Tuesday, May 21, 2013

Delta Levee Innovations

Since working on the Economic Sustainability Plan with Dr. Pyke, I have been promoting "fat" seismically resistant levees for the Delta as a cost-effective solution to the Delta problem.  Now UC-Berkeley engineers are developing even more creative solutions for seismically resilient levees. 

Check out this new article from Innovations, the UC-B Engineering newsletter.
In the basement of Davis Hall, Hamed Hamedifar (Ph.D.’12 CEE) is rattling scale models of levees on a shake table, subjecting them to vibrations replicating the magnitude 6.9 El Centro earthquake of 1940. Hamedifar is designing a plate pile system, rectangular plates affixed to three-yard beams, to bolster the strength of levees in places like the California Delta...For one of his research projects, Hamedifar borrowed a technique of using plate piles to prevent landslides that was invented by Richard Short, a geoengineering lecturer at the college and Hamidifar’s mentor, and adapted it for embankments and levees. “It is a very reliable method—cost-effective, environmentally friendly and proven to work,” says Hamedifar...Hamedifar estimates that stabilizing levees with plate piles will save time and money...The average plate pile installation would require 10 days from permitting to finished product, and would cost less than $1 million...In repeated tests, levees with the plate piles showed no deformation post-shaking. Without the plate piles, the levees failed, dropping three to four feet. “It is an exact model of what we are doing but scaling it down for levees,” said Short. “There is a lot of science to scaling it down and doing those tests. The uniqueness is the seismic stability.”
$1 million per mile!  Wow, that suggests you could seismically reinforce the Delta levees for under $1 billion, even cheaper than the $2-4 billion we estimated in the DPC economic sustainability plan.

You would think DWR would be jumping for joy.  Maybe not.  Check out this passage from a UC-B alumni association blog on the same topic.
“Richard Short and I made presentations to both the California Department of Water Resources and the U.S. Army Corps of Engineers,” Hamedifar says. “We asked for feedback, but they had no complaints, couldn’t point out any flaws in the technology. But it was clear they weren’t interested—they were obviously determined to focus on another solution.” That kind of tunnel (or Twin Tunnels) vision probably won’t resolve the Delta’s dilemma, Hamedifar says.
“It’s always risky to push just one solution for an engineering problem like this, especially if the idea being pushed isn’t demonstrably better than other ideas,” he says. “It’s likely you’ll need a multitude of approaches, not just one. The Tunnels will involve huge fiscal and environmental costs, and they’ll take years to complete. Our approach is cheap and effective, and it can be done quickly. We think it at least deserves a fair hearing.”
Sounds familiar. 

Regardless of your preferred technology towards a more seismically resilient Delta (I still like the wide crown benefits of fat levees where there is room), it is worth mentioning yet again that seismic levee upgrades have not only lower costs than the tunnels, but higher benefits.  They will save lives!  And they will protect critical energy, transportation, and local water infrastructure.  They will protect property and agriculture.  And yes, they will also protect export water supplies from catastrophic failure. 

The state should be dedicating its resources to developing levee technology and alternative water supply technology, instead of the twin tunnels.  These technological solutions help everyone, and many have potential applications to solve problems around the world.

BDCP is a failure.  It's time for fresh thinking and innovation.

Friday, May 17, 2013

Friday News: Stockton to consider taxes for the November ballot, Kings are Sold, and Unemployment is down to 9%

I guess it is a good thing that the release of our next economic forecast was delayed until next week. I have a lot of editing ahead of me this weekend.

In what I thought could be a potentially newsworthy passage, I had written that the City should move forward now to put a general tax increase before voters in November, even if negotiations with the creditors are still on-going.  I had heard and thought that the City Manager and bankruptcy counsel felt that any request for a tax increase had to come later, after a plan of adjustment were approved.  I disagreed, and thought they should move ahead with taxes as soon as bankruptcy eligibility was confirmed, and voters could be assured that if they voted for taxes it wouldn't just be swallowed up by unsustainable employee contracts (the likely outcome if taxes were approved prior to 2012).  The Mayor pushing his competing Safe Streets tax initiative for the November ballot only increases the urgency.

Well, this afternoon the Stockton Record posted this.

Stockton's proposed budget includes call for tax hike

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STOCKTON — The city could ask voters as soon as November to raise taxes to pay back some debts suspended in bankruptcy and bolster Stockton's fight on crime.

I am happy to see this development, and even happier that it isn't appearing the day after the Record runs a story in which I suggest it. I would urge the Council to move ahead now with some sort of tax initiative. If the details about the bankruptcy plan of adjustment are still too murky to support a long-run general tax initiative, then they should offer a very short-run tax for public safety as a substitute or compromise with the Mayor's plan.

In Sacramento, the Kings prevailing with the NBA and the Maloofs quickly selling to the Sacramento group is another pleasant surprise. While there are some legitimate concerns with the arena deal, overall, this is another positive development.

And the California unemployment rate dropped all the way to 9% today. This was a good day. A great way to start the weekend. Time to open a bottle of wine.

[Some minor content and formatting edits were made Sunday upon rereading this mess. I confess I had already opened the wine when I wrote it.]

Tuesday, May 14, 2013

May Revise Budget Forecast

A lot of people are surprised at the pessimistic tone of the economic and revenue forecast in the revised budget released today.  I don't think the actual economic outlook has declined, it is just that the Governor is backing away from the relatively optimistic forecast they assumed for the January budget release.  Using a slightly optimistic forecast in January allowed them to declare that the 2013 budget was balanced with much fanfare in the local, state and national press about California's comeback and the Governor's success.

This is what I wrote in January when the Governor's original budget was released.

"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."

In other words, I thought the January budget actually had a slight deficit that was being covered up by a moderately optimistic forecast.  The May revised budget released today has $1.2 billion less spending for 2013-14 than the Governor's January proposal, in line with the $1-2 billion deficit I predicted in January.   Also, the budget decrease for 2013-14 isn't quite as bad as it looks, because spending in the current year increases with the shift of capital gains revenue forward.

The wild card is the extent to which capital gains were accelerated.  It should be noted that the Federal Government just announced a significant downward revision in the current year Federal budget deficit, but like California, it is largely attributed to a one time increase in capital gains income as investors accelerated capital gains into 2012 before taxes increased.  So California is not alone in viewing these income tax revenues as a one-time phenomena.

Tuesday, May 7, 2013

Some updated thoughts on the Sacramento Kings' Deal

The news broke yesterday that the prospective new Sacramento Kings' owners agreed to give up their revenue sharing benefits when a new arena is built.

The precedent of that concession seems huge for the NBA, as this revenue sharing agreement was one of the key issues in the 2011 NBA lockout, and was a big deal for the players association.  The report I read said the NBA negotiated this with the group making the bid to keep the team in Sacramento that it just didn't come out of the blue.  While the initial reaction is that it is a vote of confidence in the Sacramento market by Vivek Ranadive and his ownership group, and it is, it also seems like it could be a back door way for the NBA owners to try to take apart pieces of the 2011 collective bargaining agreement that they don't like.  I would be interested to know if the players association has a point of view on this development.

I have also taken another look at the arena deal as some more details have been trickling out on the envisioned financing structure (i.e. interest only 8 years on the parking bond) and I wasn't aware of the value of the billboards given away and some other terms.  It is still better than last year's deal, but I think my initial estimate of a $4-8 million annual toll on Sacramento's general fund was too low, and it is probably more like $8-12 million.  The city does get some benefit for that investment, and it is a close call on whether it is worth it to the city.

Friday, May 3, 2013

Which Public Workers Are Most Overpaid In California Compared to National Norms? Water Utilities or Public Safety

There has been a lot of talk in California water about the inability of the State Water Project (SWP) to compete with the salaries paid by local water utilities.  The problem for SWP is real, and I agree that with the Delta Stewardship Council that it is a threat to water supply reliability.  But some comparative wage data gives a little different perspective to the problem, and has implications for other statewide water reliability issues as ratepayers will soon be asked for large rate increases to pay for the Delta tunnels and other grandiose projects pushed by local water agencies.

Are State Water Project wages too low, or are local water utility wages too high?

The data below comes from the Census of Employment and Wages, a full nationwide census of wages by industry compiled from tax filings by the Bureau of Labor and Statistics.  It doesn't include employer paid benefits, like pensions.

In the private sector, the average job in California pays 13.6% more than the average job in the U.S.  That is mostly driven by the huge salaries in the state's tech and entertainment industries, wages are pretty equal to the U.S. for most ordinary jobs.

State government jobs in California pay an average of 26.5% more than the U.S. state government average.  Within local government, there are really interesting differences across sectors.

Local government education (K-14 schools) average wages are 10.7% higher in California than the U.S. average.  Teachers are about the only public workers in California whose salaries are in line with national norms and the local private sector.  Except California has some of the highest student-teacher ratios in the country.  School funding in CA is pathetic, and a serious long-run economic problem.  The average public utility salary in California is almost double the average public school salary.  You don't see that level of disparity in the rest of the U.S., and it is these kind of cost differences and spending priorities that are hurting the state's long-run competitiveness.

Other than teachers, California local government workers make enormous salaries compared to their national counterparts.  While the high salaries of police and firefighters are well-known, the premiums earned in the public water sector in California are even higher.

Local government safety and utility workers in California both earn wages that are 37% higher than the U.S. average.  If you drill down to water utilities (NAICS code 22131), the wage premium paid to public California water agency employees baloons to 44% more than the U.S. average.  California skews the U.S. average higher too, so if you  take California out of the U.S. data and compare us to the other 49 states, the gap rises to around 60%.

That's right, local water agencies in California are paying higher wages relative to national norms than the state's notoriously well-compensated police and firefighters.   By many accounts, the Metropolitan Water District pays the highest wages and is driving the statewide wage inflation.

Some think the solution to the State Water Project employee retention problem is for it to break away from DWR/state, and become more like Metropolitan.  Looking at the wage data, one wonders whether we should be looking equally at solutions that focus on controlling local water utility costs/wages rather than increasing the costs/wages of the state water project.  Rather than making the SWP more like Metropolitan and independent from the state, maybe we need to bring Metropolitan under the control of the state legislature. The Legislative Analysts Office (LAO) and others have been arguing for years to bring DWR more under the purview of the legislature, not less.

Even if there is no action, there could be some ratepayer revolts brewing for the local water agencies that put downward pressure on the salary gap and indirectly help DWR's retention problem.

Postscript 1:  Some links   if you want to look up the wage data for yourself.

Postscript 2:  New story in the LA Times about salaries at one of the largest local water utilities becoming a major political issue.  Salaries rising sharply as their customers incomes fall, and the union is financially backing one of the mayoral candidates and asking for more raises.

Postscript 3: I see Jon Ortiz wrote about this issue in today's Sac Bee.  Despite what I wrote above, I agree that their is some logic in transferring the State Water Project to the contractors, it might help with this employee retention issue and eliminate some of the conflicting incentives and mission for DWR.  Nevertheless, I think this discussion would be improved with some discussion of trends in local water agency salaries and costs and whether this is a temporary or long-term phenomena.  The economics of these local water agencies is changing, and they are going to have increasing conflicts with ratepayers as they try to push through hefty rate increases in the coming years, and it is a safe bet that these salaries will become an increasing issue with ratepayers and harder to justify to their boards.  Some of the current salary gap reflects an unsustainable trend in California local water agency salaries that in many cases kept rising through the recession while other public and private workers saw their salaries decline.  Police and fire compensation is under pressure due to a local government financial crisis that has yet to hit water agencies in the same way... yet.  Nothing like the bond debt for a $15 billion Delta tunnel project that doesn't yield any new water supply to bring on a future financial crisis for some of these local water agencies.