The BLS just released the Quarterly Census of Employment of Wages for the 3rd quarter of 2011.
Sacramento County has been near the bottom of the nations 323 largest counties in this report quarter after quarter. However, the latest report shows Sacramento vaults to #5 in the nation in average year-year wage growth with 9.8% increase between 2010Q3 and 2011Q3.
Job growth was still close to zero, but wage growth jumped. The furloughs definitely had an effect. Interesting timing how the temporary taxes and furloughs expired at the same time.
Thursday, March 29, 2012
Pacific Moves to West Coast Conference
I am really happy about the University of the Pacific's return to the West Coast Conference.
We are finally back in a league with peer, independent universities, rather than being a misfit with large, public universities because of the history of our former football program.
As a big college basketball fan, I am excited for regular match-ups with Gonzaga, BYU, and St. Mary's. Hopefully, we still keep UC-Davis on the schedule for an easy win.
We are finally back in a league with peer, independent universities, rather than being a misfit with large, public universities because of the history of our former football program.
As a big college basketball fan, I am excited for regular match-ups with Gonzaga, BYU, and St. Mary's. Hopefully, we still keep UC-Davis on the schedule for an easy win.
Sunday, March 25, 2012
Wow, my tax rate really is higher than Mitt Romney
It was an exciting weekend completing my taxes. I know I am in the 28% bracket, but I have never bothered to precisely calculate my average tax rate before. Given all the commotion about Mitt Romney's taxes, I thought I would check.
In 2011, my wife and I had an effective (i.e. average) federal tax rate of 14.5%, and we are paying 28% on any marginal gains in income (plus 9.3% for CA).
Mitt Romney's effective tax rate is 13.9%, and he is paying 15% at the margin for his investment income.
I don't see how these relative tax rates are equitable or foster economic growth.
(Note: My support for at least partial expiration of the Bush tax cuts and equal tax rates for investment and labor income should not be conflated with support of Governor Brown's "millionaire" tax proposal. That will probably be the subject of longer posts in the months ahead.)
In 2011, my wife and I had an effective (i.e. average) federal tax rate of 14.5%, and we are paying 28% on any marginal gains in income (plus 9.3% for CA).
Mitt Romney's effective tax rate is 13.9%, and he is paying 15% at the margin for his investment income.
I don't see how these relative tax rates are equitable or foster economic growth.
(Note: My support for at least partial expiration of the Bush tax cuts and equal tax rates for investment and labor income should not be conflated with support of Governor Brown's "millionaire" tax proposal. That will probably be the subject of longer posts in the months ahead.)
Sunday, March 18, 2012
Six figure firefighters and the Valley Economy
One of the biggest surprises to me moving to California was learning about the compensation of firefighters.
Every firefighter I know is a great person and dedicated public servent, before and after I moved to California. Everywhere else I have lived, they have been paid about the same as teachers, and fire captains/chiefs were like principals. In the Valley, they typically earn double teacher salaries and have better pensions. In many communities, they are the best jobs in town. While I value public service greatly, compensation has to be rationally tied to the income and tax base in the community.
It is a significant economic problem in the Valley, because the deplorable state of many public services in the Valley is directly tied to the unnecessarily high cost of providing those services. I was glad to see the Sacramento Bee making this connection in an article today:
Every firefighter I know is a great person and dedicated public servent, before and after I moved to California. Everywhere else I have lived, they have been paid about the same as teachers, and fire captains/chiefs were like principals. In the Valley, they typically earn double teacher salaries and have better pensions. In many communities, they are the best jobs in town. While I value public service greatly, compensation has to be rationally tied to the income and tax base in the community.
It is a significant economic problem in the Valley, because the deplorable state of many public services in the Valley is directly tied to the unnecessarily high cost of providing those services. I was glad to see the Sacramento Bee making this connection in an article today:
The (Consumnes Community Service) district, like many others, gave firefighters enhanced benefits during better times so they could retire at age 50 and earn, for life, 3 percent of their salary for every year of service.
Since then, firefighter salaries have risen, increasing pension payouts. CSD firefighters earned, on average, $115,000 in 2010, actuary reports show.
A 2 percent pay raise for a 25-year veteran firefighter making that much translates to an extra $1,700 a year in annual pension payments.
Six-figure firefighter salaries and large pensions today are the norm. Sacramento County Metropolitan Fire District firefighters averaged $121,000 in salary during 2010. About 140 of Metro Fire's retirees draw annual pensions exceeding $100,000.
CSD has recently curtailed capital improvements, funneling more of its revenue toward payroll and benefits, including retirement. Several other fire districts across the region have scaled back spending not related to compensation.
Sunday, March 11, 2012
Could a Peripheral Canal/Tunnel Increase Drought Risk?
If you have been following the Delta Plan and discussions around levees, you have heard the argument that improving levees will actually increase risk by encouraging development. Improving levees will reduce the probability of a flood, but the argument is that the amount of property at risk of flooding will increase more as a result, thereby potentially increasing total flood risk.
Last Saturday in Stockton, Jason Peltier said that Westlands farmers planted more orchards despite uncertain water supplies because of the increasing cost of water. If a peripheral tunnel/canal is built, the cost of water to these farmers will go up a lot, in wet years and dry years. Thus, his statements suggest they will plant even more of their land in permanent crops to cover these costs, even though a canal won't prevent droughts. Thus, the consequence of drought will increase, and therefore drought risk increases since risk equals probability x consequences.
Thus, the increasing risk argument is as applicable, if not more applicable to building a peripheral canal as levees. There are two reasons why it is more applicable to a canal than levees.
First, building is heavily regulated, especially in the Delta, whereas the choice to plant permanent crops is not regulated. The levees increase risk argument is pretty weak in my opinion, since we can gain the risk reduction benefits of levees and use regulation to prevent any undesirable side effects like urbanization in a flood plain. The regulations regarding this have been significantly toughened in recent years, and the Delta Plan will tighten it up even more. There is little prospect of regulations on orchard planting, although some have recommended it.
Second, the canal/tunnel doesn't actually reduce the risk of drought, whereas levees do reduce the risk of flood. All the analysis I have seen suggests that a canal/tunnel will not increase water supplies in dry years, any increase in water supplies would come in wet years.
In the past, I have blogged about the fact that I don't really believe that almonds were planted on the west side because water got more expensive. Most of that planting was before the Wanger decision, and I think they were riding the almond wave just like everyone else in the Valley, and if anything got more confident about planting them when they thought their water had gotten more reliable from 2000-2006. However, I do believe that paying for a tunnel will create a lot of pressure to invest in permanent crops, and the farmers themselves have said this is how they respond to higher prices. Thus, it seems a canal/tunnel would certainly increase the economic consequences of drought, increasing the risk.
This is not a major argument against building a peripheral canal/tunnel; but I do think it has more merit than the argument that improving levees increases risk. In both cases, risk is only one aspect of decision making, and is a pretty useless concept if it isn't balanced with a discussion of reward.
Last Saturday in Stockton, Jason Peltier said that Westlands farmers planted more orchards despite uncertain water supplies because of the increasing cost of water. If a peripheral tunnel/canal is built, the cost of water to these farmers will go up a lot, in wet years and dry years. Thus, his statements suggest they will plant even more of their land in permanent crops to cover these costs, even though a canal won't prevent droughts. Thus, the consequence of drought will increase, and therefore drought risk increases since risk equals probability x consequences.
Thus, the increasing risk argument is as applicable, if not more applicable to building a peripheral canal as levees. There are two reasons why it is more applicable to a canal than levees.
First, building is heavily regulated, especially in the Delta, whereas the choice to plant permanent crops is not regulated. The levees increase risk argument is pretty weak in my opinion, since we can gain the risk reduction benefits of levees and use regulation to prevent any undesirable side effects like urbanization in a flood plain. The regulations regarding this have been significantly toughened in recent years, and the Delta Plan will tighten it up even more. There is little prospect of regulations on orchard planting, although some have recommended it.
Second, the canal/tunnel doesn't actually reduce the risk of drought, whereas levees do reduce the risk of flood. All the analysis I have seen suggests that a canal/tunnel will not increase water supplies in dry years, any increase in water supplies would come in wet years.
In the past, I have blogged about the fact that I don't really believe that almonds were planted on the west side because water got more expensive. Most of that planting was before the Wanger decision, and I think they were riding the almond wave just like everyone else in the Valley, and if anything got more confident about planting them when they thought their water had gotten more reliable from 2000-2006. However, I do believe that paying for a tunnel will create a lot of pressure to invest in permanent crops, and the farmers themselves have said this is how they respond to higher prices. Thus, it seems a canal/tunnel would certainly increase the economic consequences of drought, increasing the risk.
This is not a major argument against building a peripheral canal/tunnel; but I do think it has more merit than the argument that improving levees increases risk. In both cases, risk is only one aspect of decision making, and is a pretty useless concept if it isn't balanced with a discussion of reward.
Tuesday, March 6, 2012
Why not Modesto?
An interesting comparison of Modesto and Stockton municipal finances from the Modesto Bee.
http://www.modbee.com/2012/03/03/2096191/a-tale-of-two-cities.html
http://www.modbee.com/2012/03/03/2096191/a-tale-of-two-cities.html
Wednesday, February 29, 2012
Isolated Conveyance Tunnel Debt Service $1.1 billion annually
The BDCP finally posted chapter 8 on financing. This is the most important sentence regarding the estimated cost of the revenue bonds the state and federal water contractors would use for the proposed tunnel (page 8-88).
The preliminary estimates had assumed 50 year financing at 5%. It is very unlikely that there would be a market for a 50 year revenue bond for a risky project at those rates.
The new estimates assume 40 year revenue bonds issued in 4 stages throughout construction. It estimates an interest rate a little over 6%, and that 1-2 years of the initial interest would be capitalized to reduce repayment burden during the construction period. I think that is a far more realistic financing assumption.
Given that the incremental water supply being discussed by the conveyance is 0.3 maf to 1.5 maf requested by the water contractors. That comes out to between $3600 and $730 per acre foot of new supply - not counting operations costs - just to get the new water to the Tracy pumps. Add a few hundred dollars more for operating costs and pumping to Los Angeles. [I deleted a confusing sentence here from the original post and updated below.]
Is it any wonder that south Valley agricultural interests prefer the Nunes bill to the BDCP? Even desal sounds cheap by comparison to new BDCP water, and it is more reliable.
There is a lot of hullabaloo about benefit-cost analysis vs. financial feasibility analysis at the moment. The debate may be moot, because I can't see how the conveyance can clear the financial feasibility bar with these numbers.
Update 3/1: This afternoon I am told BDCP said 5.9 maf of exports which implies more incremental supplies than my initial interpretation of the EIR above. Perhaps I misread the EIR. I will try to confirm this and update in the future.
Update 2: I now see the 5.9 maf in the BDCP documents, and 1.2 maf in incremental supplies. With an $84m annual cost for operations and maintenance bringing the $1.1b in debt service up to about $1.2b per year, the 1.2 maf would be about $1,000/af
However, the EIR and BDCP discuss alternative operations with lower exports that could be required to meet environmental goals. It looks like this would cut the level of additional water exports to an increase of .558 maf, that would be about $2,000/af.
The different scenarios and the volume of documents may take a while to sort out definitively, so these per af costs should definitely be interpreted as a preliminary impression.
Update 3: And to be fair, I should point out that the project will presumably continue to provide incremental new water supplies for the exporters after the 40 year bond repayment period is over. Thus, the cost over the entire life-cycle per af would be somewhat lower. It will be good to see more accurate, formal analysis of these issues that should be available in the coming months.
The annual debt service would average approximately $1.1 billion from 2021 through 2055.This is much higher than the working number of $670 million per year that has been out there for the past year or two. (see this MWD presentation for an example) Why is it higher? The capital costs haven't gone up, they are still using $12.7 billion for a tunnel rather than the $14 billion suggested in a recent Sacramento Bee article. The difference is they are now using more realistic financing terms.
The preliminary estimates had assumed 50 year financing at 5%. It is very unlikely that there would be a market for a 50 year revenue bond for a risky project at those rates.
The new estimates assume 40 year revenue bonds issued in 4 stages throughout construction. It estimates an interest rate a little over 6%, and that 1-2 years of the initial interest would be capitalized to reduce repayment burden during the construction period. I think that is a far more realistic financing assumption.
Given that the incremental water supply being discussed by the conveyance is 0.3 maf to 1.5 maf requested by the water contractors. That comes out to between $3600 and $730 per acre foot of new supply - not counting operations costs - just to get the new water to the Tracy pumps. Add a few hundred dollars more for operating costs and pumping to Los Angeles. [I deleted a confusing sentence here from the original post and updated below.]
Is it any wonder that south Valley agricultural interests prefer the Nunes bill to the BDCP? Even desal sounds cheap by comparison to new BDCP water, and it is more reliable.
There is a lot of hullabaloo about benefit-cost analysis vs. financial feasibility analysis at the moment. The debate may be moot, because I can't see how the conveyance can clear the financial feasibility bar with these numbers.
Update 3/1: This afternoon I am told BDCP said 5.9 maf of exports which implies more incremental supplies than my initial interpretation of the EIR above. Perhaps I misread the EIR. I will try to confirm this and update in the future.
Update 2: I now see the 5.9 maf in the BDCP documents, and 1.2 maf in incremental supplies. With an $84m annual cost for operations and maintenance bringing the $1.1b in debt service up to about $1.2b per year, the 1.2 maf would be about $1,000/af
However, the EIR and BDCP discuss alternative operations with lower exports that could be required to meet environmental goals. It looks like this would cut the level of additional water exports to an increase of .558 maf, that would be about $2,000/af.
The different scenarios and the volume of documents may take a while to sort out definitively, so these per af costs should definitely be interpreted as a preliminary impression.
Update 3: And to be fair, I should point out that the project will presumably continue to provide incremental new water supplies for the exporters after the 40 year bond repayment period is over. Thus, the cost over the entire life-cycle per af would be somewhat lower. It will be good to see more accurate, formal analysis of these issues that should be available in the coming months.
Saturday, February 25, 2012
Stockton's Possible Bankruptcy
The financial situation of the City of Stockton and its impact on its citizens is very sad. As Mr. Deis said, there is no single cause of the situation, a severe economic recession, extremely generous employee/retiree compensation and benefits, a string of risky and/or poor decisions with bond financed investments by city leaders. With more prudent decisions, the economy would still have created severe financial trouble and severe budget cutting for the city, but it is these bad decisions that have pushed it to the brink of bankruptcy.
I just finished reading the City Manager's budget update as well as the consulting report. The City Manager is indeed proposing severe actions just to make it through the end of this fiscal year. It's awful, but I don't have a better plan to suggest. The most newsworthy of these actions is the plan to suspend payment on a few of its bonds.
The most significant missed payment will be on the $40m 2007 bond that financed what was seen at the time as one of the cities' shrewdest investments: the purchase of the Washington Mutual building to serve as a new city hall.
The Washington Mutual building was hailed as a bargain, much cheaper than building a new building, but today it sits mostly vacant and the city hasn't had free cash to pay for the move. In 2007, foreclosures were a new crisis and the residential market had just started a nosedive with the broader economy soon to follow, but tax revenues had not yet started to plummet.
Here is an excerpt from an old column from Mike Fitzgerald at the time of the 2007 deal for the vacant city hall upon which the city is about to default. This is not to pick on Mr. Fitzgerald or play Monday morning quarterback. His column is a window on the general sentiment at the time and is an interesting time capsule given the imminent default. This occurred around the time I came to Stockton to interview for a job, and I remember this story because I was just starting to read the local news and learn about the City, and I was also following the financial vultures circling an increasingly desperate Washingotn Mutual.
I just finished reading the City Manager's budget update as well as the consulting report. The City Manager is indeed proposing severe actions just to make it through the end of this fiscal year. It's awful, but I don't have a better plan to suggest. The most newsworthy of these actions is the plan to suspend payment on a few of its bonds.
The most significant missed payment will be on the $40m 2007 bond that financed what was seen at the time as one of the cities' shrewdest investments: the purchase of the Washington Mutual building to serve as a new city hall.
The Washington Mutual building was hailed as a bargain, much cheaper than building a new building, but today it sits mostly vacant and the city hasn't had free cash to pay for the move. In 2007, foreclosures were a new crisis and the residential market had just started a nosedive with the broader economy soon to follow, but tax revenues had not yet started to plummet.
Here is an excerpt from an old column from Mike Fitzgerald at the time of the 2007 deal for the vacant city hall upon which the city is about to default. This is not to pick on Mr. Fitzgerald or play Monday morning quarterback. His column is a window on the general sentiment at the time and is an interesting time capsule given the imminent default. This occurred around the time I came to Stockton to interview for a job, and I remember this story because I was just starting to read the local news and learn about the City, and I was also following the financial vultures circling an increasingly desperate Washingotn Mutual.
Stockton leaders hit home run
By Michael Fitzgerald
Record Columnist
October 05, 2007
It seemed Stockton's current leaders, for all their talents, could not make the big play. But the purchase of Washington Mutual's building for a new City Hall - well, a soccer announcer would yell, "Goooooooaaaaaalllllll!"
The City Council this week approved the $35 million purchase of WaMu's classy eight-story office building, saying the old City Hall was cramped and leaky.
Leaders crowed the purchase is a bargain. Constructing a new building would have cost twice that much. At least.
I ran the deal past Mahala Burns, administrator and broker of Cort Cos., which deals in downtown real estate.
"It looks like a fabulous deal to me," Burns raved. "The parking is a huge asset, the location is fabulous, the building is in mint condition. We would expect a building like that to go for $48 million."
By way of comparison, San Joaquin County government, spending $109 million for its new administration building, gets 250,000 square feet and 38 parking spaces.
The city, spending $74 million less, gets 211,000 square feet and 518 (underground) parking spaces.
Looks like the county missed a bargain. Look for the blue light next time, guys.
Seriously, the benefits of the deal go beyond price.
Currently, City Hall stands on downtown's edge. The relocation surrounds it with banks and businesses, placing it in a true city center.
Though WaMu is selling, it intends to keep some workers in the building; the city, as landlord, is in a position to encourage this major employer to stay.
City jobs are not only higher-paying but more stable. The lending crisis may thin WaMu's ranks, but City Hall's staff will, if anything, grow as the city does.
Finally, departments such as the permit center and Parks and Recreation draw hundreds downtown. By one estimate, the building's foot traffic will double.
Realtors Don't Like Bulk Foreclosure Sales Either
Today, the president of the California Association of Realtors, published an op-ed in the Sacramento Bee arguing against bulk sale of foreclosure homes to investors. This is something I raised concerns about when it was first proposed in August 2011, and I have been surprised there has not been more debate about the plan.
It isn't that often that I agree on policy with Realtor Associations, but I do on this one - at least until I can see a stronger argument for the social and economic gain from the government facillitating the sale of discounted residential real estate to hedge funds.
Of course, the Realtors' motives are at least partially self-serving, no commissions for them on these bulk REO sales. That may be part of the governments argument for doing this, increasing loss recovery by reducing transactions costs.
It isn't that often that I agree on policy with Realtor Associations, but I do on this one - at least until I can see a stronger argument for the social and economic gain from the government facillitating the sale of discounted residential real estate to hedge funds.
Of course, the Realtors' motives are at least partially self-serving, no commissions for them on these bulk REO sales. That may be part of the governments argument for doing this, increasing loss recovery by reducing transactions costs.
Friday, February 3, 2012
Stockton drops from #1 to #11 on the Forbes Misery List
Forbes' followed one of my suggestions from last year for adjusting their misery ranking, adding property taxes and removing sales taxes. Unfortunately, they didn't follow my top suggestion, adding a measure of income.
Nevertheless, Stockton dropped from #1 to #11, in large part due to this one change. Notably, all of the California metro areas dropped significantly in the rankings due to this adjustment; except Sacramento (which is getting pummeled in the rankings by the futility of the Kings). While I approve of the change, they are using property tax rate, as opposed to property tax burden which would be an even better measure in my mind. That kills places like Detroit with very low property values where the property tax rates may be very high even if the property tax bill is not.
Interestingly, the top 2 cities on this years misery list (Miami and Detroit), are identical to the top 2 on our adjusted misery list last year.
Nevertheless, Stockton dropped from #1 to #11, in large part due to this one change. Notably, all of the California metro areas dropped significantly in the rankings due to this adjustment; except Sacramento (which is getting pummeled in the rankings by the futility of the Kings). While I approve of the change, they are using property tax rate, as opposed to property tax burden which would be an even better measure in my mind. That kills places like Detroit with very low property values where the property tax rates may be very high even if the property tax bill is not.
Interestingly, the top 2 cities on this years misery list (Miami and Detroit), are identical to the top 2 on our adjusted misery list last year.
Wednesday, February 1, 2012
Economic Benefit-Cost Analysis vs. Financial Feasibility Analysis: Clear definitions needed for BDCP discussions
As an economist, it was painful to sit at the Delta Protection Commission meeting last week and listen to Jerry Meral's five minute answer to a question about benefit-cost analysis and the BDCP. My understanding is that there have been similar exchanges at various meetings. The problem isn't just his answer, the questions are often unclear, and even Allison Huber's failed bill wasn't very clear about the analysis she wanted the LAO to do.
To keep these conversations simple in the future, I recommend the question be phrased in the future as a simple yes/no question that relies on the Department of Water Resources' Economic Analysis Guidebook for definition of the terms. It's not the only source for this, but it is pretty good, and it should be acceptable to Dr. Meral and the Resources Agency since it is their guidebook.
The guidebook is clear about the key difference in benefit-cost analysis and financial feasibility analysis. The key definitions from the executive summary are:
Here is my interpretation of the exchange between Larry Ruhstaller and Jerry Meral about benefit-cost analysis if it had been asked and answered clearly.
LR: Are you doing a benefit-cost analysis of the BDCP or any of its elements as defined by the DWR Economic Analysis Guidebook? Are you doing a financial feasibility analysis?
JM: No, we are not doing benefit-cost analysis. Yes, we are doing a financial feasibility analysis of the isolated conveyance.
I am pretty sure that I have translated Dr. Meral's answer correctly in terms of these definitions, but it would be helpful to get a simple yes/no question and response to this in the future. And if you are involved in these financing and policy discussions, please learn these terms and do not use them interchangeably.
To keep these conversations simple in the future, I recommend the question be phrased in the future as a simple yes/no question that relies on the Department of Water Resources' Economic Analysis Guidebook for definition of the terms. It's not the only source for this, but it is pretty good, and it should be acceptable to Dr. Meral and the Resources Agency since it is their guidebook.
The guidebook is clear about the key difference in benefit-cost analysis and financial feasibility analysis. The key definitions from the executive summary are:
Benefit-cost analysis determines whether the direct social benefits of a proposed project or plan outweigh its social costs over the analysis period. Such a comparison can be displayed as either the quotient of benefits divided by costs (the benefit/cost ratio), the difference between benefits and costs (net benefits), or both. A project is economically justified if the present value of its benefits exceeds the present value of its costs over the life of the project. (page ix)
Financial Analysis. The objective of financial analysis is to determine financial feasibility (that is, whether someone is willing to pay for a project and has the capability to raise the necessary funds). A financial analysis answers questions such as, Who benefits from a project? Who will repay the project costs, and are they able to meet repayment obligations? Will the beneficiaries be financially better off compared to what they will be obligated to pay? (page xii)
The test of financial feasibility is passed if (a) beneficiaries are able to pay reimbursable costs for project outputs over the project’s repayment period, (b) sufficient capital is authorized and available to finance construction to completion, and (c) estimated revenues are sufficient to cover allocated costs over the repayment period. (page xii)
Here is my interpretation of the exchange between Larry Ruhstaller and Jerry Meral about benefit-cost analysis if it had been asked and answered clearly.
LR: Are you doing a benefit-cost analysis of the BDCP or any of its elements as defined by the DWR Economic Analysis Guidebook? Are you doing a financial feasibility analysis?
JM: No, we are not doing benefit-cost analysis. Yes, we are doing a financial feasibility analysis of the isolated conveyance.
I am pretty sure that I have translated Dr. Meral's answer correctly in terms of these definitions, but it would be helpful to get a simple yes/no question and response to this in the future. And if you are involved in these financing and policy discussions, please learn these terms and do not use them interchangeably.
Economic Sustainability Plan Update
It's done. You can download the executive summary (18 pages), the full report (almost 300 pages), or follow this link to a webpage where you can download individual chapters of interest, and find links to appendices, comment letters, and other ancillary material.
If you are interested in the Delta and you haven't looked at the Economic Sustainability Plan (ESP) yet - or haven't looked since an early rough draft - I recommend you at least check out the executive summary. Even if you don't agree with the recommendations, you should find the ESP to be a very reliable source of information. That information may change the way you think about the Delta, so don't read the recommendations first thinking that you know all there is to know about the Delta. The things I have learned have certainly changed my thinking about a few issues.
By my count we have been through 4 drafts, made presentations and received comments at 15 long public meetings of various types, a formal public peer review by 5 national experts, and lots of correspondence. The short time frame and open, public process was exhausting, but it did result in a better final product. The report is done, but there will be a few more presentations, most notably to the Delta Stewardship Council on February 8-9.
If you are interested in the Delta and you haven't looked at the Economic Sustainability Plan (ESP) yet - or haven't looked since an early rough draft - I recommend you at least check out the executive summary. Even if you don't agree with the recommendations, you should find the ESP to be a very reliable source of information. That information may change the way you think about the Delta, so don't read the recommendations first thinking that you know all there is to know about the Delta. The things I have learned have certainly changed my thinking about a few issues.
By my count we have been through 4 drafts, made presentations and received comments at 15 long public meetings of various types, a formal public peer review by 5 national experts, and lots of correspondence. The short time frame and open, public process was exhausting, but it did result in a better final product. The report is done, but there will be a few more presentations, most notably to the Delta Stewardship Council on February 8-9.
Monday, January 23, 2012
LAO on the Governor's budget
For all the frustrating aspects of California state government, one entity that I find to be very reliable is the Legislative Analyst Office (LAO). As usual, they have done a good job of responding to the Governor's budget proposal; particularly the proposed "trigger" cuts if voters do not approve a tax initiative that are targeted almost exclusively to education.
I liked this simple statement of fact from Mac Taylor in this Sac Bee post:
This "trigger" cut is much different, and that is why I have not hesitated to use stronger language than normal when describing them (even politically-loaded terms like hostage or ransom). Compared to the recent "trigger cuts", this cut is more than double the size, is all or nothing (as opposed to a sliding scale based on tax receipts), falls almost completely on one piece of the budget, and depends on an tax increase election on a very complicated Fall ballot. It is an ugly political threat, and would set a terrible precedent if successful.
I am pleased to see the LAO pointing out the problems with this approach, and hope the legislature rejects the proposal. If it remains this way, I won't be voting for the Governor's tax initiative, and will take a serious look at Molly Munger's proposal as an alternative (even though the tax increase is too large in my opinion and I generally don't like dedicated revenue proposals.).
I liked this simple statement of fact from Mac Taylor in this Sac Bee post:
Sen. Mark Leno, D-San Francisco, wondered whether the governor's scenario of cutting schools if the taxes fail is avoidable. Leno cited Brown's insistence that he set up his tax plan as such because schools consume so much of the state budget.In their formal response, the LAO gives the legislature some good advice on page 23:
Legislative Analyst Mac Taylor stopped him there. "They're 40 percent of the budget, not 90 percent. You don't have to do 90 percent schools. You can do a lesser amount. It's just that obviously there are tradeoffs."
Alternatively,given the potentially unintended consequences of the trigger as well as the major disruptions caused by midyear reductions, the Legislature could consider building a budget without midyear cuts. In this case, the Legislature could focus on a funding level it could afford despite the revenue uncertainties and then use any ballot-measure revenue as one-time investments in 2012-13 to pay down existing Proposition 98 obligations.If you have heard me speaking in the past week, you know how much I really dislike the Governor's trigger cut proposal. It is completely different than the recent trigger cuts in this years budget. This year's trigger cuts were based on uncertain tax receipts in the short-run - something outside the control of voters or legislators - and were an understandable consequence of the deep cutting in this year's budget. The amount of the cut depended on the level of tax receipts, were of smaller magnitude, and distributed across programs.
This "trigger" cut is much different, and that is why I have not hesitated to use stronger language than normal when describing them (even politically-loaded terms like hostage or ransom). Compared to the recent "trigger cuts", this cut is more than double the size, is all or nothing (as opposed to a sliding scale based on tax receipts), falls almost completely on one piece of the budget, and depends on an tax increase election on a very complicated Fall ballot. It is an ugly political threat, and would set a terrible precedent if successful.
I am pleased to see the LAO pointing out the problems with this approach, and hope the legislature rejects the proposal. If it remains this way, I won't be voting for the Governor's tax initiative, and will take a serious look at Molly Munger's proposal as an alternative (even though the tax increase is too large in my opinion and I generally don't like dedicated revenue proposals.).
Friday, January 20, 2012
Our latest economic outlook: A continuation of the "2% recovery" but finally a little growth in the Valley
Here is a link to a summary of our latest quarterly forecast.
More positive economic data at the end of 2011 has raised hopes for the economy, but continued weakness in the housing market, weaker demand for exports, and contracting government spending will prevent the recovery from gathering further momentum according to the Business Forecasting Center at the University of the Pacific. The forecast projects real gross state product will grow at an average 2% rate for both 2012 and 2013, similar to the first two years of the recovery. In 2014 and beyond, growth will increase above 3% as housing and construction finally begin making a positive contribution to the recovery...
Wednesday, January 11, 2012
I just made $100 in "recreation related" expenditures in the Delta. Why didn't I have any fun?
Made a run out at noon to CVS and to grab lunch. Picked up some shaving supplies, toiletries, and a few groceries and stopped for a sandwich. According to the PPIC, I just supported recreation-related employment. I didn't see any recreation products in the store (unless you count the family planning section), but I saw a lot of food. But the experts at the PPIC classify all this routine local retail and restaurant jobs as "recreation-related".
For example, the description of the Delta secondary zone on page 26 notes: "relatively few jobs (1%) in agriculture forestry, or fishing... recreation-related activities (food and lodging establishments, marinas, other arts and recreation activities, and retail trade) account for 22 percent of employment in the secondary zone." If you break down that 22% (which the PPIC does not, but consult the DPC Economic Sustiainbility Plan or BLS, BEA, EDD and other govt sources), you will learn that roughly 10 percentage points is retail (the mall, groceries, etc.) and almost another 10 percentage points is restaurants (majority fast food), and marinas are too small to show up as a sector in most tabulations but are part of arts and recreation, of which the entire sector is smaller than agriculture.
As noted in chapter 2 of the peer-reviewed Economic Sustainability Plan; the data clearly shows arts and recreation has the lowest relative employment concentration in the Delta (primary + secondary zone combined) of any of the 21 economic sub-sectors defined by the government's NAICS system. The notion advanced in the PPIC report that the legal Delta has a recreation oriented economy is false, it is wishful thinking and shameless pandering to the fictional narrative advanced by water export and habitat restorations interests. If you combine the small real recreation sector with the mall and McDonalds selling to locals, it looks big. The irony is that all that growth in so-called "recreation related" jobs that impresses the PPIC experts is generated by those housing developments in the Delta that they hate.
Figure 6 illustrating recreation jobs in this new PPIC/Davis report is a wonderful example of how to mislead with graphs, and you will find no comparable groupings or graphs in any PPIC/Davis water reports on other regions. According to Figure 6, Recreation is more important than construction and manufacturing combined (goods producing non-farm), bigger than government employment, bigger than healthcare. Who knew?
To be fair, later on in the report, they have a more reasonable estimate of Delta recreation that is significantly lower than their underestimated impact of agriculture (see previous post on that).
There is more... especially on infrastructure and levees and salinity ... but I have to stop now and do other things.
[Edited for clarity on 1/12]
For example, the description of the Delta secondary zone on page 26 notes: "relatively few jobs (1%) in agriculture forestry, or fishing... recreation-related activities (food and lodging establishments, marinas, other arts and recreation activities, and retail trade) account for 22 percent of employment in the secondary zone." If you break down that 22% (which the PPIC does not, but consult the DPC Economic Sustiainbility Plan or BLS, BEA, EDD and other govt sources), you will learn that roughly 10 percentage points is retail (the mall, groceries, etc.) and almost another 10 percentage points is restaurants (majority fast food), and marinas are too small to show up as a sector in most tabulations but are part of arts and recreation, of which the entire sector is smaller than agriculture.
As noted in chapter 2 of the peer-reviewed Economic Sustainability Plan; the data clearly shows arts and recreation has the lowest relative employment concentration in the Delta (primary + secondary zone combined) of any of the 21 economic sub-sectors defined by the government's NAICS system. The notion advanced in the PPIC report that the legal Delta has a recreation oriented economy is false, it is wishful thinking and shameless pandering to the fictional narrative advanced by water export and habitat restorations interests. If you combine the small real recreation sector with the mall and McDonalds selling to locals, it looks big. The irony is that all that growth in so-called "recreation related" jobs that impresses the PPIC experts is generated by those housing developments in the Delta that they hate.
Figure 6 illustrating recreation jobs in this new PPIC/Davis report is a wonderful example of how to mislead with graphs, and you will find no comparable groupings or graphs in any PPIC/Davis water reports on other regions. According to Figure 6, Recreation is more important than construction and manufacturing combined (goods producing non-farm), bigger than government employment, bigger than healthcare. Who knew?
To be fair, later on in the report, they have a more reasonable estimate of Delta recreation that is significantly lower than their underestimated impact of agriculture (see previous post on that).
There is more... especially on infrastructure and levees and salinity ... but I have to stop now and do other things.
[Edited for clarity on 1/12]
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