory assurance" benefits, environmental benefits, and even the potential water supply benefits from the "decision tree" as a tunnel alternative. Finally, at least one no-tunnel BDCP alternative, and arguably even the tunnel BDCP alternatives, should include significant seismic levee upgrades.
Overall, I would say he did very well, and the presentation reflects substantial improvement for the Economic Analysis of the BDCP. It was certainly much improved over the June presentation, and I commend David for the enormous amount of work he has completed, and his clear and professional presentation and answers to the many questions. It wasn't perfect, and I have a few new concerns, but they are outweighed by the improvements.
Notable improvements since the last time include:
·
The discussion of the arguably fictional regulatory certainty benefit was minimal, and the enormous estimates of its value were nowhere
to be seen.
·
Also gone was the conclusion statement that
the BDCP is clearly worthwhile to the water agencies since that depended on
the regulatory certainty benefit. [Update: I should note that he did not give any bottom line conclusions, for or against.]
·
And most notably, the BDCP is now saying that
they are going to do a complete statewide benefit-cost analysis after refusing
for years.
While the regulatory certainty benefit was gone, there
were two other notable changes in the benefits analysis that concern me because they are blowing up the
benefits estimates to help justify the tunnels. These are 1) increasing the time horizon
and 2) lowering the discount rate. Both
would draw significant complaints in a peer review, and are notably inconsistent
with the approach used in the California High-Speed Rail benefit-cost analysis. I believe the HSR comparison is critically important because these are the 2 controversial mega infrastructure projects on the state's policy agenda, and they should be analyzed consistently. Time Horizon: Rather than estimating benefits of conveyance only up to 2050 (28 years of operations), Dr. Sunding is now extending the benefits to infinity (yes forever). While cutting off at 2050 was too short, extending the benefits analysis to infinity is erring in the opposite direction.
Here is what the CA HSR B-C analysis says about the same issue (p.8).
Benefits and costs are typically evaluated for a period that includes the construction period and an operations period ranging from 20-50 years after the initial project investments are completed. Given the permanence and relatively extended design life of high-speed rail investments, longer operating periods, and thus, evaluation periods are applicable.I support the use of a relatively long 50 year time span after project completion, but extending benefits to infinity in an infrastructure B-C analysis seems nuts. However, it wouldn't make much of a difference if the discount rate weren't so low, which brings me to the second issue.
For the CA HSR BCA, the evaluation period includes the relevant (post-design) construction period during which capital expenditures are undertaken through 2080...
which is approximately 47 years beyond project completion for the scenario with the longest construction period.
Discount Rate: Dr. Sunding is using a 2.275% discount rate, justified by a recent Army Corps statement that I haven't seen and current, historically low interest rates. This is down from the 3% discount rate used in his initial estimates this summer. While I am sympathetic to using something lower than the traditional 7% rate, this 2.275% assumption could get hammered in a peer-review, even if it has been approved by a federal government agency.
Current interest rates on bonds are being extraordinarily influenced by unprecedented Fed intervention and the lingering effects of a global financial crisis. I don't think you can argue that low U.S. treasury rates in the current market signal that somehow the social rate of time preference or the opportunity cost of public funding (discount rate) has dramatically declined. And what are the appropriate interest rates to guide the discount rate selection? While Federal Treasury borrowing rates are historically low, credit is still extraordinarily tight, and many individuals, businesses and state and local governments are finding it difficult to borrow at any interest rate. The appropriate opportunity costs for the BDCP is connected to who is bearing those opportunity costs, and the federal government has made it pretty clear that they are not paying for the BDCP. Many of the costs are going to be passed through directly to households through rate increases, not added to the Federal debt, so I could make an argument that real interest rates on personal loans (even credit cards) are as relevant as the current rate on Treasuries. Other BDCP costs are slated for the California General Fund through a General Obligation Water Bond. I don't think the opportunity costs of utilizing the state general fund are at historic lows. If anything, the opportunity cost of state funding is at a historic high, and the state hasn't even sold billions of already voter approved bonds due to market and budget conditions - even though interest rates are historically low. California is a state that needed a temporary tax increase (Prop 30) to pass to avoid cutting 3 additional weeks off the school year, is releasing criminals early, and cutting public health and other key services due to lack of funds. Given that the Governor has defined school days as the margin in the state budget, I could argue that the social return on investment for time in school would be the appropriate discount rate (opportunity cost).
Probably more relevant is the other mega-project financed with a combination of general fund dollars and other sources, high-speed rail. CA HSR used a 7% real discount rate for their benefit-cost analysis (p. 6). HSR actually used 4% in their initial draft B-C analysis, but moved it up to 7% in the final draft in response to criticism in the peer review. So, I would suggest that if HSR couldn't get a 4% discount rate past peer review when interest rates were equally low in 2011-12, his 2.275% assumption is going to be a tough sell. Personally, I think 7% is probably too high, and would have recommend running both the HSR and BDCP B-C studies using 3% and 6% discount rates. Dr. Sunding should perform some sensitivity analysis and prove that his results are robust to the HSR assumptions about time horizons and discount rates, and aren't just the result of assuming an infinitely lived project and a super low discount rate.
I am also still a little concerned about his approach to the seismic risk. However, I will note that he toned down the rhetoric about this since the summer, and signaled some openness to considering alternative ways to reduce the consequences of a seismic event. So this area of concern is also more positive and I have hope something good will eventually emerge. I don't think there is any doubt that his analysis will show that the earthquake benefits are much less important to justifying the project than water supply benefits. In fact, it already does.
As always, the criticisms take more space than the compliments, so I should note that I think his work in the critical urban water supply and several other areas is outstanding. I think some of the folks in the audience do not appreciate what is involved here. While I have wanted to smack him occasionally over the years (the feeling is mutual I'm sure), I have a lot of respect for Dave Sunding and remain convinced he is the best choice to lead this very important job.
Really, the biggest key to his benefit-cost analysis of the tunnels is defining a good no-tunnel alternative instead of a comparing the tunnel alternatives to a crappy, no-action, status-quo strawman. The no-tunnel alternative has to be a BDCP option, meaning that it includes the necessary habitat and through-Delta flows and water operations to satisfy the ESA. I see no reason why a no-tunnel alternative can't have comparable "regulatory assurance" benefits, environmental benefits, and even the potential water supply benefits from the "decision tree" as a tunnel alternative. Finally, at least one no-tunnel BDCP alternative, and arguably even the tunnel BDCP alternatives, should include significant seismic levee upgrades.
Tuesday, November 27, 2012
BDCP Blog Falsely Claims UC-Davis Report Models the BDCP, and UC-Davis Researchers Edit the Misleading Blog Post
Recently, the California Water Blog made a post that salinity effects on Delta agriculture from a proposed peripheral tunnel is a dog that doesn't bark. I wasn't going to respond until the Department of Water Resources' "BDCP blog" weighed in with this approving post, showing that the results of this study will indeed be misconstrued as I feared.
My biggest complaint about the California Water Blog is that it left out the crucially important detail that they modeled a tunnel that is significantly smaller than the BDCP proposal while including a large diagram of conveyance clipped from the BDCP to suggest that they did.
And then the BDCP blog, written by DWR staff, falsely titles their blog post "Salinity Effect of BDCP on Delta Farming Minimal, Researchers Say."
However, I revisited the California Water Blog this morning to clip a quote, and I am happy to report that they recently added the following paragraph to the body of their original post and deleted the BDCP diagram. (confirmed in the Google cache version dated 11/20).
The fact that the diagram was included and this paragraph was omitted from the original blog post does not absolve DWR and the BDCP blog for misreporting this information. The description of the small tunnel scenario is clearly stated on page 35 of the full report which was released 10 months ago. If BDCP is really about science and facts, shouldn't we expect them to read and accurately describe the reports they cite rather than reinterpret them through a political lens.
The edits do not totally let the UC-Davis researchers off the hook either for what a colleague of mine describes as "feeding the animals." They left this important detail out of the summary of the original report as well. That summary discusses current policy proposals without explaining the differences between their scenario and the proposals. And while the BDCP is now moving towards reducing the capacity of the intakes and lower levels of water delivery (details to be released soon), at the time the PPIC report was released and the research was done, the leading BDCP proposal was clearly for a 15,000 cfs facility and 5.9 maf of average exports, and had been for several years. I complained about it in a post on this blog the day after the report was released in January.
If the BDCP doesn't actually significantly affect Delta salinity, these differences in economic modeling are irrelevant. The surprising discovery in the PPIC report results from the suprising result of their hydro-dynamic modeling, not any advanced economics. No change in salinity obviously means no economic impact from salinity changes, this is clearly stated in the DPC Economic Sustainability Plan.
Thus, I wish the PPIC would write some blogs explaining their hydro-dynamic results in plain English since this is their most important and surprising result. While I have no reason to doubt the results, I would like to better understand how it is possible to take 3 maf out of the Sacramento River without a larger impact, and I would be interested how their results change if more were diverted through the tunnels, if the results depend on or assume any change in upstream operations and flows, etc.
While they are at it, they should allow comments on their blog, so they can be conveniently alerted to parts that confuse people or even the occasional error or omission. In this case, there is a good chance that some simple blog comments would have prevented Ms. Vogel at the BDCP Blog from making her mistake. And how can they be the California Water Blog without the validation of a Mike Wade comment?
[Note: Original post edited to mention the BDCP diagram.]
My biggest complaint about the California Water Blog is that it left out the crucially important detail that they modeled a tunnel that is significantly smaller than the BDCP proposal while including a large diagram of conveyance clipped from the BDCP to suggest that they did.
And then the BDCP blog, written by DWR staff, falsely titles their blog post "Salinity Effect of BDCP on Delta Farming Minimal, Researchers Say."
However, I revisited the California Water Blog this morning to clip a quote, and I am happy to report that they recently added the following paragraph to the body of their original post and deleted the BDCP diagram. (confirmed in the Google cache version dated 11/20).
The study did not consider the specific changes in the state’s proposed Bay Delta Conservation Plan, which includes the governor’s “preferred alternative” to tunnel exported water under the Delta. The modeled tunnel operated under 1981—2000 water conditions with a capacity of 7,500 cubic feet per second – enough to transport up to 59 percent of average annual exports (4.9 million acre-feet), with the remainder continuing to be pulled through Delta channels to the export pumps.
The fact that the diagram was included and this paragraph was omitted from the original blog post does not absolve DWR and the BDCP blog for misreporting this information. The description of the small tunnel scenario is clearly stated on page 35 of the full report which was released 10 months ago. If BDCP is really about science and facts, shouldn't we expect them to read and accurately describe the reports they cite rather than reinterpret them through a political lens.
The edits do not totally let the UC-Davis researchers off the hook either for what a colleague of mine describes as "feeding the animals." They left this important detail out of the summary of the original report as well. That summary discusses current policy proposals without explaining the differences between their scenario and the proposals. And while the BDCP is now moving towards reducing the capacity of the intakes and lower levels of water delivery (details to be released soon), at the time the PPIC report was released and the research was done, the leading BDCP proposal was clearly for a 15,000 cfs facility and 5.9 maf of average exports, and had been for several years. I complained about it in a post on this blog the day after the report was released in January.
Before anyone reads the summary of the new PPIC report and concludes that Delta residents don't have much to fear in the BDCP or the Delta Plan, they should understand exactly what the PPIC has modeled. When it comes to the big issues of water quality and habitat, it looks more like the recommendations of the Delta Protection Commission's Economic Sustainability Plan than the BDCP.Finally, the California Water Blog post states that the DPC Economic Sustainability Plan and an earlier PPIC report had much higher estimates of losses (the 2008 PPIC report actually estimated hundreds of millions of dollars in losses). However, the peripheral canal endorsed by the PPIC in their 2008 report was an isolated conveyance facility (not dual conveyance) that diverted 6 maf of water from the north Delta; double the quantity conveyed around the Delta through a facility in this latest report. And the DPC Economic Sustainability Plan report that I led looked at the actual BDCP proposal at that time, the 15,000 cfs tunnels with 5.9 maf of average exports. The differences in approach between our report and PPIC are much more than this though, but I will save that for a future post that explains the differences, and the advantages of our approach.
1. They assume water exports through a dual conveyance system will average 4.9 maf per year (see page 36 and 40) matching the 1980-2000 period. This is barely any increase over the constraints on through Delta pumping under the Biop. So, yes, under those operating assumptions dual conveyance would have a relatively small impact on Delta water quality. But does anyone really think that exporters will pay billions for conveyance that delivers 4.9 maf? My understanding is exporters have made it pretty clear that they won't, and draft BDCP documents and the superficial discussions of finance suggest substantially higher exports of 6 maf or possibly more. On page 40 they do note that some exporters are seeking 6 maf, but that is not what they modeled in their report...
If the BDCP doesn't actually significantly affect Delta salinity, these differences in economic modeling are irrelevant. The surprising discovery in the PPIC report results from the suprising result of their hydro-dynamic modeling, not any advanced economics. No change in salinity obviously means no economic impact from salinity changes, this is clearly stated in the DPC Economic Sustainability Plan.
Thus, I wish the PPIC would write some blogs explaining their hydro-dynamic results in plain English since this is their most important and surprising result. While I have no reason to doubt the results, I would like to better understand how it is possible to take 3 maf out of the Sacramento River without a larger impact, and I would be interested how their results change if more were diverted through the tunnels, if the results depend on or assume any change in upstream operations and flows, etc.
While they are at it, they should allow comments on their blog, so they can be conveniently alerted to parts that confuse people or even the occasional error or omission. In this case, there is a good chance that some simple blog comments would have prevented Ms. Vogel at the BDCP Blog from making her mistake. And how can they be the California Water Blog without the validation of a Mike Wade comment?
[Note: Original post edited to mention the BDCP diagram.]
Friday, October 19, 2012
A better definition of co-equal goals
In an announcement of proposed revisions to federal water resources planning guidelines, the Federal Government describes co-equal goals
Yes, I realize that California's 'coequal goals' is followed by this statement,
The elevation of water supply reliability over other economic considerations makes California's definition of co-equal appear discriminatory and arbitrary when compared to "economic well-being of the nation for present and future generations" in the federal language. I doubt it is discriminatory in a 14th amendment way, but I can see no compelling reason for the state to elevate the importance of water supply reliability among all economic concerns and I doubt that was the legislature's intent. The use of a more inclusive term "economic well-being" would still allow for full and fair consideration of water supply reliability in formulating Delta plans. I actually think it would make it easier for the agencies who have to make Delta plans and implement them since there are accepted methods and definitions that can be used for evaluating "economic well-being".
If I were in the California Assembly, I would introduce the Co-Equal Goal redefinition act to make California's co-equal goals more consistent with this federal language. It would simply revise the definition to the following...
Achieving Co-Equal Goals: The Administration's proposal reiterates that federal water resources planning and development should both protect and restore the environment and improve the economic well-being of the nation for present and future generations.In many ways, the proposed revisions to Federal guidelines are similar in its goals to California's 2009 water legislation. But there are some key differences. As of 2009, the State of California defines co-equal goals in the following way.
'Coequal goals' means the two goals of providing a more reliable water supply for California and protecting, restoring, and enhancing the Delta ecosystem.In both cases, the concept of co-equal goals is used to elevate environmental considerations to be equally important as economic considerations. But the California law limits itself to one narrow economic consideration, water supply reliability, and there continues to be confusion over what exactly "reliability" means.
Yes, I realize that California's 'coequal goals' is followed by this statement,
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.That adds a few additional economic considerations, but the economic concerns in the Delta are a lot bigger than Delta Ag and recreation. Even when it comes to Delta ag and recreation, some emphasize the importance of the words "unique" and "evolving" to severely restrict their consideration. The issue goes well beyond a lack of proper consideration for the Delta and regional economy, but a completely inadequate consideration of costs and impacts on taxpayers and ratepayers across the state through the continuing neglect of economics and finance.
The elevation of water supply reliability over other economic considerations makes California's definition of co-equal appear discriminatory and arbitrary when compared to "economic well-being of the nation for present and future generations" in the federal language. I doubt it is discriminatory in a 14th amendment way, but I can see no compelling reason for the state to elevate the importance of water supply reliability among all economic concerns and I doubt that was the legislature's intent. The use of a more inclusive term "economic well-being" would still allow for full and fair consideration of water supply reliability in formulating Delta plans. I actually think it would make it easier for the agencies who have to make Delta plans and implement them since there are accepted methods and definitions that can be used for evaluating "economic well-being".
If I were in the California Assembly, I would introduce the Co-Equal Goal redefinition act to make California's co-equal goals more consistent with this federal language. It would simply revise the definition to the following...
'Coequal goals' means the two goals of improving the economic well-being of California for present and future generations, and protecting, restoring, and enhancing the Delta ecosystem.
Thursday, October 18, 2012
ACWA denounces other people's bumper sticker slogans
In light of yesterday's ACWA blog denouncing bumper sticker slogans, I feel compelled to repost one of my favorite photos from the media circus preceeding the 2009 water legislation that ACWA championed (which one could argue made a bumper sticker slogan the law). This shot is from ACWA's 2009 "water march" to the Capitol in summer 2009.
The anti-bumper sticker ACWA blog post also contains two of my favorite over-simplified bumper sticker slogans from peripheral tunnel promotors, "One State" and the "Delta Fix".
To be fair, I think the ACWA message has improved a lot since 2009. They even invited me to be on a panel at their December conference even though I make a habit of needling them on this blog.
But if ACWA is serious about this "One State" stuff, there is a lot they could do to lead by example. They should start by endorsing Rep. Garamendi's safe levee and benefit-cost bill.
What could be more "one state" than making the Central Valley Project support the levees that have conveyed their water for 50 years (no more free riding). What could be more "one state" than a comprehensive, statewide benefit-cost analysis of the "Delta Fix". Instead of opposing the Berryhill statewide benefit-cost bill of the peripheral tunnels in the Assembly, "one state" ACWA should be promoting it.
The anti-bumper sticker ACWA blog post also contains two of my favorite over-simplified bumper sticker slogans from peripheral tunnel promotors, "One State" and the "Delta Fix".
To be fair, I think the ACWA message has improved a lot since 2009. They even invited me to be on a panel at their December conference even though I make a habit of needling them on this blog.
But if ACWA is serious about this "One State" stuff, there is a lot they could do to lead by example. They should start by endorsing Rep. Garamendi's safe levee and benefit-cost bill.
What could be more "one state" than making the Central Valley Project support the levees that have conveyed their water for 50 years (no more free riding). What could be more "one state" than a comprehensive, statewide benefit-cost analysis of the "Delta Fix". Instead of opposing the Berryhill statewide benefit-cost bill of the peripheral tunnels in the Assembly, "one state" ACWA should be promoting it.
Thursday, October 4, 2012
Stockton City Manager Makes His Case in the WSJ
Bob Deis made the city's case for cutting payments to bondholders through Bankruptcy in the Wall Street Journal last Friday. I agreed with him through the first 2/3 of the piece. Creditors do bear some responsibility for the City's fiscal woes, and the City has cut services to a dangerously low level. The city has a primary responsibility to provide basic services to its citizens today, especially in the midst of a rapid spike in crime.
But Mr. Deis starts to lose me, and I suspect most WSJ readers towards the end of the piece when he argues that they couldn't cut employee compensation or CalPers, because the city has been losing police officers and needs to stay competitive.
I am not convinced that the turnover in police is completely due to recent compensation cuts, other cities have made similar percentage reductions so I don't think the Stockton's relative compensation and benefits has diminshed significantly. I suspect it has more to do with bad morale from the nasty fighting between the city and the union over the past 3 years, the fact that the job has gotten tougher with a diminshed force and increasing crime, and the anticipation of more serious compensation/pension cuts being imposed through bankruptcy. Officers may correctly view more cuts as inevitable in the long-run despite the City's recent efforts to hold the compensation line in its short-term pendency budget and initial ask to creditors.
The city is hiring a lot of new officers right now, and my concern is that the city may still be making promises it can't keep to recruit them. This is an opportunity to remake the force with officers who understand what the city can truly afford to pay in the long-run and are committed to making a difference in the City and contributing to a turnaround. But this easy for an academic like me or a bond insurer executive in a corporate office to say when the reality is that Stockton has an emergency need to hire more police now (actually months ago), not in the future after new compensation and recruiting plans can be developed and implemented. I believe that quality police officers can be hired and trained for sustainable levels of compensation, but it will take longer to find and train them, and the transition will be inevitably messy. Unfortunately, the criminals aren't waiting. I am not sure of the solution to this very tough problem. The City may need some non-financial help providing services through the transition.
The other question is why isn't the City going after CalPers? I agree with Stockton's choice to target retiree healthcare benefits instead of pensions. I also think there is a case to further reduce compensation (which also reduces future pension liabilities) before going after CalPers. After all, bankruptcy is about restructuring debt and postponing payments to creditors - and the root problem with CalPers is that the contributions are too small for the promised benefits. A letter to the editor in the WSJ yesterday makes the point,
But Mr. Deis starts to lose me, and I suspect most WSJ readers towards the end of the piece when he argues that they couldn't cut employee compensation or CalPers, because the city has been losing police officers and needs to stay competitive.
I am not convinced that the turnover in police is completely due to recent compensation cuts, other cities have made similar percentage reductions so I don't think the Stockton's relative compensation and benefits has diminshed significantly. I suspect it has more to do with bad morale from the nasty fighting between the city and the union over the past 3 years, the fact that the job has gotten tougher with a diminshed force and increasing crime, and the anticipation of more serious compensation/pension cuts being imposed through bankruptcy. Officers may correctly view more cuts as inevitable in the long-run despite the City's recent efforts to hold the compensation line in its short-term pendency budget and initial ask to creditors.
The city is hiring a lot of new officers right now, and my concern is that the city may still be making promises it can't keep to recruit them. This is an opportunity to remake the force with officers who understand what the city can truly afford to pay in the long-run and are committed to making a difference in the City and contributing to a turnaround. But this easy for an academic like me or a bond insurer executive in a corporate office to say when the reality is that Stockton has an emergency need to hire more police now (actually months ago), not in the future after new compensation and recruiting plans can be developed and implemented. I believe that quality police officers can be hired and trained for sustainable levels of compensation, but it will take longer to find and train them, and the transition will be inevitably messy. Unfortunately, the criminals aren't waiting. I am not sure of the solution to this very tough problem. The City may need some non-financial help providing services through the transition.
The other question is why isn't the City going after CalPers? I agree with Stockton's choice to target retiree healthcare benefits instead of pensions. I also think there is a case to further reduce compensation (which also reduces future pension liabilities) before going after CalPers. After all, bankruptcy is about restructuring debt and postponing payments to creditors - and the root problem with CalPers is that the contributions are too small for the promised benefits. A letter to the editor in the WSJ yesterday makes the point,
Mr. Deis says that pension benefits cannot be cut during bankruptcy because that would lead to an exodus of police officers and senior management. But perhaps the real reason that Stockton has chosen not to cut pensions is that, ironically, it cannot afford to. That's because cutting would trigger a takeover of pension obligations by the California Public Employees' Retirement System (Calpers) and, under California law, Stockton would be required to pay Calpers a lump sum to cover unfunded liabilities. The kicker is, those liabilities would get repriced at a 3.8% discount rate, instead of the 7.5% discount rate that Calpers normally uses for pricing liabilities. So Stockton, already struggling with what it perceives to be hundreds of millions of dollars of unfunded pension liabilities, would face a demand by Calpers for a much larger amount if it tries to cut pensions.
In other words, Stockton is trapped in Calpers's game of kick the can down the road. Stay in the game, and it gets to use Calpers's rosy investment assumptions to underfund its pension obligations, passing the true cost to future generations. Quit the game, and it's stuck paying the true cost now.
Michael J. Sabin
Sunnyvale, Calif.
Tuesday, October 2, 2012
Public Agency Fixed Cost Death Spiral: Sacramento Airport Edition
I have been busy making travel plans for myself and family members lately, and I am extremely annoyed at the cost of flights and poor connections out of the Sacramento airport. I am increasingly finding flights from the Bay Area to be substantially less expensive with better connections.
I strongly suspect that this is at least partially to blame on the outrageously expensive $1 billion Terminal B replacement, and the resulting hike in airline lease rates, parking rates and other costs. Before they started building the project, the airlines begged the Sacramento Airport Authority to consider less expensive alternatives before embarking on their grand plans, but were ignored.
The bond payments for Terminal B are finally starting to kick in, and the Sacramento Airport authority could be in significant financial trouble in a few years if they aren't able to increase traffic. Since 2008, the airline terminal rental rates at the Sacramento Airport have more than doubled, and annual debt service costs have increased from about $20 million to $80 million.
With Frontier Airlines announcing they are pulling out of Sacramento at the end of the year, the job just got tougher, and airline fares will probably go higher now that Southwest is losing a low-cost competitor in the market.
Data from the Sacramento Airport bears out the problem. Since the airport rates were jacked up to pay for the new terminal in 2008, passenger traffic at the Sacramento airport has declined 17.5%, compared to 1.7% decline nationwide over the same period. Undoubtedly, the recession is partly to blame, but I suspect they are losing traffic to other airports as well, and there is no sign of a significant bump in traffic from the new Terminal.
Of course, none of this stopped the Sacramento Airport Authority from receiving tons of awards, including economic development awards from various local groups who rave about the pretty new terminal. This makes me wonder whether economic development awards for people running public agencies are bad for economic development. It just encourages them to build costly monuments and take on excessive debt for the next generation.
What would really help economic development is not a pretty gateway, but more flights at lower costs. While Terminal B was outdated and needed to be replaced, it could have been done with a similar facility as Terminal A for a fraction of the cost.
By increasing rates a few years ahead of the increase in debt service, the airport has built up some financial reserves. I wouldn't expect any serious financial issues for several years, and the airport authority will probably squeak by, although the citizens of the region will endure lousy schedules and higher fares.
Maybe Frontier Airlines will come to Stockton to join ultra-low cost Allegiant.
I strongly suspect that this is at least partially to blame on the outrageously expensive $1 billion Terminal B replacement, and the resulting hike in airline lease rates, parking rates and other costs. Before they started building the project, the airlines begged the Sacramento Airport Authority to consider less expensive alternatives before embarking on their grand plans, but were ignored.
The bond payments for Terminal B are finally starting to kick in, and the Sacramento Airport authority could be in significant financial trouble in a few years if they aren't able to increase traffic. Since 2008, the airline terminal rental rates at the Sacramento Airport have more than doubled, and annual debt service costs have increased from about $20 million to $80 million.
With Frontier Airlines announcing they are pulling out of Sacramento at the end of the year, the job just got tougher, and airline fares will probably go higher now that Southwest is losing a low-cost competitor in the market.
Data from the Sacramento Airport bears out the problem. Since the airport rates were jacked up to pay for the new terminal in 2008, passenger traffic at the Sacramento airport has declined 17.5%, compared to 1.7% decline nationwide over the same period. Undoubtedly, the recession is partly to blame, but I suspect they are losing traffic to other airports as well, and there is no sign of a significant bump in traffic from the new Terminal.
Of course, none of this stopped the Sacramento Airport Authority from receiving tons of awards, including economic development awards from various local groups who rave about the pretty new terminal. This makes me wonder whether economic development awards for people running public agencies are bad for economic development. It just encourages them to build costly monuments and take on excessive debt for the next generation.
What would really help economic development is not a pretty gateway, but more flights at lower costs. While Terminal B was outdated and needed to be replaced, it could have been done with a similar facility as Terminal A for a fraction of the cost.
By increasing rates a few years ahead of the increase in debt service, the airport has built up some financial reserves. I wouldn't expect any serious financial issues for several years, and the airport authority will probably squeak by, although the citizens of the region will endure lousy schedules and higher fares.
Maybe Frontier Airlines will come to Stockton to join ultra-low cost Allegiant.
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