Valley Economy
A discussion of economic, business, and environmental issues of importance in the Central Valley.
Thursday, December 15, 2022
Is DWR Lying About The Low-Utilization Operating Plan For The Delta Conveyance Project?
Tuesday, June 28, 2022
Agricultural Jobs Data for 2021 Show Drought Impacts
The best quality jobs data (QCEW) was released earliest this month through the end of 2021, and gives the first reliable data on the state of agricultural employment during 2021, a year impacted by drought and lingering impacts of Covid. The graphs below show employment and wages data over time for all of California in NAICS 11 (Agriculture, Forestry, Fishing and Hunting). Agriculture accounts for 99% of jobs in this industry category in California.
As you can see on the graph, jobs had steadied near 423,000 in the years prior to Covid, and then declined by about 15,000 during the first year of the pandemic. In 2021, Covid impacts on the farm labor were lower, but drought impacts likely prevented recovery.
While I say this is the first reliable data, UC-Merced (in partnership with others) released a projection in February 2022 that the drought eliminated 8,744 jobs in California agriculture compared to what they would expect in non-drought conditions. Their estimates suggest 2021 employment would have been just under 420,000 in the absence of drought. That seems pretty accurate to me and I am happy to see that this modeling of drought impacts seems to be much better than what UC was producing a decade or so ago.
Overall, this is just over a 2% decline in employment relative to non-drought conditions. While drought employment declines grab the headlines, the more impactful story in the ag jobs data is the continued strong growth in wages. Average wages in the agriculture industry in California increased again in 2021, and have risen about 60% over the past decade (not adjusted for inflation) after years of stagnation. While it is still the lowest-paying sector in California, this wage growth is significant and has benefited thousands.
What will 2022 bring? The drought continues, and the impacts of the pandemic and less abundant and more expensive labor are also continuing to some degree. Thus, a recovery is unlikely this year.
Monday, May 2, 2022
Stanford scientists find that the Delta Conveyance Project is a much worse idea than converting Diablo Canyon into a giant nuclear-powered desalination plant.
A recent study from Stanford scientists has caused some policy makers, including Governor Newsom, to reconsider the timeline for closing the Diablo Canyon nuclear power plant, California's last operating nuclear plant.
https://energy.stanford.edu/sites/g/files/sbiybj9971/f/diablocanyonnuclearplant_report_11.19.21.pdf
Among the future visions for Diablo Canyon plant evaluated in the study was using it as a mega-scale desalination facility. Mega-scale nuclear-powered desalination! I can see my environmentalist friends recoiling in horror at the idea. I am not persuaded it is a good idea either, but the Stanford team clearly demonstrated that it is far from the worse idea in California water.
Here is the second highlighted finding in the Executive Summary
Using Diablo Canyon as a power source for desalination could substantially augment fresh water supplies to the state as a whole and to critically overdrafted basins regions such as the Central Valley, producing fresh water volumes equal to or substantially exceeding those of the proposed Delta Conveyance Project—but at significantly lower investment cost
Here are some quotes from the desalination chapter,
One of the intermediate sized Diablo Canyon-powered desalination options would produce significantly more fresh water than the highest estimate of the net yield from the proposed Delta Conveyance Project at less than half of the investment cost.
It is also notable that the projected capital cost of the Delta Conveyance Project, at $15.9 Billion, is more than twice the capital cost of the Diablo Canyon Desalination Option 2, discussed below, which, at a capital cost of approximately $6.5 Billion, yields up to seven times the amount as the DCP.
This comparison really caught my attention because pre-Covid I had given one or two talks on the Delta Conveyance Project where I started by comparing the State Water Project and Diablo Canyon Nuclear Power Plant with a series of multiple-choice questions. In a future post (yes I am aware I have not posted here in nearly a year), I will dust off that quiz and add some content from the Stanford report.
Thursday, June 3, 2021
2020 data shows Covid impacts on agricultural jobs
Monday, August 24, 2020
New $15.9 bil. Delta tunnel cost estimate: Revisiting DWR's 2018 single-tunnel economic analysis with updated costs shows it is a bad investment for water agencies.
As reported in the Sacramento Bee, the cost of a single-tunnel Delta conveyance is now estimated at $15.9 billion. In a previous 2018 analysis to support a short-lived proposal to stage the twin-tunnel WaterFix proposal, DWR estimated the single-tunnel 1st stage of WaterFix at $11.1 billion in 2017 dollars, which is equivalent to $11.7 billion in 2020 dollars. This is a 35% increase in constant dollars, and should lead the Governor and the dwindling number of water agencies that still support the single-tunnel delta conveyance facility (DCF) to reevaluate the investment.
That 2018 analysis wildly overstated the economic benefits of a single-tunnel to participating water agencies, but for now let's accept their estimate of benefits. The image below shows the results of that analysis (Table 5, with no federal subsidy).
Simply updating the costs to this latest estimate ($15.9 billion in 2020 dollars is equivalent to $15 billion in the 2017$) reduces the benefit-cost ratio for SWP urban agencies from 1.23 to 0.92, and for agricultural agencies from 1.17 to 0.87 in the trading scenario.
That's a bad investment, but it is actually much worse than that. The 2018 analysis assumed the project would be operational in 13 years, whereas the new cost estimates a 20 year delivery period. I didn't incorporate the extra 7 year wait for benefits in the above recalculations of the b-c ratio, but it would make it even lower.
At some point, we might see a revised economic analysis that manufactures new benefits to magically get the benefit-cost ratio over 1. Readers of this blog know that DWR and MWD already have an established track record of inventing new benefits as new information reveals the delta tunnel(s) to be a worse and worse investment.
P.S. Thanks to Restore the Delta for archiving the 2018 analysis online for the public record. DWR has wiped their previous links, and I couldn't find a saved copy in my files.
Sunday, August 23, 2020
Water Blueprint proposes a valley wide sales tax to fund their irrigation water plan. Is it equitable? Is it feasible?
Earlier this month, CSU-Fresno hosted the event "Funding Water Infrastructure in the San Joaquin Valley." The vast majority of the event was focused on the so-called "Water Blueprint for the San Joaquin Valley," a high profile new investment plan for irrigation water.
At the event, the Blueprint rolled out a proposed funding plan - the centerpiece of which is a proposed 0.5% special sales tax in the 8 counties of the San Joaquin Valley. While the sales tax would provide the vast majority of funding for the Blueprint's multi-billion investment strategy, the funding plan also includes a modest $4 per acre foot charge on water users and hoped for matching funds from the state and federal government. In most years, the Blueprint projects the sales tax would generate 7 times more revenue than water user fees.
The sales tax is a bold new idea in water finance, but not a good one as proposed. It is inequitable across geography and income. It probably isn't politically feasible either, despite the optimistic spin from a new poll presented at the event. Below, I briefly discuss these issues and suggest some changes to the Water Blueprint to improve the equity and political prospects of their proposal.
Geographical Inequity - Taxes North San Joaquin Valley Counties Without Benefit
The tax is proposed for 8 counties, although the Blueprint plan only provides benefits to 5 counties from Madera south to Kern. The proposal would get 1/3 of its revenue from the North San Joaquin Valley counties while providing zero benefits to them - and potentially harm San Joaquin County's Delta region.
The Blueprint can correct this problem by dropping the 3 northern counties from their proposal, and leaders in the North San Joaquin Valley should demand that they do so.
I have argued for years that San Joaquin, Stanislaus, and Merced counties are ill-served by the 8-county region often used in state planning efforts. The Blueprint, which has gained some influence with state leaders, is an excellent example of this problem.
Geographical Inequity - Benefits Wealthy Out-of-Valley Landowners
Inequity Across Industries - Agriculture Is Exempt From Sales Tax, But Other Industries Pay
Income Inequity - Regressive Sales Tax Primarily Benefits Well-Off Landowners
The primary general argument against sales taxes are that they are regressive. Lower-income households pay a higher share of their income in sales taxes than higher-income households. The situation is the same here, and it is particularly problematic in this case as the largest beneficiary of the tax are the owners of farms - who generally have above average incomes in the Valley and include some truly rich out-of-Valley landowners as described above.
The Blueprint can improve this inequity by including funding to repair unsafe drinking water systems in the Valley to their plan. The tax is still regressive, but funding clean drinking water with its proceeds will at least direct more of the benefits to low-income communities.
Political Feasibility - Will it Pass?
- Eliminate the 3 North San Joaquin Valley counties.
- Add funding for safe drinking water in disadvantaged communities.
- Propose a full cost user charge with the sales tax to defray expenses for non-wealthy water users who live in the Valley.
Monday, July 6, 2020
Reaction to CalMatters essay, "A social justice perspective of the Delta tunnel project"
In a catastrophic levee failure, who stands to be hurt the most?Correct Answer: The people who die! Shockingly, Mr. Kremen completely omits any mention of fatalities, which is rather obviously the most significant harm caused by the catastrophic flood he describes. The earthquake induced flood he describes would come with virtually no warning, and if it triggered enough widespread flooding to harm water exports - it would surely be a mass fatality event wiping out small communities, family farms, and critical transportation, energy and local water infrastructure. A more likely smaller earthquake induced flood would still do much of this damage with minimal impacts on water exports. But the $11+ billion tunnel Kremen is promoting would protect none of the lives and also would not protect against most economic impacts. It would not even fully protect water exports. In contrast, investing in levee improvements protects all of these interest - including water exporters and human lives - from this catastrophic event. Levee investments benefit all stakeholders. That certainly sounds more like social equity to me.
I had high hopes that this kind of disaster rhetoric would die down after the Oroville disaster nearly killed thousands and wiped communities after the map. Especially after post-Oroville reviews slammed the Department of Water Resources for safety lapses and prioritizing water export agencies over public safety. Mr Kremen's commentary gives me little hope that public safety is a high priority for the Delta Conveyance Finance Authority he vice chairs.
Since everyone has to make a COVID comparison in our commentary now, I should also point out that the state's response to COVID shows California is very willing to prioritize saving lives over maintaining economic activity during a disaster. Building levees that protect lives and businesses would be consistent with California's clearly expressed values, whereas building a tunnel that protects certain business interests while ignoring death and destruction in vulnerable communities is not.
Here is another strange and incorrect passage from Kremen's so-called social justice argument. He warns that not building the tunnel will reduce water to Central Valley agriculture, and
Reduced water to Central Valley agriculture would mean higher prices for food, higher carbon footprint from food importation and decreased food security. Higher food prices disparately affect those who are poor and vulnerable. It is well documented that the transportation related pollution for importing food especially damages communities of color.First, I would point out to Mr. Kremen that the only agriculture output that would definitely be lost in the catastrophe he describes is in the Delta itself - and the tunnels would do nothing to protect it. The droughts of 2014-15 reduced water supplies by more than double the amount exported from the Delta in a full year, and these had negligible impacts on food prices despite hundreds of thousands of acres fallowed. The tunnels would not protect the poor from rising food prices, nor would it protect them from rising water bills. The carbon footprint, food importation comment is just weird. Kremen suggests central valley farm products don't travel far, and are mostly sold at your local farmers market. In fact, Central Valley agriculture is extremely export oriented, very industrial, and ships its crops across the world. Why would a decrease in Central Valley farm output increase global food shipping costs?
But the really strange part of this comment is the suggestion that the tunnel is actually good for agriculture - a statement which is demonstratively false. Many agricultural agencies - including the entire Central Valley Project and multiple agricultural state water project contractors are not participating in the Delta tunnels because it makes water too expensive for farming. The financial plan for the tunnels that Kremen and others have developed will result in farmers not participating and giving up a portion of their water exports to urban areas due to its extreme costs. I have heard leaders of urban agencies, including Kremen himself, suggest that tunnels that price farmers out of the state and federal water projects is a business opportunity for urban agencies to pick up their water supplies.
As On the Public Record points out in their comments on Kremen's column, the Delta tunnel is an engineering project not a social justice project. For years, proponents of this Delta conveyance have tried to put green wrapping paper around the project (a tradition Kremen continues here with his claims about the carbon footprint of food importation). This attempt to wrap it in the cause of social justice is even more disturbing. Let's hope this isn't a new trend.