Monday, February 22, 2016

High Speed Rail Business Plan Assumes People Will Pay $2500 Per Month to Commute from Fresno to San Jose

The new California High-Speed Rail Business Plan's switch to connect the Valley with San Jose first generated effusive praise from rail boosters about the economic benefits from linking Fresno's workforce and housing with the Bay Area.  The Business Plan states,

"The implications of the Silicon Valley to Central Valley connection are tremendous. Today it takes about three hours to drive from Fresno to the Bay Area; flights are available but often at exorbitant prices. With this new connection, a trip from Fresno to San Jose will take about an hour on high-speed rail which is a game changer both for the people and the economy of the Central Valley and for Silicon Valley as well. New job markets will be opened up for people living in the Central Valley and creating a high-speed connection to the Central Valley would help address the affordable housing crisis in the Bay Area."
Rail boosters gave these effusive quotes for Tim Sheehan's article in the Fresno Bee:

“Today it takes three to four hours to drive from Fresno to the Silicon Valley,” [CA HSR Authority CEO Jeff] Morales said. “We’re talking about a rail connection of 45 minutes or so, and that’s a game changer for both economies, opening opportunities for people in the Central Valley and helping the Bay Area with its housing crisis.”
In the Bay Area, Silicon Valley Leadership Group executive director Carl Guardino was ecstatic about the new rail plan. “What excites us most is that this is a convergence of commute options all into downtown San Jose,” 
This all sounds really exciting, so I looked deeper in the business plan for more details on the length and cost of this commute.  According to the Ridership and Revenue Forecast, it is a 72 minute (not 45 minutes like Morales claimed) ride and a 1-way ticket would be $63 in 2015 dollars.  That's a long ride but people are making similar length train commutes to Silicon Valley on ACE and BART today.  However, nobody is paying that kind of cost for commuter rail.  ACE from the North San Joaquin Valley to Silicon Valley costs $20-$25 for a round trip, and a monthly pass is $300 to $350.  An hour long commute on BART is about $12 round trip.

A daily round-trip from Fresno to San Jose would be $126 per day, $630 for a 5-day week, and over $2,500 for a month of commuting.  So is this really a solution for the affordable housing crisis and Valley economy?  Housing cost differences are extreme between the two locations.  A two-bedroom apartment in San Jose goes for about $3,000 per month, and about $1,000 in Fresno - so the rent savings for a commuter is less than the cost of their HSR tickets.  Cheaper rent in Fresno is not an affordable housing solution for Bay Area workers if it raises their total cost of living, and SJV workers will not see enough of a wage boost to be worth these commuting costs.

The bottom line is that I think the commuter/housing benefits of a HSR link between Fresno and San Jose are way overblown.  I want to believe it, but I don't see this as an economic "game changer".

I am not totally negative on HSR, it could create a lot of value for the state.  But the project does not create that much value unless it directly links the LA area and the Bay Area, and there still is no viable plan to make that happen.  I question whether they should spend any more money on construction until they have a realistic finance and engineering plan to get to LA.

P.S.  When comparing these costs to existing commuter rail options, it is important to remember that commuter rail operating costs are subsidized.  If the operating subsidy were eliminated, a "Valley to Valley" commute on ACE would be nearly $1,000 per month.  The high speed rail bonds do not allow an operating subsidy.  But even if Fresno-San Jose train commuter received a similar subsidy as a San Joaquin County to San Jose ACE commuter, it would still be about $2,000 per month for the Fresno commuter on HSR according to the information in the HSR business plan.

Senator Wolk proposes conditional use permits for new wells. Why not permit new orchards?

Senator Lois Wolk has introduced a provocative new bill that would require conditional use permits for new wells in overdrafted groundwater basins.    The effective measuring and regulation of groundwater pumping is still decades away even with the new groundwater legislation passed next year.  Thus, Senator Wolk's bill is intended to provide some mechanism to slow groundwater overdraft in the interim, and provide more incentive for local areas to move forward more aggressively on implementing the groundwater legislation.

I agree with Senator Wolk that something should be done in the interim.  And until the state is effectively measuring groundwater extraction, it is left with second-best approaches of regulating what it can observe and permit that is correlated with groundwater extraction.  Regulating new wells is one way to do that, but not the only way.

Why not regulate planting thirsty new orchards that increase and harden water demand with conditional use permits? Or new residential or commercial development that use groundwater?

I am a little concerned about the equity implications of Senator Wolk's concept.  Many of those who need new wells are people with existing shallow wells or contaminated wells that are not the cause of overdraft.  She is a thoughtful legislator, and I suspect there is some consideration for these issues in the bill's details.  My first impression is that it would be better to regulate growth in groundwater demand from permanent crops and development whether it is served by existing or new wells.  Perhaps the political opposition to this approach would be worse than regulating new wells.

It will be very interesting to track this bill's progress.  The opposition will certainly be fierce.

P.S. [2/24]: It was suggested to me that I add permitting cows to the list of alternatives for groundwater basins in overdraft since dairy cows outnumber people in Tulare County which is reported to have experienced the greatest number of dry wells in the drought.  Tulare has also seen significant expansion in orchards.   

Sunday, February 21, 2016

Farms and Water: Refuting irrelevant facts with even less relevant facts

Karen Ross, CA Secretary of Agriculture, and Dan Sumner, and agricultural economist from UC-Davis, defend the agriculture industry's water use in a widely circulated op-ed in the LA Times.  Their target is the often-cited fact that agriculture uses 80% of California's developed water supply and is only 2% of California's GDP.  This fact is often used to support arguments that drought-related water cutbacks have not been strong enough for farms relative to those suffered by cities and the environment.

Ross and Sumner respond to this argument by highlighting the many connections between agriculture and the other 98% of the economy.  While their facts are correct, they are even less relevant than the 2% of GDP fact is to the serious question of how to allocate water in a drought.  Their closing argument about the special and unique characteristics of California agriculture is also common among defenders of the state's agriculture industry.

"unlike most other segments, California's agricultural productivity and diversity are not readily duplicated elsewhere. Our soils and climate are what have made it possible for us to supply so much of our nation's and the world's food."

Much of this statement is also correct, but irrelevant.  And I think their statement that it is easier for California to substitute in areas other than agriculture is false.

Why are these statistics and arguments on both sides irrelevant?  Because the decisions about water allocation are about the margins of water use.  For example, what would happen if 2 million acre feet (less than 10% of agriculture's water supply) were reallocated to environmental and/or urban uses?  One million acre feet to the environment would restore what the state water board has already reallocated away from the environment, while one million acre feet to urban users would be enough to half the urban water cuts.  Are the marginal uses of water in these sectors easily substituted?

Looking at the statistical guides produced by Ross's department, I see that the most valuable commodity in California agriculture, by a very large margin, is milk/dairy, not something unique to the state's special climate.  These same reports also show that millions of acres of California farmland are in relatively low-value field crops despite the drought, more land than in almonds or grapes, and that all of the roughly 500,000 acres taken out of production during the drought were in field crops such as hay, corn, cotton and rice that are grown in massive quantities in places that do not have California's unique Mediterranean climate.

While there are costs to reducing agricultural water, the relevant margin for California agriculture is not the parts of the State's agriculture industry that "are not readily duplicated elsewhere."  In addition, Sumner and Ross are wrong in stating that the non-agriculture uses of water are more readily duplicated elsewhere than California's agriculture.

Let's start with the environmental uses, are these easily duplicated?  The primary competing environmental use for water is endangered species habitat.  The term "endangered species" and the concept of preventing extinction makes it pretty clear that there is no easy substitute for this water.  While it is not in line with my values (or the law), I think smelt haters ranting "who cares about a stupid fish" is a more relevant expression of values than Ross and Sumner's extolling the wonderfulness of the unique aspects of California agriculture that are not at risk of loss - and in fact continue to grow in the face of drought.  

And what about the urban uses?  Are primarily urban economic sectors in California like real estate, government, and health care easily duplicated elsewhere like Ross and Sumner state?  A California cow can substitute imported feed for California feed, and a California resident can easily substitute Wisconsin cheese for California cheese.  Californians can not easily substitute real estate, doctors, nurses, and schools in Wisconsin or any other state?  It's a lot easier to import cheese from Wisconsin than to go there for surgery, or countless other services that are not unique to California.  If California real estate and industries like professional services had good substitutes, the state's cost of living wouldn't be so damn high.  While urban areas should continue conservation efforts, there is no denying that the real estate is expensive and that landscaping is a significant part of the value of most properties.  Many families are spending a lot of money repairing drought damage that they would rather spend elsewhere.

I have a high value for agriculture, the environment and cities.  All need to be healthy for the Valley and California economy to prosper and improve.  But this article did nothing to change my opinion that California's drought management would be improved at the margin if the state was more favorable to environmental and urban interests and a little less favorable to agricultural users.

I suppose it is an improvement to have a fact based water discussion, but it would be better to discuss more relevant facts and compare the marginal uses of water.  These are fallowed field crops, brown lawns, and endangered species habitat.