Tuesday, December 21, 2010

California Population is 37.25 million according to Census 2010

Today's Census 2010 results have enormous implications for policy analysis in California.  Most of the news will focus on redistricting and political implications, but the biggest impact could come through the effect on major policy analysis.

Since the last Census in 2000, a chasm has opened up between the annual population estimates for California issued by the Department of Finance (DOF) and the Census Bureau.  The gap stood at about 1.5 million people, and was driven by differences in how the two demographic projections measure migration.  Wonky types in the state have been debating this for years and have been waiting for today's once per decade enumeration to settle the dispute.  Among researchers in the state, the majority such as Steve Levy's Center for the Continuing Study of the California Economy, state agencies, and the PPIC have projections that follow the Department of Finance; whereas our Center and others have believed annual Census Bureau estimates to be more accurate and have based our projections on these.  (The difference is based on migration rates which Census estimates with addresses on IRS tax returns, whereas DOF primarily uses drivers license data.)

Since so many of our projects rely in part on population projections, I am pleased that the Census 2010 results released today closely match the projections we have been using.  On a practical level, it saves a lot of work adjusting and reestimating models, and means we won't have to back track from conclusions drawn from them.

While some will moan that these estimates are bad for California since we won't gain Congressional clout, it is actually a win for California policy analysis to get away from the overly-high DOF population estimates.  The DOF estimates and projections are being used to justify big public spending proposals such as a peripheral canal, dams, high-speed rail and more.  Let's hope the Census numbers will finally get all the various analysts to revise down their demand projections to more realistic levels, and take a second look at these projects and see if they still make sense with fewer people to both use the services and pay the bill.

The first to fix their models should be the PPIC/Davis water wonks.  As I pointed out over 2 years ago, they were exagerrating the already overstated CA DOF projections.

Monday, December 20, 2010

Census Bureau finds Mendota unemployment is 16%

A few days ago, the Census Bureau released data on the economic characteristics of small towns for the first time since the 2000 Census.  The data come from the American Community Survey which has replaced the long-form in the Decennial Census, and reports a 5-year average value from a year-round survey conducted between 2005-2009.

It reports the Mendota unemployment rate at 16%, link here.  This will no doubt come as a shock to people following California water issues who have been hearing about 40% unemployment in this town for the past two years, but it is not surprising to those of us who have been explaining that 40% is a bogus number, crudely extrapolated from 2000 Census results that measured Mendota unemployment at a stunning 32%.  While Census is now reporting a much smaller unemployment rate, the reported income levels in Mendota remain miserable, under $9,000 per capita in the new release with over 50% of children living below the poverty line. 

Why did the Census estimate of unemployment drop from 32% in 2000 to 16% for 2005-2009?  It results from an improvement in methodology to a year-round sample, not an improvement in the Mendota economy.  The Census' new ACS is a year-round survey, whereas the old decennial Census figures were a snapshot of conditions on April 1.  April 1 is at the tail end of the high-unemployment season in Valley farming areas, just before conditions begin improving with the season.  The EDD unemployment estimates people have been citing have been inflated because they were based on an April 1 unemployment proportion, and then applying this to data year round.  It therefore exagerrates unemployment estimates in Mendota and all farming communities during the rest of the year.

As I have stated repeatedly, the only valid current unemployment rates are at the County level.  The official, monthly County level unemployment estimates from EDD/BLS match very well with what the Census Bureau reported from 2005-2009.  For example, Fresno County unemployment averaged 10.2% from 2005 to 2009, and the new Census 5-year average is 10%.  However, California EDD estimates for small farm towns are wildly off due to the crude methodology.  (EDD staff have told me privately that the crude technique was created because a local area unemployment estimate was needed to distribute federal funds, the local area estimates were never intended to be used for policy purposes, and the estimates come with a warning about the untested method.)  The error is now apparant since California EDD has reported average Mendota unemployment from 2005 to 2009 at 29% with their crude formula during the same period the Census measures 16% with a real local survey.  As discussed above, the EDD estimate is wrong because it applies a seasonally high unemployment proportion from April 1 to all months to make a crude guestimate of unemployment rates from County data.  EDD will eventually revise their city level estimates to the new Census data, and their reported unemployment rate for Mendota will drop remarkably.  They should be sure to revise it backward to 2005 so that there isn't any misinterpretation that the recent rains caused unemployment to drop.

This post should not be used to minimize the problems with unemployment and poverty in Mendota.  It is a large and disturbing problem, but it is also a chronic problem not something created by environmentalists.

Thursday, December 16, 2010

Financing a Big Delta Tunnel will Require Big Water Exports

For the past two years, I have said that "beneficiary pays" financing of the peripheral canal only pencils out if it increases water deliveries to record levels.  After reviewing Wednesday's state and federal BDCP updates and subsequent news stories, it is becoming more obvious that this is true.

These quotes from Mike Taugher's article are particularly revealing.
"We need to know that the yield of the project that is going to be proposed is at a level that is cost-effective for us," said Jim Beck, general manager for the Kern County Water Agency...

Still, the state report suggested that water districts in the San Francisco Bay Area, San Joaquin Valley and Southern California could receive 5.4 million to 5.9 million acre-feet a year on average under the plan. The federal report said it appeared that the plan could result in more than 5.2 million acre-feet a year.

That's an improvement over the 4.7 million acre-feet that can be delivered on average with new restrictions in the Delta but less than the 6 million acre-feet a year delivered from 2000 to 2007.

"If it's under 5.9 ... it will require our water users to re-evaluate whether BDCP meets their water supply objectives," Beck said.
Some back of the envelope calculations reveal that the exporters' concerns are very valid.  At $13 billion and over $80 million annual operations costs, the annual costs of operating the 15,000 cfs tunnel for exporters will be about $900 million per year.  As Taugher reports above, the BDCP highlights report reveals that conveyance is only expected to increase diversions between 0.7 and 1.2 million acre feet.  Thus, the each additional af of water delivered because of the canal will cost about $900 per af.  And that only gets the water to Tracy, delivery from there to end users and treatment for urban users further increases costs.  That is well beyond the ability of agricultural users to pay, and it makes conservation, recycling and desal. look a lot cheaper to urban users.

Of course, most of this is fixed costs, so if deliveries were increased by 2 maf or more, the unit costs drop quickly.  This is a simplistic calculation worthy of no more than blog publication, but it is nonetheless revealing. (I am aware that the project adds value not just through additional water, but by increasing reliability or the risk of disruptions...but conservation, water recycling and desal. provide equally if not more reliable water.)  It is rather obvious that the pressure to increase deliveries beyond whatever limits will be agreed upon in the BDCP will be enormous.  And if it doesn't happen, it is likely that agricultural water exporters will be unable to meet their financial requirements and there will be calls for billion dollar taxpayer subsidies or a lot more costs will be dumped on Socal urban users than they expected.

Why, after 4 years, can't a 100 page document on the BDCP take its financial analysis one baby step forward?  Some real economic analysis early in the process would have helped create more realistic expectations on the part of participants and greatly increased the probability of reaching a solution.  (I also note that Met's new water plan says they are only planning on a $2.3 billion contribution to the Delta plan.  Is that realistic?  Who do they think is going to come up with the other $10.7 billion the BDCP allocates to water exporters?)

This is part of the reason I have been so critical for so long of the economic analysis in the 2008 PPIC study that exagerrated the willingness of exporters to pay for a canal as well as the costs of "doing nothing".  In doing so, they gave a lot of people false expectations about the financial viability of a BDCP type plan.  I am disapointed in the way the federal document seems to cite the 2008 PPIC report as the sole, infallible source of Delta analysis.  Indeed, my pastor typically cites more non-Bible sources in his Sunday sermons than the federal government cites non-PPIC/Davis sources on the Delta.  The PPIC report does not follow the federal governments own guidelines for cost-benefit analysis for infrastructure, and exagerrates the costs of alternative water supplies among other problems.  According to PPIC, water exporters should be willing to pay for a $20 billion canal AND ecosystem improvements.  So, either these exporters are lying or PPIC's calculations were wrong.  I believe it is the latter.

(lightly edited from original at 8 am)

Wednesday, December 8, 2010

Tax Deal Changes the 2011 Outlook

I am surprised at the size of the tax deal, particulary the 2% payroll tax holiday for 2011.  Combined with the accelerated depreciation component, that is over $200 billion in unanticipated stimulus for 2011 (most of the other components of the deal were anticipated or relatively small).  That's a big deal.

In October, we significantly revised down our forecast for 2011 and 2012, in large part due to anticipating contractionary government policies.  In the Valley, we would probably benefit more if some of these federal dollars were spent on infrastructure and further props to education and health and human services funding as in the original stimulus.  Still, the payroll tax is a substantial injection of funds into the wallets of households, particularly middle-class and upper middle-class households.

The big winners are people like me.  The Making Work Pay Credit in the original stimulus maxed out at $800 for married households and phased out at higher incomes, so that people like me received virtually nothing.  With the 2% 2011 payroll tax holiday, a married couple with 2 wage earners and household income in the mid-$100s is looking at an unanticipated $3,000 increase in our disposable income in 2011.  What should we do with it?  (It will probably go towards a needed new car I have been postponing.)

A similar married household with $40,000 in wages will see a $800 reduction, the same as the credit in the 2009 stimulus bill, and lower wage earners will see even less. 

Of course, this is all paid for by adding it on to the national debt, and it is going to be hard for Congress to put the payroll tax back where it was before.  That creates a number of risks.  There is no free lunch. 

But our forecast for 2011 is brightening a little, and with it my mood for the holidays.

Monday, December 6, 2010

Sacramento Bee on Wastewater Rates

Like a good reporter, Matt Weiser is skeptical of SRCSD claims about the magnitude of increasing wastewater rates in last week's Sacramento Bee.  However, if the Bee is looking for government agencies being dishonest about Sacramento wastewater rates, they should also investigate the claims of the regulator, the Central Valley Regional Water Quality Control Board.

The Sac Bee article about SRCSD begins
A letter hitting most residential mailboxes in the capital region this week offers startling information: It soon may cost three times more to flush your toilet.

That is, if you agree with the numbers
The article goes on to suggest that rates may not actually increase by $40, it looks like they could increase by 2.5 times instead of triple ($30 per month more rather than $40 per month), although there is a lot of uncertainty at this stage.  I agree with this, it probably won't be as bad as SRCSD is saying, although their scenario is not wildly exaggerated  (SRCSD would have to start weaving tales of thousands of homeless Sacramentans to approach the exaggerations routinely made by water exporters about regulatory costs). 

In the article, Central Valley Regional Water Quality Control Board staff also complain that the flyer didn't describe the environmental benefits from the upgrade.  That's a fair comment, but after reviewing many documents the Regional Board's staff uses to justify the upgrade, they are also guilty of producing one-sided analysis that fail to properly analyze the economic impact of their rulings on communities they regulate.  Even more bothersome is the way they misrepresent the small amounts of information they do present to justify the costs of upgraded treatment. 

1. The board's staff compares current rates in communities that they have already required to upgrade their plants to the projected rates in Sacramento.  It is an inexcusable apples to oranges comparison.  Many of the communities for which they cite current rates have recently approved large wastewater rate increases to pay for plant upgrades that have yet to affect current rates.  I am most familiar with Stockton which the regional board notes has monthly fees of $22.75.  However, Stockton just approved a large rate increase to pay for an upgraded plant that will nearly double wastewater costs between now and 2015 to around $40 per month.  Lodi is similar although they are already halfway through the 5-year process of roughly doubling rates.

2.  The board's states in reports and correspondence with Senator Steinberg and others that "other communities that have completed the plant upgrades and are operating the upgraded systems without irreparable economic harm."  Really?  That is a pretty strong assertion for which they provide no evidence, and have conducted no assessment.

It is almost certainly a false statement.  We have yet to see the full impacts of higher rates in most areas so any conclusion to this effect would be premature.  As one current example of a place where high wastewater rates have already hit, the City of Placerville just voted to increase sales taxes to subsidize increased wastewater rates that were hitting low-income residents hard.  While this has allowed them to off-load some of the costs on non-residents and reduce the regressive effect of the rate increase, their wastewater costs are now being paid from a revenue source that typically supports general fund services like police, fire, parks and libraries who will now be unable to use sales tax increases to offset cuts to these vital services.

3.  Most annoying to me, the Regional Board staff misrepresents Pacific's economic impact reports (most notably on page 39 of this report).  They do not cite the main result of the study, an annual employment loss of 976 jobs and annual income loss of $246 million over the next 30 years.  Strangely, the only thing they report is a conservative assumption that we made to facillitate the calculations, "increased wastewater rates will not be significant enough to affect the location, operation or investment decisions of businesses, and that lost corporate income flows outside the region." This is presented in a way to suggest that we disagree with the local building industry.  They left off the fact that we had clearly labeled this assumption as conservative and a reason why our impact estimate could be too low.  

I was surprised that they also cited our other reports on the effects of Delta problems on other stakeholders (Valley farms and salmon fishing), specifically citing the losses to income and employment that have been sufferred.  I would be pleased by that if they had reported the Sacramento impacts in the same way, but they don't.  If they did, it would show that the negative impacts on Sacramento for the proposed permit are actually larger.  [Note: I called CVRWQCB staff last week and offerred to explain how to properly report and interpret the results to our study and brief their board, but the call was not returned.]

I am not saying that Sacramento shouldn't make some upgrades to their wastewater treatment.  Maybe they should go as far as the Regional Board proposes, I can't say.  But neither can the Regional Board without making an honest, good faith effort to properly report and assess the economic impacts on both Sacramento and other cities affected by their previous rulings.

Thursday, December 2, 2010

Valley Mayors on High-Speed Rail

I have resisted stepping into the high-speed rail issue, despite the tempting targets of the thinly documented but often repeated claim that HSR will create 450,000 permanent jobs, and optimistic ridership projections.

If we are going to do it, we need to be smart about it (such as taking another look at the Altamont vs. Pacheco pass decision).  Being smart about it is also the point of the op-ed by north Valley mayors, including Stockton's Ann Johnston, in today's Sacramento Bee.

California is challenged with building a technological wonder rivaling the economic and social impacts of the Transcontinental Railroad. Instead, the California High-Speed Rail Authority appears set on building a rail line to nowhere that only provides critics with 66.4 miles worth of reasons to attack the project.

The staff proposal runs from the rural region of Borden with a couple of hundred people south of Madera to Corcoran – population 25,000, including 13,000 inmates.