Thursday, July 20, 2017

Sacramento Getting Good Press. Will It Lead to Good Jobs?

Over the past 2 months, Sacramento is trending in the national press with multiple national stories connecting Sacramento and the Bay Area.  The publicity wave caught the eye of Jack Ohman, the Sac Bee's very witty cartoonist.

While most of the stories are about real estate, there have also been positive business press extending into the areas of innovation and tech talent.  See these recent articles in the business press,

Wall Street Journal

Barry Broome and the Greater Sacramento Economic Council are trying to take maximum advantage by dialing up their marketing efforts in the Bay Area, and doing their part to keep the good press coming.  Here is Barry making the case for Sacramento on national Bloomberg radio :

Is it real or hype?  Most of the hard data is about Sacramento's hot residential real estate market sprinkled with some anecdotes about entrepreneurs and people that have migrated to the area.  At this point, there isn't much data beyond anecdotes to support the idea that Sacramento is seeing a migration wave of skilled workers and businesses.  I have a strong sense that there are skilled workers and businesses taking a look and "kicking the tires" on Sacramento as a destination, more than have been seen in decades.  But will they invest?

It's easy to be skeptical.  The business news over the past year or so has featured some large private employers like Aerojet and Verizon pulling out of the area.  Most of the business investment news is still about restaurants and real estate (and cannabis).  

A lengthy article this weekend on Sacramento real estate development includes a few quotes from me, but more interesting to me are the ones from some real estate developers.  They aren't seeing Bay area migrants as young tech talent, but as retirees.  The 55+ "active adult" communities have been the best selling new home product in Sacramento for a while, developers are responding with more 55+ products.  It seems much of the Bay Area demand for Sacramento real estate is from people at the end of their careers, not the beginning or peak.

As I pointed out in our Center's last forecast update, the trends for the past 5 years show workers are migrating to the Bay Areas, while non-workers are migrating out.  Areas like Sacramento, San Joaquin and Solano Counties have seen very slow labor force growth relative to their population growth - while San Francisco has seen its workforce grow faster than its population - suggesting that it is retirees and families that are being pushed inland.

However, all of this data is backwards looking and no trends last forever.  The urban core of Sacramento is also hot and becoming an exciting place to be.  The emerging Northern California megaregion is very real, and there are many people working to build a more resilient and diverse set of Bay Area connections than real estate refugees of commuters and retirees.

The next two years are going to be very telling for Sacramento.  This may be its best chance to develop its private economy and become more than a government town.

Thursday, July 6, 2017

Biological Opinions for the Delta Tunnels include new cuts to water diversions and further increase risk to water agencies that must decide whether to invest billions.

The much anticipated biological opinions (Biops) for the Delta tunnels (aka WaterFix) were said to be the documents that would provide more clarity to water agencies about how much water they would receive, and allow them to make a decision about whether they were willing to pay for the $16 billion tunnels by September.

While the Biops provided tunnel proponents a day to celebrate partial regulatory approval, the documents have done more to confuse than clarify water supply.  There is no updated modeling of water exports from the project, and there are multiple new items that increase uncertainty and could lead to future cuts to water supplies.  Most importantly, the Biops:
  • Postponed approval for building the intakes and operating the tunnels, the parts of the plan that will determine water supply benefits.  
  • Changed the rules for protective pulse flows for salmon in ways that substantially increase uncertainty about water diversion through the tunnels.  
While the "split decision" that postpones approval of the tunnel intakes and operation has received a fair amount of attention, the pulse flows have not - most likely because it is much wonkier and hard to understand.

When it comes to export water supplies, the change to pulse flows rules will have two negative effects, and one positive effect.  The negatives for water exports are that protective pulse flows have been extended to cover threatened spring-run chinook salmon in addition to endangered winter-run, and an annual cap has been removed to allow unlimited protective pulse flows.  On the positive side for water exports, the revised pulse flow rules allow for substantially more diversion of water if the pulse flow events occur when Sacramento river flows are high (35,000 cfs). (If you don't trust my summary, see page 3-121 of this document for the new pulse flows language, and page 3-123 for the old language.)

The water supply impacts of this are potentially very large.  Water diversions through the tunnels could decrease by nearly 18,000 acre feet for every additional day of protective pulse flows, and unlimited pulse flows for winter-run and spring-run salmon could add weeks where operations are constrained in this way each year. However, the rule allowing up to full 9000cfs diversion during a pulse event as long as Sac river flows remain over 35,000 cfs is likely to partially offset this effect and reduce the number of constrained days.  The net effect is probably negative, but very uncertain.

The uncertainty is compounded because the Biops do not define the specific criteria that would actually trigger protective pulse flows.  The idea is for the protection to kick-in when migrating fish are detected, but the Biops do not state the location where fish will be monitored or the number that will need to be observed to trigger protective action.

Confused?  You should be.  The tunnels may be more of a "crapshoot" today as when I heard Jason Peltier of Westlands Water District describe them as such in 2012.   The Biological Opinions do not provide water supply modeling to illustrate the potential effects of their new provisions.  Maybe they are trying to hide some bad news, but it is pretty hard to model the effects of these new pulse rules when so much is left undefined.

Appendix G does have some modeling that illustrates the effect of this rule in 11 recent years given one possible definition of a pulse event.  Appendix G is mostly about fish survival impacts, but it does have a green line on each of the 11 graphs that shows the flow of water diverted to the tunnels over the course of the year and blue bars that show the estimated frequency of pulse events.  The graphs of daily diversions are not detailed enough to calculate the water supply impacts, but my visual inspection revealed a net negative impact on water diversions in 7 out of 11 years, and 4 out of 11 years where the negative and positive impacts seem to balance out.  The biggest impact on water exports were in 2005, where I estimated about 30 additional days of severely restricted diversions with the potential to cut water exports by about 500,000 acre feet compared to the previous rules.  The fish survival predictions also show the largest positive effects in 2005, so the loss of water exports does generate substantial environmental benefits.  These positive effects on survival in Appendix G show why the increased frequency of pulse protection events was made to the description of "real time operations" in the Biops.

So where does this leave the water agencies who have to make a decision about whether to invest in the tunnels?

It seems clear to me that agencies should be less enthusiastic about investing in the tunnels than before the biological opinions were released.  The changes to protective pulse flows will almost certainly cause further reductions to expected water supply through the tunnels, and the postponement of many key decisions to the future has further increased uncertainty about the benefits of the tunnels.    

Last year, I published an analysis of the benefits and cost of the tunnels based on the draft biological assessments and EIR and found them to be a lousy investment.  If I were to revise this analysis based on the final Biops, it would only get worse as water supply benefits appear lower and environmental effects are adverse (although not expected to cause extinction).  The only potential positives for export water agencies is that they continue to have power in governance rules and political processes that give them hope that all the restrictive operating rules for the massive tunnels could be changed (or left unenforced) after tens of billions are spent on construction.

Last September, John Kirlin and I published an op-ed in the Sacramento Bee that described the Delta Tunnels (aka WaterFix) as a muddled gamble.  The Biops have only reinforced our analysis.  Some excerpts below...
You would think that after a decade and hundreds of millions of dollars spent on planning and analysis, the plan would be clear. Instead, uncertainties regarding the proposed project, environmental impacts, costs, financing and authority over operations loom larger than ever...
 The state could reduce the confusion over the WaterFix if it were to follow its own planning guidelines and prepare a feasibility study that addresses engineering, operations, environmental, economic and finance concerns in a consistent and unified analysis. Instead, the WaterFix proposal advances engineering proposals and environmental analyses that are disconnected from the project’s financial needs, combined with opaque descriptions of governance and authority...
While many water contractors have expressed concern over the tunnels’ cost, no major water agencies have walked away from the proposal despite the plan’s low return on investment.
A closer look at the WaterFix proposed governance and authority suggests how water agencies could believe the proposal may prove a better value than modeling projections show.
After construction, the critical issues for the tunnels will be operation in real time and adjustments to rules over time. The draft “adaptive management” framework is notable for placing... water contractors at the center of processes to establish science priorities and to make recommendations on possible changes in water operations...