Are PPIC water reports improving?

Two reporters called me yesterday on the eve of the release of yet another PPIC report on California water. I had not seen the new report, but did make some critical comments about the economics in their previous work.  If any of those comments make it in the papers, it might raise some questions about what I meant.

First, the new report was released last night, and I have now had a chance to briefly review the executive summary, and it looks significantly better on initial impression. There isn't a lot of economics, although it calls for public funding for a number of initiatives with fees, but has no analysis of cost-effectiveness or how high those fees might have to be. The comments about realigning state agencies and "triage" for endangered species will probably get the most attention. Notably, the 16 page executive summary doesn't contain their usual statement that a peripheral canal is the best solution for the Delta and emphasizes urban conservation much more than usual. [Update 8 AM:  I have now read 2 news reports with quotes from the press briefing and I may have been premature with this quick positive reaction.]

Let's hope they are improving, because the PPIC team has already done enough damage, and should think about some "reconciliation" of their own work. As I have discussed elsewhere, PPIC badly botched the economics in their 2008 analysis of the peripheral canal, and are largely responsible for establishing unrealistic expectations for the financial viability of a canal and a BDCP type plan. The financing stalemate plaguing BDCP and the Stewardship Council is not just interest groups maneuvering for the most favorable terms, but is caused by real questions of whether the isolated conveyance projects fundamentally provide enough value to beneficiaries to justify their construction costs.

Members of the PPIC also contributed to the water/jobs hysteria, although they have made some efforts to correct those mistakes. Finally, their previous reports have had a pro-exporter and anti-Delta bias (especially the Water Myths report that incredibly argued that CVP farmers were not subsidized, and conspicuously left Delta interests out of their "no villians" section), but this seems better.

As a final note, this quote from the executive summary amused me:

The lack of a strong state technical and scientific program
is allowing advocacy-funded “combat science” to take center stage

First, who says state funded isn't advocacy-funded. Second, hasn't the PPIC owned "center stage" among researchers in this debate.  Do you know any other researchers that routinely hold press briefings and media events when they release a paper?  Is their work less advocacy-funded and less combative than others.  What are they complaining about?

As I get around to reading the details of the report, I will try to post more detailed comments.  My impression could change for the better or worse.

Do Foreclosure Rates Measure Urban Misery?

With Forbes adding foreclosure rates to their misery index this year, I have taken a look at this list. There has been plenty of attention to the top of the foreclosure lists (Central Valley, Vegas, Florida always rank high), but not much to the bottom.

If ranking high in foreclosures is an indicator of misery, then I guess ranking low in foreclosures must be a measure of healthy, vibrant metro areas. Take a look at the metro areas with the lowest foreclosure rates in this ranking of foreclosure rates from Realty Trac. Among the best performers are such dynamic metro areas as: Fayetteville, NC; El Paso, TX; Huntington, WV; and Utica-Rome NY. 

Joe Grindstaff misquotes the Draft Delta Plan 3 out of 4 times

I thought the Draft Delta Plan was a snooze until someone pointed me to Joe Grindstaff's cover memo.  I guess Joe thought the plan was a snooze too and he needed to liven it up some, since 3 of the 4 key findings he quoted from the draft plan were not actual quotes from the plan. 

Perhaps I am nit picking here, but quotation marks are serious business, especially when you are the official voice summarizing a critical 51 page policy document to the press and general public.   

Unlike most people, I read the draft plan first, and Grindstaff's memo later.  I didn't think the memo reflected the content of the draft that accurately, and went back to the draft to see how I could have missed the emphasis on these key findings.  Here is the summary in Grindstaff's cover memo, and if you search the draft plan document, only his third quote actually appears in the draft plan. 

I want to point out four key preliminary staff draft findings in this document:

1. “California’s total water supply is oversubscribed. California regularly uses more water annually than is provided by nature.” This reality makes the management of our limited surface water supplies and the Delta even more critical. When water exports from the Delta are reduced, the unintended consequence is increased demand on an already overused and unsustainable groundwater system.

2. “California’s water supply is increasingly volatile.” Precipitation and runoff patterns are changing, increasing uncertainty for water supply and quality, flood management, and ecosystem functions.” We must adapt our management practices in order to protect ourselves against present and future risk and if we are to achieve the coequal goals.

3. “Even with substantial ecosystem restoration efforts, some native species may not survive.” Best available science indicates that some stressors are beyond our control and the system may have already changed so much that some species may never be able to recover.

4. “There is no comprehensive state or regional emergency response plan for the Delta.” In spite of all the analysis that says that we have greater risk than New Orleans, all we have at the state and regional level are plans to develop plans.

Sure enough, Grindstaff's quotes that aren't quotes were reprinted verbatim in many press accounts as the key findings in the draft plan.

There must have been 20 or more findings in the draft which were presented without any ordering or emphasis, so choosing 4 findings for the cover memo (which is all many people will read) already risks introducing personal bias, and needs to be done carefully.  Even if I ignore the misquotes, Grindstaff's selections seem to have some bias.  First, the draft report has findings in 4 chapters, and the only chapter Grindstaff ignored is the one that describes the importance of Delta as a place, whereas water supply issues get two spots (and are the most misrepresented).

It is interesting that the only ecosystem finding he quotes is the one that is intended to dampen expectations for ecosystem restoration and was the last finding in the list in this section.  No mention of Delta flow requirements.  At least he quoted this one accurately.

The first two regarding water supply aren't actually in the draft report.  The words "oversubscribed" and "volatile" do not actually appear anywhere in the document.  The commentary shows bias too, suggesting that reducing Delta exports won't do any good because it will just increase ground water overdraft.  I might point out that the opposite wasn't exactly true either, building the water projects and increasing delta pumping didn't stop groundwater overdraft.  He could have pointed out that reduced Delta exports in recent years did lead to much more urban water conservation than people expected with little cost to the urban economy, and that it also stimulated increased agriculture to agriculture water transfers and increased efficiencies.  But these would be good results from reducing exports, and he is just emphasizing the negative (although he didn't mention field fallowing which is a negative too).

When it comes to the Delta, Grindstaff chooses to emphasize that it is a disaster in the making while ignoring that the fact that it is a place as emphasized in the water legislation.  He even throws in a New Orleans comparison, even though you won't find the word "New Orleans" anywhere in the draft plan either.

Grindstaff's cover memo would be just fine if it were a blog post like this commenting on the plan, but it is a summary coming from an official spokesman, the Council's executive officer.  He has a lot of control over the information that the Delta Stewardship Council members receive (not to mention the press and the public), and they need to be able to rely on him to represent it accurately.

As the Delta plan progresses to detail important and controversial measures such as the details of any proposed conveyance and financing plans, it will be important for Grindstaff and the Stewardship Council to be more careful and accurate if they want to maintain trust and credibility.

[Update:  Joe Grindstaff left a comment with an explanation.  Click through to the comments to see it.]

[Update 2, 2/23:  I am surprised, but this is by far the most viewed post in the history of this blog.  I am also a bit sad since this is less substantive than most posts.  I guess the blog would be more popular if I talked less about economics and more about individuals and media spin.] 

A new term for subsidy

The latest Sac Bee op-ed promoting a peripheral canal (written by an infrastructure construction firm) contains a remarkable sentence.

At a time when public dollars are at a premium, all funding options should be on the table, including incentives for encouraging private investment.

Huh? Public dollars are at a premium...so we need "incentives".  That doesn't sound like it will cost taxpayers any money does it, but I haven't seen too many incentives that aren't taxpayer subsidies.

I also think they missed the mark on this statement.

It's safe to say the biggest roadblocks facing any potential solutions to the Delta's problems aren't related to engineering. We have the technical know-how. It's governance.

The roadblock isn't governance, it's finance. The water package put in a governance structure that will easily lead to their dual conveyance solution if they can figure out a way to pay for it.

If this project cost one or two billion it would be built, and we could afford to operate it in the environmentally friendly way that has been so alluring to many environmentalists. If that was the case, I would support it.

But it costs a heck of a lot more than that ($15 billion is the latest I have heard), and there are very good reasons to question whether the benefits (both private and public) exceed the costs. There may be more cost-effective ways to cope with the risks, and those who would benefit from these projects have been known to exagerrate the calamities that could result, while ignoring the very real calamities that will result from redirecting billions of public dollars in this direction.  Despite hundreds of millions on research and consultants, the one obvious research project you don't see is a cost-benefit analysis on the proposed conveyance. Why not?

All the evidence I have seen suggests that paying for this tunnel is going to require forgetting about one of the co-equal goals, the environment, an enormous taxpayer subsidy, and very likely both taxpayer subsidies and relaxed environmental protections.

Recent events have shown taxpayers are pretty disgusted with "bailouts." So, policy makers should be sure that any incentives in the form of public financing have terms at least as stringent as those given to Wall Street and GM, including reasonable interest rates and payback periods, and a taxpayer equity stake in the enterprises.

(minor edits Thursday at 10 P.M.)

The Redevelopment Debate

Lots of interesting debate on redevelopment agencies. 

This website summarizes the arguments of redevelopment agencies and local governments.  (See http://www.protectourlocaleconomy.com/get_the_facts)

Some economists interested in local economic development, including Chris Thornburg at Beacon whom I usually agree with, look for a middle way here.
http://www.sacbee.com/2011/02/08/3384812/find-compromise-in-redevelopment.html

The LAO (Legislative Analyst's Office) comes out in favor of the Governor's proposal to eliminate redevelopment here.  http://www.lao.ca.gov/analysis/2011/realignment/redevelopment_020911.aspx


Based on an objective review of the facts and evidence, the LAO provides the most convincing argument. 

However, in the context that it has been proposed for the 2010 budget, it is a bit of a Sacramento money grab and I would rather see it as part of a larger, more comprehensive tax package.  One of the things I would most like to see in California is for local governments to do a sales/income tax swap with the state.  We have too many shopping centers and not enough housing in California, and current tax policy causes local governments (who control land use) to favor retail development (which they see as profitable) over residential development (which they see as costs).  I would also like to see changes to property taxes, although prop. 13 is a problem here.  The dependence of local governments on sales tax is a highly negative influence in California, and many of the worst abuses of redevelopment funding are connected to the zero-sum game of local governments competing for each others retail sales.

I'm glad to see the redevelopment proposal out on the table.  It will probably be killed by the lobbying pushback, but it is now seriously in the debate on California tax reform. 

Is it time to challenge the Forbes' Miserable Cities List

Stockton is back on top of the Forbes' Misery Index, but now it has company.  The Index expanded to 200 metro areas, tweaked the formula by adding some housing market indicators, and now the heart of the Central Valley occupies 4 of the top 5 spots.  Modesto and Merced are new to the rankings and joined the top 5, and Sacramento moved "up" from 17 to 5.  Welcome to the misery club, valley neighbors.

The Sacramento Bee quoted me a few times in a story, including this...

 "That misery index is a slap to the face," said Michael, whose campus is in Stockton. "We've been dealing with it in Stockton for years, and it's a contrived thing."

I am not one to sugar coat the problems with the valley economy.  The data is indeed the data. However, the Forbes index is now starting to do real harm, and I have a few issues with the indicators they selected. A few small adjustments would change the list a lot, and I think make it better. Here are some suggestions...

Economic Indicators:

There is no measure of income, which is a major oversight, it should be first on the list.  Median household income in the Stockton area is about equal to the national average.

In addition to economic well-being, the unemployment rate also measures demographic attributes such as age and race that are strongly correlated with labor force participation.  Hard-working Valley folks are less likely to drop out of the workforce and this impacts the unemployment rate.  Indeed, the labor force has kept growing in the Valley as the unemployment rate rises, whereas it has fallen off due to discouraged workers in other areas.

Housing Indicators:

The Valley was crushed by the inclusion of housing market indicators this year, 3-year change in home values and foreclosure rates.  Are these the right indicators?  No, they are redundent and highly correlated.

If these indicators were included 3 years ago, the Valley would have fared well, since we were at the top of the price appreciation lists.  That is why this is a stupid indicator, the size of the drop just measures the size of the bubble - as does foreclosure rates - and it would have provided a false positive signal a few years ago.  I would not completely eliminate these, the real estate roller coaster certainly has certainly created misery, but our housing indicators should measure both leval and change.

There should be a measure of the current level of housing costs, not just the rate of change.  Perhaps something like the Wells-Fargo Housing Affordability Index which compares housing costs to incomes.  Back in 2005-06, Stockton was one of the least affordable places in the country.  Now it is about average, a little above average in fact.

Taxes:

Forbes' includes the top income and sales tax rates in it's index.  Why are they ignoring property tax rates, the other big tax relied upon by state and local governments?  Property tax rates are lower in California than many of Forbes' preferred locales, and sales tax is a tool areas use to extract taxes from visitors (ask Florida and Nevada).

It would be good to have a measure of overall tax burden, taxes as a % of personal income in addition to the top rates.  The high marginal rates are a problem in California, and I don't have an issue with highlighting them, but two measures of top tax rates are repetitive.  I would take out one of the tax rate measures (or perhaps combine the top rates into some type of index), and add a measure of overall tax burden. 

Other Indicators:

Forbes also includes weather, crime, traffic congestion, political corruption, and sports teams records on their indicator list.  I don't have a problem with this, especially weather, crime and traffic.  I do suggest adding some indicators of the youth and vitality of a region.

I would definitely add the average age.  We should penalize cities for being old and miserable.  The Valley would do well here.

I wonder about adding a measure of diversity.  It definitely adds vitality and richness to a city, but I am not sure how to measure it and whether it would make the index look like a liberal, pc, college professor creation.

Summary of Suggested Changes:

Out:  3-year decline in home prices, sales tax rate, political corruption, sports records.

In:  Median household income, housing affordability, overall tax burden, age.

Keep:  Unemployment rate, Foreclosure rate, income tax rate, weather, crime, commuting time.

In the past, I tried to ignore this Forbes list (tough since everyone asks me about it), but I am now sufficiently annoyed that I think I will assign a student intern to compiling some alternative indicators and creating our own version of a misery index.  We have problems, and certainly Stockton won't rank high, but I wonder who would be number 1 and what cities would move up and down if we made these changes. 

Have a suggestion for indicators that should go in or out?  Please put it in the comments or email us at
forecast@pacific.edu.

Update:  Greg Basso fights back. 

DeltaFusion, a unique cultural and theatrical event. Finale is July 23 in Stockton

I heard about the DeltaFusion project about a month ago, and am pleased to see they have received some modest support ($10,000) from the National Endowment of the Arts.  Congratulations to the University of the Pacific's Theatre Arts and Visual Arts program for this making this unique community, artistic, cultural, educational event happen. 

The National Endowment for the Arts (NEA) has recently awarded a grant of $10,000 to the University in support of DeltaFusion. The project, conceived by Theatre Arts Chair Cathie McClellan and Visual Arts Chair Brett DeBoer, will use visual and performing arts as a means to celebrate the cultural heritage of the city of Stockton and San Joaquin County, one of the most culturally diverse areas in the country.

DeltaFusion is taking place June 20 through July 23, 2011, and the final event will be a parade and performance on Saturday, July 23, the anniversary of the incorporation of Stockton as a city.

Professor McClellan conceived the idea for DeltaFusion after being inspired by Aquatopia—a summer program she participated in several years ago led by Pacific's Visual Arts department. Aquatopia combined art and science to raise awareness of the ecosystem of the California watershed....

"We are excited to be able to offer DeltaFusion as a way to show how the Arts can be used to encourage acceptance of diversity, enhance community, and invigorate public discussion of contemporary issues," said Dr. Joanna Albala, Director of Research Initiatives & Strategic Partnerships for the College of the Pacific...

DeltaFusion will be a 5-week session of workshops in which participants will develop a performance that centers on the history of the delta, the industries that took root here, and the immigrant populations who arrived to work in those industries. Participants will create and use large-scale puppets to tell the story...

DeltaFusion will include master puppeteers from the Minneapolis organization In the Heart of the Beast Puppet and Mask Theatre (HOBT) who will share their expertise and assist with making the giant puppets that will be the centerpiece of the performance. HOBT uses puppet and mask theatre to promote social and cultural awareness...

The DeltaFusion parade will begin at Pixie Woods and end at Victory Park. The performance will follow on the grounds of the Haggin Museum, which has been an active partner in the DeltaFusion project. Other partners include Rob and Ria Kroff from KUDOS Children's Theatre Company, the Stockton Arts Commission, and the Cultural Heritage Council of San Joaquin County.

Do farmers really plant almonds because water is expensive?

Matt Jenkins' reporting on agriculture and water is generally good, but I have to quibble with his recent article that uncritically repeats the claim/theory that high water prices caused farmers to plant almonds.  He does note the paradox of scarce water causing one to plant permanent crops, so one wonders why Mr. Jenkins wasn't more skeptical of the argument.

Almonds plantings have increased rapidly following the price of almonds and expansion of demand for the crop.  Almond plantings started growing long before water became scarce, and almond plantings have also grown in areas where water prices have not increased.  In fact, I suspect if water was a factor, it might have been that west siders had thought their water supplies had gotten more secure a few years back.

If input prices/scarcity had something to do with the move towards almonds over cotton and vegetables in the past decade, I wouldn't be surprised if labor costs/scarcity were as important as water.  We also had low long-term interest rates that made capital investments like planting orchards more profitable.  I would also advance the theory that cows don't eat cotton, and the growth of the Valley's dairy industry and rising prices for animal feed may also have something to do with shifts out of cotton.  I don't have any studies to prove these, but they seem like more plausible stories behind crop shifts than expensive water.

My favorite quote in the article was the suggestion that banks were taking on big risks loaning to agriculture.

 "Listen, any banker who stays in this ag thing ought to have their head examined," Borba says, and laughs."

I'm glad Matt had a good quote from an actual banker "You can't take a brush and paint the whole San Joaquin Valley with one color,". I talk to Valley bankers enough to know that they all would like to make more ag loans as they are their best performing assets by far. 

To be fair, a lot of Mr. Jenkins' new article is very good, much better and more in depth than typical journalism on the topic.  The discussion of how tomato production shifted around is excellent, much better than 60 minutes playing ridiculous sound bites of Westland farm owners predicting that the price of pizza and spaghetti sauce was going to shoot up because of the Delta Smelt. 

I must also complement him for not repeating the still too common claims that the 2009 idled 500,000 acres, cost billions of dollars and tens of thousands of jobs.  It looks like he got these numbers from the Pacific/Davis report on our webpage (I talked to Matt back in 2009 about the then differing estimates, so it is good to see he has been following the numbers and using the most recent stuff). 

In 2009 ... farmers were forced to idle, or "fallow," about a quarter-million acres of cropland because of drought and pumping restrictions, which cost them somewhere around $350 million in losses.

P.S.  I have an issue with the title of the article too, "Where Westlands water flows, California’s agriculture follows".  It's just plain wrong, but I know enough about journalism to know that Mr. Jenkins didn't write the title. 

She's Not a Ghost, She's the Next American Idol

I was watching American Idol with the kids last night, and greatly enjoyed the performance of Thia Megia from Mountain House, CA.


Why is this mentioned on the Valley Economy blog?

Mountain House, California has the distinction of having the highest foreclosure rate (see Table 2 here) in  America's foreclosure capital, the Stockton MSA (San Joaquin County).  Mountain House is exactly the type of new build, exurban, high foreclosure community in the Valley that the media keeps calling ghost towns.  Seemingly every month, we deal with another sensational press story, or have to listen to another "expert" from Wall Street or Silicon Valley suggest we should write off these areas or even bulldoze them.

But Ghost Towns are empty places that reflect the past, the foreclosure towns of the Valley are still very much filled with people, especially young people like Thia, who represent the future of America.  I hope Thia goes far in American Idol (she does have the talent to do it!), and I hope she gets a hometown visit.  Perhaps then the media will see that places like Mountain House (and Lathrop, and Weston Ranch) aren't empty ghost towns, but are still places that are very much alive, especially with young students like Thia.  They are struggling places, but they are places that do have a future, and they are still the home of America's future.

I'm sure Thia just wants a chance to sing and fulfill her dreams, not be the face of the Valley's maligned foreclosure towns (I saw her facebook page identifies the Bay area as home, and I'm sure her Facebook page gets zillions more hits than the Valley Economy blog).  Unfortunately, these towns in the Valley have an image problem, and Thia could help turn that around.  Go Thia! 

C'mon Jerry, Voters are Grown-Ups

I am getting tired of Jerry Brown saying he didn't release a budget that doesn't assume voters approve extending the current taxes, because he didn't want to appear to be threatening voters.  I have read numerous quotes similar to this passage in today's Sacramento Bee.

Brown said the proposed reductions are only half as bad as will be required if voters do not extend tax increases. He invited Republican lawmakers resistant to such a measure to describe an "all-cuts" alternative, asking, "Is it really fair and honest to keep that secret?"

Brown, fearful of being seen as threatening to voters, won't release such a document himself.

"It's so horrible that we don't like to release it," he said.

Rather than an "all cuts" budget, I would call it a "current law" budget.  Current law is that the tax increases expire, and I think it is dishonest not to propose a budget under those circumstances.  I have a hard time calling his budget more honest than his predecessors (as some seem to be) when it is also based on a highly uncertain revenue assumption.

Would Brown's "current law" or "all cuts" budget really reflect what he would really do if the revenues don't materialize?  Or will it be crafted in such a way to create dramatic headline cuts in the most politically popular programs that will scare voters into supporting the tax increases.  If it is honestly reflects what he believes are the best choices and is prepared to do in the absence of revenues, then it isn't threatening anyone even if some people find it scary.   And why is he saying that it is Republicans burden to propose an "all cuts" budget.  If the tax increases are voted down, it will still be Democrats creating the budget by majority vote.  The relevant alternative for voters to consider is what Democrats would cut or protect in that instance.  If Democrats put together an honest "all cuts" budget, then I think Republicans should not stand in the way of putting tax increases to voters.

I would also like to see a smaller, alternative set of tax increases put before voters as a substitute for extending the current package.  I  don't particularly like the tax package that is expiring as it is regressive and further pushes up California's high marginal rates on a low tax base.  As an example, I would prefer to see us expanding the sales tax base (reducing the number of items exempted from sales tax, especially amusements like golf and movie tickets), and applying an oil severance tax.  All these exemptions have powerful lobbies, and are tough to get through the legislature, but I bet the public might support them if framed as an alternative to the current higher sales and income tax rates on everyone.

Picking Up the Pace

I'm getting some complaints about the slowing pace of posts. Finally have a bit of a lull, so I'll try to put up a few posts today before the next wave of work hits. I keep getting asked what I think of the Governor's budget as well as more requests for water posts so I will try to hit those topics.

I have been giving a lot of talks about the economy up and down the Valley these past few weeks (Sacramento, Stockton, and Fresno), so come on out and ask me questions in person.

We also released an updated forecast, click here to access the summary. It is marginally better than our October forecast, especially for 2011.

A Hint for the Mortgage Bankers Association: 95230 is Farmington, the name is a clue to your puzzling data on city neighborhoods

The Mortgage Bankers Association just released a report getting lots of press called "A Study of Real Estate Markets in Declining Cities."  Because Stockton is a featured case study in the report, I just wasted much of morning reviewing this junk.  It has many obvious problems on my initial pass through the report, but I will just point out this one that tickled my funny bone.

One point that the MBA report overly emphasizes is the disparity in the rates of depreciation within declining metro areas.  It makes this point by pulling out a few select zipcodes in the Stockton metro area (San Joaquin County) to show the disparities in values.  He only identifies the zipcodes by numbers, not names of the areas, but those of us who live and work here recognize the zipcodes include Tracy, northwest Stockton, and 95230.  I have to admit, I had to look up 95230 because I don't see that one too often.

The author is amazed at the difference between 95230, "where the value of the stock has increased by over 115 percent since 2000 and has only given back 10 percent since its peak in 2005" and uses this as evidence of widely varying outcomes within neighborhoods in the Stockton MSA.  In fact, I have noticed just the opposite, there is remarkably little variation in the percent depreciation by zipcode, and the variation that does exist is generally driven by the amount of new (built 2002-2007) construction in the zipcode sold at initially inflated prices.

In an ideal world, the author (Dr. Follian) would have taken a field trip to the area and visited a few of these zipcodes before selecting a small sample for analysis.  He would have learned that his featured zipcode does not include a single stoplight, although there is one 4-way stop pictured below. (Visiting bankers should be sure to click on the image and view the whole downtown Farmington panorama)

{Image deleted because it was messing up the loading of the blog. Go to Google Maps, type in Farmington, CA to see an image of downtown.]

The zipcode basically straddles Highway 4 from this stop sign in Farmington into the foothills before Copperopolis, beautiful country and one of my favorite drives in the area.  Dr. Follian would enjoy the drive, and would also learn that he should probably discard this zipcode from a study of real estate markets in "cities" for the MBA.  The zipcode covers a vast area and has a population below 1,000.

Despite the snarky comments, I don't really fault him for not coming here.  As an economic researcher I spend a lot of time analyzing data in areas I infrequently or never visit (particularly Los Angeles).  However, when one notices a large anomaly in the local data, there is usually a simple explanation to be found on Google Maps or in the old days just by picking up the phone.

If mortgage bankers want better analysis of the San Joaquin County real estate market, I recommend the Regional Analysts we published on the subject in May 2010 or December 2008.  Please don't stop lending here because of the flawed analysis in your Association's report.  Mortgage bankers have done enough damage to this area, and it seems to me that they don't understand the local housing market any better today than in 2003 to 2006 when their risky loans fueled the Stockton bubble.

House Natural Resources Committee New Webpage

A blog reader emailed me this link to the brand new House of Representatives Natural Resources Committee webpage.  This bullet was under "Get the Facts."

The lack of water has caused 500,000 acres of farm land to dry up – a land mass equivalent to the size of the State of Rhode Island. Also, according to a May 2009 report by U.C. Davis, the water restrictions have left nearly 40,000 people unemployed.

If it were an old webpage, I would be more forgiving, but since it is a new webpage it ought to have the most recent information.

The updated estimates in this joint Pacific/Davis September 2010 report are that the pumping restrictions generated a loss of 60,000 to 130,000 acres, and between 1,392 and 2,973 jobs.

Don't be surprised if/when new studies by reputable researchers (not by me or the Davis folks) addressing this question with more rigorous, econometric models find that even these updated employment loss estimates are too high.  That shouldn't be surprising to economists familiar with the differences between input-output and econometric models.

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.

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.