Friday, December 8, 2023

Final Delta Conveyance EIR Released Without Cost Estimate or Benefit-Cost Analysis: A Quick Look At Old DWR Analysis of Single-Tunnel Alternatives Shows This Proposal Is Likely A Bad Deal For SWP Agencies. (and even worse for a State that cares about the environment and non-SWP regions)

 The Final EIR for Delta Conveyance was released today.  I just read the press release summary.  Here is my quick take.

The press release case for the tunnel argues that the project will result in about 500,000 AF in additional water supply for State Water Project agencies once operational.  They continue to ignore updated cost estimates, and economic/financial analysis of the project.

However, in 2018, DWR did analyze the effects of a single-tunnel proposal that would result in 660,000 additional AF, over 30% more water than the current proposal, that was estimated to cost $11 billion in 2017 dollars.  While no cost estimate for the current proposal has been released, it is well-known that costs of the current proposal are much, much higher - even after accounting for inflation.

In 2018, DWR's consultant found that a single-tunnel proposal barely penciled out for SWP agencies (benefit-cost ratio was about 1.2), and the benefit-cost ratio would have been negative if the project yield were the same as the current EIR (a greater than 30% decline in water supply benefits).  Thus, it appears the current proposal would not pencil for SWP agencies out even if the costs had not increased at all, but it is well-known that the cost has escalated substantially.    

Is it any wonder that DWR still has no cost estimate or benefit-cost analysis for a project with well-known financial troubles.

A few additional things to consider when comparing to 2018 single-tunnel analysis:

  • That analysis only considered benefits and costs to SWP contractors.  It was not a comprehensive benefit-cost analysis that incorporates environmental harm or impacts on non-SWP supplied regions of the state like the Delta.  The project is bad for SWP agency ratepayers, but it is even worse for the state as a whole.
  • Economic and finance will drive operations.  Thus, the missing economic analysis is a critical oversight, and the EIR lacks credibility without it.
  • State population growth forecasts have plummeted since the earlier analysis, meaning that future demand will be much lower, and the costs will be spread over fewer households which means larger rate increases.  
  • Projects like this can be good for SWP agency leaders and staff, and provide political value to the Governor, even when they are bad for their ratepayers and citizens.  It is one reason why objective benefit-cost analysis is so critical.  

At some point next year, I may have time to update a comprehensive benefit-cost analysis of this proposal.  However, there is plenty of reason to doubt the economic and financial viability of this project based on what we know now. 

Monday, August 14, 2023

My Comments on Three Sacramento City Council Members Propose Significant Strengthening Of Rent Control and Tenant Protections

Several members of the Sacramento City Council led by Katie Valenzuela, are proposing a substantial increase in rent control and tenant protections in Sacramento.  It motivated me to quickly write some written comments tonight, which felt like I was blogging again, so I thought I would post my comments here too. The key elements of the proposal, which they call Sacramento Forward, is summarized as below in the City Council Law and Legislation Committee report. 

2. Build More Affordable Housing: a. Establish an inclusionary housing requirement that a percentage of all new units be affordable to low and very low income households.

3. Stop People from Losing Their Homes: a. Enact “just cause” eviction protections at 30 days. b. Require reporting of any evictions to the city. c. Establish a Right to Counsel for tenants and landlords needing legal support. d. Reduce the percentage of allowable annual rent increases to align with wages/income and limit rent increases during tenant turnover, with a process for hearings to allow exceptions when necessary to cover landlords’ costs. 

4. Prevent Corporate Purchases of Property: a. Adopt a “Sacramento Opportunity to Purchase Act” that would require any tenantoccupied building that is listed for sale to be sold to a tenant or eligible community group if they can meet the initial listing price.

5. Generate More Funding: a. Pursue a 2024 ballot measure to generate funding to support the acquisition, construction, and protection of affordable housing units, as well as important support programs like emergency rent assistance.

(Note: I left out some parts of the proposal that I didn't comment on for brevity. See the full proposal here.)  Below are my comments, which I indicated neutral but probably lean more towards opposed than in favor.  (some edits made December 8, 2023)

Elements I Support: (numbered as in the proposal)
4. “Sacramento Opportunity to Purchase Act.” This is a creative and interesting proposal.
5. Pursue a 2024 ballot measure for funding. I support this because it places financial support for affordable housing programs on the government's general resources where it belongs, rather than fees and regulations that place the financial burden on market-rate housing which can be counter-productive by reducing the overall supply of housing.  While I support putting it on the ballot, I am not sure how I would vote on a local tax ballot measure.  I would be more supportive if it were County or region-wide, and not just Sacramento City.  I do support the concept of going in this direction for new funding sources.

Elements That I Might Support If Revised: With Some Suggested Revisions.
3.a. “Just Cause” eviction protections at 30 days is too short, suggest 6 months at minimum. There is an unintended consequence here of damaging a market for 1-6 month rentals, often furnished, which serve new residents, travel-nurses and others in housing transitions. This measure will really discourage the production of backyard ADUs, and could limit housing available for traveling health-care professionals and those in housing transition. No evidence is provided for why the current 1 year 1-day rule is failing to protect tenants and needs to be shortened, and changes should be incremental in the absence of such evidence.
3.c. “Right to counsel” seems like a potentially costly entitlement, and could might encourage the use of legal actions when there are less costly remedies. I appreciate the need for low-cost or no-cost legal assistance, and perhaps this should be revised to increase funding towards that if current services are inadequate.
Financial Considerations – Recommend low or no fees for small landlords: This element suggests that the City will just impose fees (presumably on landlords) to offset the City’s staff costs of implementing the ordinance which would be consistent with other practice. Landlords and property managers will also have significant compliance costs for such a complex ordinance, even before paying the City’s costs with fees. Understanding and complying with these rules is especially difficult for small landlords, and will encourage rental housing to be controlled by large investors or shift small landlords towards large corporate management companies. Thus, I suggest reduced or waived compliance fees for small landlords based on the number of units they own and/or self-manage.
3.d.1 Reduce the percentage of allowable annual rent increases from 5%+CPI to annual CPI or wage increases is something I can support IF it does not apply to new tenancies.

Elements I Oppose:
3.d.part 2. While I support rent increase limits one existing tenants, rent should not be controlled for new tenancies, and instead should be allowed to reset at market rates. Limits on rent at new tenancies will encourage landlords to increase rent by the maximum allowable amount on existing tenancies every year, raising costs for those the ordinance is trying to protect from displacement. In addition, rent controls at new tenancy greatly disincentive maintenance, investment and repair of the housing stock, as much maintenance and investment in units occurs when units turnover with landlords motivated by the ability to charge market rent to a new tenant. Landlords are not going to replace old appliances, freshly paint units, replace carpets or do anything more than the bare minimum health and safety repairs if rents are restricted at turnover.
2. Inclusionary housing requirements. These policies risk unintended consequences by increasing the cost of market-rate development and thus reducing the overall supply of housing. The Keyser-Marston Associates report cited as support for this proposal does not provide compelling empirical evidence, and they do not cite any of the research on inclusionary zoning policies and the potential negative effects on private development. Inclusionary zoning does have a potential social benefit in that it promotes mixed-income neighborhoods as opposed to concentrated low-income housing, but this social-benefit should be financed more broadly and not through higher market-rate production costs.

Finally, I will note that the past few years have seen a tremendous increase in multi-family housing development in the City, and many of these units have yet to hit the market as planning and construction takes years. Given the increase in supply, and clear evidence of rent stabilizing or declining in the past year or two as new supply is starting to come on the market, one might reasonably conclude that current housing policies are starting to work and to be cautious in implementing the more aggressive measures that could discourage new investment.