Both environmental assessments and economic assessments of proposed major infrastructure critically depend on a baseline or no-action scenario. This scenario defines the conditions that are expected if the project is not built and is used as the basis of comparison for the projects impacts. The same no-action scenario should be used for environmental, economic and financial feasibility assessments. However, the latest BDCP documents use a different baseline for the economic analysis than the environmental impact report (EIR). When analytical consistency gets in the way of rationalizing the tunnels, BDCP just switches the baseline.
The BDCP EIR no-tunnel (i.e. no-action) scenario makes the reasonable assumption that through-Delta operations would continue under the current pumping constraints imposed by the Endangered Species Act through "biological opinions." The EIR no-action scenario estimates average water exports at initial operations of about 4.7 million acre feet (MAF) per year at initial operations declining to 4.4 MAF towards the end of the 50 year permit. The EIR estimates that with the tunnels, water exports would be 4.4MAF to 5.3 MAF in the "late long term", a change of between 0 MAF and 0.7 MAF per year.
In contrast, the economic analysis assumes that without BDCP, additional ESA regulations would bring even tougher restrictions on water exports between now and 2025 such that average water exports at initial operations would be 3.4 MAF to 3.9 MAF. Thus, building the tunnels would increase water exports by between 1.3 MAF and 1.7 MAF per year compared to no action. In other words, the economic analysis assumes that without the BDCP tunnel plan, ESA regulations would add another 20-25% cut to water supplies on top of current limits. Never mind that no such plan has been proposed, and that the California Department of Water Resources (DWR) and the water contractors are trying to weaken the current restrictions in court. Clearly, DWR has no sincere intention of implementing this more restrictive scenario, they are just conveniently adopting it for the economic analysis to rationalize building the tunnels.
This switch of the no-tunnel baseline is probably the most serious of several problems with the BDCP economic analysis, and it will create some very practical headaches for the BDCP. The fish and wildlife agencies that have to approve BDCP will certainly ask why the financial feasibility analysis depends on assumptions that are inconsistent with the EIR, and if DWR is actually proposing such restrictive operations on exports in the absence of BDCP. The inconsistency also gives BDCP opponents another issue to use in lawsuits, and it could even undermine the water contractors case in their existing litigation over the biological opinions.
Considering all the problems the state is creating for itself with this shift in baseline, why would they do it? Because they can't demonstrate financial feasibility without it. Using the BDCP's own estimates of costs and benefits, I demonstrated a year ago that the tunnels can not be financially or economically justified by comparing them to the no-action scenarios of the draft EIR. The sleight of hand with the shifting baseline is simply a clever, hidden way to bring back the "value of regulatory certainty" argument the state attempted last summer (see this blog post from last July, and this one from January where I worried that they might try this baseline shifting stunt).
The shifting baseline creates problems for the BDCP environmental approval. Why? If this more restrictive baseline were used for the EIR, the tunnels would almost certainly fail the EIR analysis. The tunnels could not be justified as a Habitat Conservation Plan (HCP) under the ESA since the no-tunnel scenario would be more protective of endangered and threatened species than the proposed tunnel project. [See Matt Weiser's article in Sunday's Sac Bee for a discussion of how the EIR finds the tunnels are not even anticipated to benefit endangered fish species compared to current conditions (i.e. the EIR baseline).]
In addition to the EIR, the tougher baseline assumption would create problems for a true statewide benefit-cost analysis. The recently released economic analysis only considers the benefits and costs of the tunnels to the water contractors. In contrast, a statewide benefit-cost analysis would include benefits and costs to the environment and to other effected parties in-Delta, upstream, and fishing. While the baseline shift creates water supply benefits from the tunnels for the contractors, the increase in water supplies raises the tunnels' costs to the environment and these other parties. Thus, the change in assumption that increases the tunnel's water supply benefits helps financial feasibility to the contractors, but would hurt the tunnels comprehensive benefit-cost justification.
I think this maneuver is a major reason why the BDCP cancelled the benefit-cost analysis and postponed the planned release of chapters 8 and 9 by a month. It is also a sign of how the BDCP is going to increasingly desperate measures to keep their sinking project afloat.
Additional Note 6/18: A BDCP steering committee presentation from March 2010 describes the requirements of the Alternative to Take analysis (ch 9 of the BDCP that contained the new economic analysis). On the last slide of the presentation, the no-action alternative is described as the existing biological opinions, consistent with the EIR approach. This further shows that the super-restrictive water supply scenario introduced in the new chapter 9 was a last minute change to increase the economic benefits attributed to the tunnels. Using the EIR no-action assumption, the tunnels would have a negative net benefit and be judged as financially infeasible.
Tuesday, June 11, 2013
Friday, June 7, 2013
Will Fresno Follow Stockton Into Bankruptcy? I Don't Think So
The City of Fresno's budget for next year assumes millions of dollars in new franchise fees from trash privatization, but these fees depend on the outcome of last week's Measure Z vote. The Measure Z vote is very close, provisional ballots are still being counted, and the outcome won't be known until next week.
Some people have been saying that Fresno is the next Stockton, and that failure of the trash privatization measure would push it towards a bankruptcy filing. While I am not nearly as familiar with Fresno's budget as Stockton, I don't see a Fresno bankruptcy. There are plenty of similarities between the two cities, but Fresno's financial situation doesn't appear quite as dire as Stockton, the level of services has not been cut as low as Stockton, and there appears to be resolve in City leadership to avoid bankruptcy.
There are some obvious similarities between the two cities. Both are in the Central Valley and have similar economic statistics, although Stockton is closer to the bay area and had a bigger housing boom and bust. Both cities have a lot of debt for similar things like ballparks and mammoth pension bonds, but Fresno issued its pension bonds a long time ago rather than Stockton who dumped its bond revenue into CalPers at the top of the market and took a much larger financial loss on the deal. Fresno administers its own pension plan, whereas Stockton is in CalPers, and Fresno has somewhat lower pension costs (although they use different actuarial assumptions than CalPers so it is impossible to do an apples to apples comparison of pension liabilities) and does not offer the kind of unfunded retiree healthcare benefit that Stockton did prior to its bankruptcy filing. Here are some additional high level comparison numbers I have gathered from the two Cities' budgets and other sources (there is a bit of rounding here for simplicity).
Fresno:
Population: 500,000
General Fund Revenue: $275 mil, about $550 per capita
Police: 717 (about 1.43 per 1,000 residents)
2012 Murders: 51
Stockton:
Population: 300,000
General Fund Revenue: $160 mil, about $533 per capita
Police: 330 (about 1.1 per 1,000 residents)
2012 Murders: 71
Since both cities are spending about half of their general fund on police, the police staffing and murder statistics provide some background on the level of services. Both cities have cut police, but Stockton's cuts have been much deeper and had a larger impact on crime. Stockton's murder rate in the year of its bankruptcy filing spiked to double the Fresno rate as police staffing dropped to arguably the lowest level of any major American city. Fresno police staffing is not high, but they would have to lay off about 150 more cops to get to Stockton's level, and no one is contemplating those kind of cuts regardless of the outcome of the trash privatization measure. Stockton had more excessive employee compensation and retiree benefits, and was unable to gain significant enough restructuring without bankruptcy protection.
Through the 1990s and 2000s, Fresno was similar to Stockton but did not quite go to the same extremes. Its costs of delivering services, primarily driven by personnel costs, remained lower than Stockton. I am not sure if this is due to better management or its greater distance from the bay area and smaller economic boom reduced cost pressure. I was a little surprised to see Fresno had slightly more general fund revenue per capita, they might receive more sales tax since they are a regional service center and more isolated from alternative shopping opportunities.
Fresno certainly has severe financial problems, and that City may well have to endure one more round of painful budget cuts to fully stabilize its budget. I expect it will go that route rather than a bankruptcy filing.
However, it should be noted that an escalating public safety emergency is what made additional cuts unacceptable in Stockton and made the bankruptcy filing inevitable. Similarly, the bankruptcy outlook for Fresno could change if conditions, both financial and non-financial, change.
However, it should be noted that an escalating public safety emergency is what made additional cuts unacceptable in Stockton and made the bankruptcy filing inevitable. Similarly, the bankruptcy outlook for Fresno could change if conditions, both financial and non-financial, change.
Wednesday, June 5, 2013
New BDCP Documents Say Taxpayers May Subsidize the Delta Tunnels Due to Uncertainty Over Tunnel Impacts
The newly released BDCP documents contain the following passage labeled as a "Note to Readers". (chapter 8, page 80). (6/7 note: Some readers are having a hard time deciphering this language and its significance. This is all new language to the BDCP cost documents, and shows that the BDCP wants to change its financing assumptions to increase public subsidy of the water contractors and shift costs from agricultural to urban water users if they can get approval. None of it shows up on the glossy BDCP handouts for the media. Emphasis below added by me.)
It is difficult to interpret this language, but two things are clear. First, the water contractors want the government to pick up more of the BDCP cost that is currently allocated to them, and are trying to use uncertainty as a justification. Second, the costs of the tunnels may not be allocated among contractors proportional to the water received, directly contradicting the public statements of the Metropolitan Water District and opening the door to the urban subsidy of agricultural water. This would be a major change, but is not unexpected to me or anyone else who long ago realized that the tunnel financing assumptions simply wouldn't work.
The notion that the decision tree construct requires a public subsidy to the water contractors is ridiculous. The decision tree does not reduce water supply over what would be approved without it. As I recall, the decision tree concept, which creates a structure to postpone water supply decisions to the future, was created last year because environmental concerns about BDCP were resulting in water supplies that were too low for the contractors. It is hoped that the decision tree structure will be acceptable to environmental regulators today, and postpone water supply decisions to a later date when water contractors hope for a better outcome. I don't know that there is a scientific reason to expect a better outcome, but the framework certainly gives the water contractors a lot of leverage to apply political pressure on regulators to approve higher water supplies in the future. In other words, the decision tree itself is a creation to benefit the water contractors, and it is a poor justification for a public subsidy. The decision tree creates the possibility of higher water supplies in the future, postpones the tough environmental decisions to the future, and puts enormous pressure on future environmental regulators to approve higher water supplies after the tunnels have been built and tens of billions of dollars have been spent and borrowed.
In the interest of transparency, it seems the government officials should disclose exactly what has been proposed and is being considered. Without this information, it is fair to speculate. I fear that the subsidy funds will not be appropriated in the near term since budgets are tight, and thus the subsidy funds will be triggered in some way if the decision tree leads to a low water supply outcome. A budget trigger like that is enormously effective in applying political pressure to a regulatory decision. The incentives in the decision tree framework are bad enough as it is, we don't need to make it worse.
June 6 Note: I also found it interesting that this new subsidy language is inserted in a document that also purports to demonstrate that the tunnels create great economic benefits (don't believe it). A few pages after this note about new subsidies, BDCP says tunnel financing isn't a concern because the total costs are low relative total personal income in the region. If the tunnels are such a great deal for the water agencies, why the call for a subsidy?
Note to reader: Details of the financing and repayment described in this section from the Authorized Entities and other sources are still being determined through on‐going discussion between the state and federal governments and between the government, the state and federal water contractors and other interests. Issues still under discussion include aligning the financing and repayment responsibilities with the “beneficiary pays” principle, among other related issues.The decision tree process that is part of the of the new north Delta water conveyance facility (CM1) will determine the level of fall and spring outflow provided by BDCP for delta smelt and longfin smelt, respectively, at initial operations. The decision tree process is designed to address the scientific uncertainty surrounding these parameters. Because each branch of the decision tree has different water supply implications, there is uncertainty in the water supply provided by BDCP. To offset this uncertainty, the state and federal governments may consider additional investments in BDCP consistent with the “beneficiary pays” principle. As is typical of projects of this nature and scope, the final financial arrangements may require appropriate approvals, contractual arrangements, and additional legislative authority. If adopted, these additional investments will be incorporated into the public draft BDCP and may modify the funding assumptions presented here.
It is difficult to interpret this language, but two things are clear. First, the water contractors want the government to pick up more of the BDCP cost that is currently allocated to them, and are trying to use uncertainty as a justification. Second, the costs of the tunnels may not be allocated among contractors proportional to the water received, directly contradicting the public statements of the Metropolitan Water District and opening the door to the urban subsidy of agricultural water. This would be a major change, but is not unexpected to me or anyone else who long ago realized that the tunnel financing assumptions simply wouldn't work.
The notion that the decision tree construct requires a public subsidy to the water contractors is ridiculous. The decision tree does not reduce water supply over what would be approved without it. As I recall, the decision tree concept, which creates a structure to postpone water supply decisions to the future, was created last year because environmental concerns about BDCP were resulting in water supplies that were too low for the contractors. It is hoped that the decision tree structure will be acceptable to environmental regulators today, and postpone water supply decisions to a later date when water contractors hope for a better outcome. I don't know that there is a scientific reason to expect a better outcome, but the framework certainly gives the water contractors a lot of leverage to apply political pressure on regulators to approve higher water supplies in the future. In other words, the decision tree itself is a creation to benefit the water contractors, and it is a poor justification for a public subsidy. The decision tree creates the possibility of higher water supplies in the future, postpones the tough environmental decisions to the future, and puts enormous pressure on future environmental regulators to approve higher water supplies after the tunnels have been built and tens of billions of dollars have been spent and borrowed.
In the interest of transparency, it seems the government officials should disclose exactly what has been proposed and is being considered. Without this information, it is fair to speculate. I fear that the subsidy funds will not be appropriated in the near term since budgets are tight, and thus the subsidy funds will be triggered in some way if the decision tree leads to a low water supply outcome. A budget trigger like that is enormously effective in applying political pressure to a regulatory decision. The incentives in the decision tree framework are bad enough as it is, we don't need to make it worse.
June 6 Note: I also found it interesting that this new subsidy language is inserted in a document that also purports to demonstrate that the tunnels create great economic benefits (don't believe it). A few pages after this note about new subsidies, BDCP says tunnel financing isn't a concern because the total costs are low relative total personal income in the region. If the tunnels are such a great deal for the water agencies, why the call for a subsidy?
Tuesday, June 4, 2013
New BDCP Economic Studies Use Outdated Growth Forecasts to Project an Artificial Water Shortage
There are so many problems in the cost and economic reports released last week by the BDCP, it is hard to know where to begin. From the messages in my in-box, I am not alone in identifying some of the more serious errors in the analysis that exaggerate water supply benefits to justify the tunnels.
Some of the serious problems people are talking about include 1) a large, poorly justified shift in the No BDCP water supply scenario that is inconsistent with the Environmental Impact Report and other BDCP documents that allows them to claim higher economic benefits, 2) ignoring 1 million acre feet of alternative water supply development identified in local water plans of southern California water agencies and assuming high costs for alternative supplies, 3) ignoring the conservation targets and regional self-sufficiency requirements of the 2009 Water Package and the Delta Stewardship Council's Delta Plan, and 4) some new language (see page 8-80) that says the state and federal government are considering picking up more of the costs currently allocated to the water contractors.
This post isn't about those issues, it is about the inaccurate population and economic growth assumptions in the BDCP report that is inflating the estimated urban benefits of BDCP. To understand its significance, you have to realize that shortages from the estimated levels of urban water demand are driving the vast majority of the economic benefits BDCP is calculating. So it is critically important to estimate urban water demand with best and most current information.
Specifically, for Los Angeles, Orange, Riverside, San Bernadino and Ventura Counties, the growth projections used in BDCP are taken from their 2007 Regional Transportation Plan, and in San Diego it is based on "Series 11" from 2006. Both of these projections are out of date and have been replaced by the local planning agencies with much lower growth projections that incorporate the results of the 2010 census. Likewise, the California Department of Finance released updated projections for these counties in 2012 and again earlier this year in 2013 that are the official estimates used for state planning and are now driving housing and transportation planning at the county level. The 2050 DOF population projections for California are about 15% lower (51 million instead of 60 million) than the projections commonly used a decade ago that are still being used by the BDCP.
The BDCP sources only project population to 2035, but the BDCP study appears to extrapolate similar growth rates beyond this point. In 2035, they estimate population of 28.04 million residents in these 6 key urban counties, whereas the state's updated official projection from DOF estimates 25.25 million residents. In other words, official updated growth estimates find 2.8 million fewer water demanders in 2035 than BDCP assumes, about 10% lower. BDCP study doesn't give an exact number for 2050, but it appears that the overestimate grows to at least 15% similar to the old state projections from a decade ago. I won't detail it here, but the economic projections show commercial and industrial demand is also about 15% too high.
So what does the new BDCP say about growing urban water demand and the level of shortages?
So how does this demand decrease of 0.93 MAF from using a realistic growth forecast compare to their projected urban water shortage with the inflated forecast? The BDCP report states.
In summary, the BDCP is projecting urban water supply shortages without BDCP of 0.84 MAF. However, they are exaggerating urban water demand in 2050 by 0.93 maf through the use of aggressive growth forecasts that are 15% higher than the state's official planning forecasts. In other words, the future urban water supply shortages the BDCP predicts are unlikely to exist.
And it should be noted, these shortage calculation don't even account for the over 1 MAF of new alternative supplies the San Diego County Water Authority has identified in local planning documents that BDCP is ignoring, not to mention the underestimate of conservation. Urban water demand is not growing now and is unlikely to grow significantly in the future.
The most irritating thing to me is that the consultants and the local water agencies know they are using very high projections. Their staff knows they conflict directly with the projections being used in financial, housing and growth projections in state and local governments throughout the state. And the Metropolitan Water District knows its sales are not increasing.
June 5 Postscript: If there is no shortage as defined by the BDCP study, that does not mean the water does not have value to urban users. But the value of water supplied through the tunnels would be much less without a shortage situation. The BDCP study places the value of water that reduces these urban shortages at a whopping $1,204 to $1,414 per acre foot in 2012 dollars. If that value were much under $1,000 af, the net benefits of the tunnels would be negative even with all the other pro-tunnel assumptions in the report.
Some of the serious problems people are talking about include 1) a large, poorly justified shift in the No BDCP water supply scenario that is inconsistent with the Environmental Impact Report and other BDCP documents that allows them to claim higher economic benefits, 2) ignoring 1 million acre feet of alternative water supply development identified in local water plans of southern California water agencies and assuming high costs for alternative supplies, 3) ignoring the conservation targets and regional self-sufficiency requirements of the 2009 Water Package and the Delta Stewardship Council's Delta Plan, and 4) some new language (see page 8-80) that says the state and federal government are considering picking up more of the costs currently allocated to the water contractors.
This post isn't about those issues, it is about the inaccurate population and economic growth assumptions in the BDCP report that is inflating the estimated urban benefits of BDCP. To understand its significance, you have to realize that shortages from the estimated levels of urban water demand are driving the vast majority of the economic benefits BDCP is calculating. So it is critically important to estimate urban water demand with best and most current information.
Specifically, for Los Angeles, Orange, Riverside, San Bernadino and Ventura Counties, the growth projections used in BDCP are taken from their 2007 Regional Transportation Plan, and in San Diego it is based on "Series 11" from 2006. Both of these projections are out of date and have been replaced by the local planning agencies with much lower growth projections that incorporate the results of the 2010 census. Likewise, the California Department of Finance released updated projections for these counties in 2012 and again earlier this year in 2013 that are the official estimates used for state planning and are now driving housing and transportation planning at the county level. The 2050 DOF population projections for California are about 15% lower (51 million instead of 60 million) than the projections commonly used a decade ago that are still being used by the BDCP.
The BDCP sources only project population to 2035, but the BDCP study appears to extrapolate similar growth rates beyond this point. In 2035, they estimate population of 28.04 million residents in these 6 key urban counties, whereas the state's updated official projection from DOF estimates 25.25 million residents. In other words, official updated growth estimates find 2.8 million fewer water demanders in 2035 than BDCP assumes, about 10% lower. BDCP study doesn't give an exact number for 2050, but it appears that the overestimate grows to at least 15% similar to the old state projections from a decade ago. I won't detail it here, but the economic projections show commercial and industrial demand is also about 15% too high.
So what does the new BDCP say about growing urban water demand and the level of shortages?
In the agencies receiving SWP supplies, urban demand is projected to be 5.64 MAF in 2025 (the year CM1 would become operational) and is estimated to grow to 6.18 MAF by 2050. (chapter 8, page 102)This estimate is 15% too high due to the aggressive forecast, adjusting it would bring 2050 urban water demand to 5.25 MAF (million acre feet), a decrease of 0.93 MAF from BDCP's 2050 estimate. The BDCP study states 2012 urban demand is 5.1 MAF, so this adjusted demand growth to 5.25 MAF would reflect very slow growth over the next 40 years and be a better fit to observed water demand over the past 20 years.
So how does this demand decrease of 0.93 MAF from using a realistic growth forecast compare to their projected urban water shortage with the inflated forecast? The BDCP report states.
By 2025, without BDCP shortages in the urban agencies receiving SWP deliveries are predicted to be 0.50 MAF on average. By 2050, these mean shortages are projected to be 0.84 MAF. The BDCP would mitigate these losses by lessening the frequency and magnitude of water supply shortages.
In summary, the BDCP is projecting urban water supply shortages without BDCP of 0.84 MAF. However, they are exaggerating urban water demand in 2050 by 0.93 maf through the use of aggressive growth forecasts that are 15% higher than the state's official planning forecasts. In other words, the future urban water supply shortages the BDCP predicts are unlikely to exist.
And it should be noted, these shortage calculation don't even account for the over 1 MAF of new alternative supplies the San Diego County Water Authority has identified in local planning documents that BDCP is ignoring, not to mention the underestimate of conservation. Urban water demand is not growing now and is unlikely to grow significantly in the future.
The most irritating thing to me is that the consultants and the local water agencies know they are using very high projections. Their staff knows they conflict directly with the projections being used in financial, housing and growth projections in state and local governments throughout the state. And the Metropolitan Water District knows its sales are not increasing.
June 5 Postscript: If there is no shortage as defined by the BDCP study, that does not mean the water does not have value to urban users. But the value of water supplied through the tunnels would be much less without a shortage situation. The BDCP study places the value of water that reduces these urban shortages at a whopping $1,204 to $1,414 per acre foot in 2012 dollars. If that value were much under $1,000 af, the net benefits of the tunnels would be negative even with all the other pro-tunnel assumptions in the report.
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.
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.
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.
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.Sounds familiar.
“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.”
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.
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.]
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.
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.
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.
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.
http://www.bls.gov/cew/ew11table9.pdf, http://www.bls.gov/cew/#databases
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.
http://www.latimes.com/local/lanow/la-me-ln-dwp-pay-20130507,0,1472728.story
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.
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.
http://www.bls.gov/cew/ew11table9.pdf, http://www.bls.gov/cew/#databases
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.
http://www.latimes.com/local/lanow/la-me-ln-dwp-pay-20130507,0,1472728.story
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.
Tuesday, April 30, 2013
New PPIC Survey Makes A Strong Case for a No-Tunnel BDCP Alternative
The latest PPIC Delta report includes the results of an interesting survey of scientists and stakeholders on options to improve the Delta ecosystem.
Looking at the key table of findings (table 2, page 14), the tunnels are down in the bottom right of the PPIC table, low potential impact for fish, low scientific consensus, and high cost. It is the worse possible outcome in this ranking (upper left quadrant is best, lower right is worst). Nevertheless, the PPIC calls the BDCP "promising" even though it is completely focused on the lowest ranking, most controversial option, and unnecessarily ties many of the more valuable, less costly, and less controversial habitat measures into a package with the tunnels.
As I have stated repeatedly, the ESA does not require the tunnels! The state can and should develop strong no-tunnel options for the BDCP.
Although the tunnels fared terribly in their survey, the PPIC does not highlight that conclusion. Instead they offer reasons they think the tunnels are better than they look in this ranking. For instance, they talk about how the measures interact with one another, but they do so in a biased way - pointing out how the tunnels might support some measures while omitting how they work against other measures. For example, on page 14, they state "If managed for conservation objectives, a tunnel could facilitate more variable flow patterns (#20) and reduce entrainment (#16)—two actions scientists consider quite promising."
What is the offsetting factor that they leave out? The tunnels conflict strongly with the strategy of reduced exports (#17) which was also one of the highest ranking options for effectivness. Their study finds that reducing exports has both higher environmental benefits and lower costs than the tunnels, thus I find it strange that they keep advocating the tunnels over reduced export strategies. It is clear that exports will not be reduced with the tunnels, and will likely be increased from current levels.
Two other quick observations from the new PPIC report:
1. Water exporters received, by far, the lowest grade for scientific knowledge of any of the stakeholder groups. They even got a negative score for 2 out of 3 categories! At least the Delta folks got a passing grade. Table 7 from this supporting report has the results.
2. The cost of the tunnels are only $$$! Why did they use these 3 cost ranges with symbols? , $, under $10m annually, $$, 10m - $99m annually, and $$$, is $100m or more. Why didn't they put numbers for the estimated cost ranges in the table? And if they are going to use symbols, they must have a consistent meaning. This is the kind of PR garbage that professors routinely mock in the first week of statistics. It makes it look like the cost of the tunnels are not that high, even though they are orders of magnitude higher than measures that received the same symbolic rating. It is reminiscent of the early BDCP screening studies I criticized for their biased, pro-tunnel analysis. See this old post, "Would BDCP staff accept dots instead of dollars in their paychecks?"
If a $ equals an annual cost of $10 million, then the cost of the tunnels is not $$$, but ranges from approximately
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ to
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
Looking at the key table of findings (table 2, page 14), the tunnels are down in the bottom right of the PPIC table, low potential impact for fish, low scientific consensus, and high cost. It is the worse possible outcome in this ranking (upper left quadrant is best, lower right is worst). Nevertheless, the PPIC calls the BDCP "promising" even though it is completely focused on the lowest ranking, most controversial option, and unnecessarily ties many of the more valuable, less costly, and less controversial habitat measures into a package with the tunnels.
As I have stated repeatedly, the ESA does not require the tunnels! The state can and should develop strong no-tunnel options for the BDCP.
Although the tunnels fared terribly in their survey, the PPIC does not highlight that conclusion. Instead they offer reasons they think the tunnels are better than they look in this ranking. For instance, they talk about how the measures interact with one another, but they do so in a biased way - pointing out how the tunnels might support some measures while omitting how they work against other measures. For example, on page 14, they state "If managed for conservation objectives, a tunnel could facilitate more variable flow patterns (#20) and reduce entrainment (#16)—two actions scientists consider quite promising."
What is the offsetting factor that they leave out? The tunnels conflict strongly with the strategy of reduced exports (#17) which was also one of the highest ranking options for effectivness. Their study finds that reducing exports has both higher environmental benefits and lower costs than the tunnels, thus I find it strange that they keep advocating the tunnels over reduced export strategies. It is clear that exports will not be reduced with the tunnels, and will likely be increased from current levels.
Two other quick observations from the new PPIC report:
1. Water exporters received, by far, the lowest grade for scientific knowledge of any of the stakeholder groups. They even got a negative score for 2 out of 3 categories! At least the Delta folks got a passing grade. Table 7 from this supporting report has the results.
2. The cost of the tunnels are only $$$! Why did they use these 3 cost ranges with symbols? , $, under $10m annually, $$, 10m - $99m annually, and $$$, is $100m or more. Why didn't they put numbers for the estimated cost ranges in the table? And if they are going to use symbols, they must have a consistent meaning. This is the kind of PR garbage that professors routinely mock in the first week of statistics. It makes it look like the cost of the tunnels are not that high, even though they are orders of magnitude higher than measures that received the same symbolic rating. It is reminiscent of the early BDCP screening studies I criticized for their biased, pro-tunnel analysis. See this old post, "Would BDCP staff accept dots instead of dollars in their paychecks?"
If a $ equals an annual cost of $10 million, then the cost of the tunnels is not $$$, but ranges from approximately
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ to
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
Sacramento Kings Surprise
It looks like the Kings' are staying in Sacramento. I had been putting the odds of that as 1 in 3, so I view the announcement of the NBA committees unanimous recommendation to vote against moving the francise as a bit of an upset.
Last year, I was against the railyards arena proposal, but I think that the new downtown plaza plan is significantly better, enough so to move me to a neutral position on the wisdom of the city's arena subsidy. (See this post for my initial reaction to the new proposal.)
Although it has been a painful year of uncertainty, it looks like things may work out significantly better for Sacramento because the Maloofs' backed out of the original deal.
Last year, I was against the railyards arena proposal, but I think that the new downtown plaza plan is significantly better, enough so to move me to a neutral position on the wisdom of the city's arena subsidy. (See this post for my initial reaction to the new proposal.)
Although it has been a painful year of uncertainty, it looks like things may work out significantly better for Sacramento because the Maloofs' backed out of the original deal.
Tuesday, April 23, 2013
BDCP Appears to Have Canceled Their Statewide Benefit-Cost Analysis (Updated 4/24 3:30 PM)
In Fall 2012, BDCP announced it was finally going to do a statewide benefit-cost analysis after refusing for years. The framework and preliminary results from some components were described by Dr. David Sunding in BDCP Finance Working Group Meetings in November and January that I attended, and a scope of work was released. While I was initially encouraged, it became clear in these meetings that BDCP was not going to allow Dr. Sunding the freedom to do a correct and comprehensive benefit-cost analysis. I submitted comments at the requested deadline that said BDCP should stop saying they are doing a benefit-cost analysis since they are not following the guidelines established by their own agencies.
While that may sound democratic and inclusive, and is more accurate than mislabeling their reports as benefit-cost analysis, I am sure the public and the legislature would appreciate it if they would let their esteemed professor interpret his own studies in a comprehensive benefit-cost analysis, and defend it in independent peer review. I haven't talked with Dr. Sunding in quite a while, but think I know him well enough to guess that he would prefer that too.
Instead, we will have Jerry Meral and the pro-BDCP flaks helping the public interpret his work. As an antidote to the spin, I recommend the public read my preliminary benefit-cost white paper from last summer. Using BDCP's own numbers, I concluded the benefits fell $7 billion short of the costs. I will update it if these new and revised studies yield new information, but preliminary results revealed to date do not show a huge difference.
There still are some problems with the definition of BDCP alternatives in these studies. Although it sounds like they have made some improvements and are going to look at something resembling the small-tunnel "portfolio" plan, they also appear to be continuing to ignore the seismic levee upgrade alternatives. And thus the BDCP that makes a big deal about natural disasters in the Delta will continue to ignore a lower-cost alternative that addresses the co-equal goals while creating the additional benefits of saving hundreds of lives in the event of an earthquake, in addition to protection of the billions of dollars in private property, transportation and energy infrastructure damage that will receive no protection from the BDCP. The results of the BDCP studies will depend a lot on what they assume as the "no action" or no-tunnel alternative in terms of water supply and flood protection.
One can't help but wonder what prompted the cancellation of the benefit-cost analysis just a few weeks before it was supposed to be released in final form. I went back to the scope of work of the purported benefit-cost analysis and made note of the descriptions of Task 3, due in late March or early April, and Task 4 due in mid-May.
Update 4/24: I added a bullet list of the 6 studies with brief comments, and deleted a reference to the $23 billion BDCP that caused some confusion. The $23 billion came from a 2012 estimate of $14b tunnel construction, $4b habitat construction, $5b operation and maintenance costs over 50 years. Some had misinterpreted that I was saying that building the tunnels would cost $23 billion. A few other minor edits too.
I had not heard anything else about it until yesterday when the new BDCP glossy sheet describing economic studies was released. It describes six "studies" and none of them are the statewide benefit-cost analysis they said they were doing. The six studies include:
- BDCP Chapter 8: Costs and funding sources. Notably, they say this will still not be a complete financing plan.
- Alternatives to Take: This sounds like it could include some interesting new analysis but details are murky. It is described as an economic feasibility analysis to undefined alternatives to take which are said to be different than the alternatives in the EIR.
- Economic benefits of the proposed project to participating water agencies. This will be an update and detailed technical report of the informative, but narrow one-sided analysis Dr. Sunding has already presented at several meetings.
- Statewide Economic Impact Study: This sounds more useful than it is. It will look at economic impacts on some stakeholder groups who oppose BDCP, like Delta farmers, but is not nearly as balanced as it sounds. It will likely generate some useful information, but like most economic impact reports, it will lend itself to distorted interpretations and generate lots of talking points for PR flaks. Notably, it does not seem to include any estimate of the economic impacts of higher water rates on consumer spending and industrial activity or the economic impact of diverting dollars from the state general fund to pay the water bond.
- Employment Impacts of BDCP: This was already released and is being used for pro-BDCP talking points. What the pro-BDCP PR flaks who write these memos aren't pointing out is that the 137,000 job years over 50 years for over $20 billion in public spending over that period is actually pathetically weak job creation. It is roughly 6 jobs per $1 million in public spending which is about the worst job bang for the buck I have ever seen. Most public works programs create 10-20 jobs per $1 million. BDCP alternatives will undoubtedly create more jobs.
- Socioeconomic Impact from the Environmental Impact Report (EIR): Nothing new here, a required part of the EIR.
By examining the costs of BDCP in Chapter 8, the benefits of BDCP to the participating agencies in the contractor benefits study, and the economic impacts of BDCP on other affected parties in the statewide economic impact study, the public can determine whether the BDCP is a good investment for California.
While that may sound democratic and inclusive, and is more accurate than mislabeling their reports as benefit-cost analysis, I am sure the public and the legislature would appreciate it if they would let their esteemed professor interpret his own studies in a comprehensive benefit-cost analysis, and defend it in independent peer review. I haven't talked with Dr. Sunding in quite a while, but think I know him well enough to guess that he would prefer that too.
Instead, we will have Jerry Meral and the pro-BDCP flaks helping the public interpret his work. As an antidote to the spin, I recommend the public read my preliminary benefit-cost white paper from last summer. Using BDCP's own numbers, I concluded the benefits fell $7 billion short of the costs. I will update it if these new and revised studies yield new information, but preliminary results revealed to date do not show a huge difference.
There still are some problems with the definition of BDCP alternatives in these studies. Although it sounds like they have made some improvements and are going to look at something resembling the small-tunnel "portfolio" plan, they also appear to be continuing to ignore the seismic levee upgrade alternatives. And thus the BDCP that makes a big deal about natural disasters in the Delta will continue to ignore a lower-cost alternative that addresses the co-equal goals while creating the additional benefits of saving hundreds of lives in the event of an earthquake, in addition to protection of the billions of dollars in private property, transportation and energy infrastructure damage that will receive no protection from the BDCP. The results of the BDCP studies will depend a lot on what they assume as the "no action" or no-tunnel alternative in terms of water supply and flood protection.
One can't help but wonder what prompted the cancellation of the benefit-cost analysis just a few weeks before it was supposed to be released in final form. I went back to the scope of work of the purported benefit-cost analysis and made note of the descriptions of Task 3, due in late March or early April, and Task 4 due in mid-May.
Task 3. Prepare Draft Technical Report
Once the analysis is complete, a draft technical report will be prepared that describes the
methods used, the results, and draws overall conclusions about the cost and economic benefit of BDCP. This final section will offer an opinion about whether benefits exceed costs from a statewide perspective, and over what time frame. The concluding section will also summarize the impacts in various regions of California, and to various interest groups.
The draft technical report will be submitted for review by the California Department of Water Resources (DWR), Reclamation, and the water contractors involved in the BDCP.
Task 4. Prepare Final Technical Report Based on comments received on the draft, the Contractor and Brattle Group will revise the technical report and prepare a final report suitable for public distribution and web posting.Perhaps cancelling the benefit-cost analysis report in favor of this release of a hodge podge of mini-studies was the revision ordered for Task 4.
Update 4/24: I added a bullet list of the 6 studies with brief comments, and deleted a reference to the $23 billion BDCP that caused some confusion. The $23 billion came from a 2012 estimate of $14b tunnel construction, $4b habitat construction, $5b operation and maintenance costs over 50 years. Some had misinterpreted that I was saying that building the tunnels would cost $23 billion. A few other minor edits too.
Friday, April 12, 2013
Is Westlands Exagerrating Drought Impacts Again?
After a dry winter, it's looking like another tough year for Westlands Water District. The latest CVP allocation announcement was 20%, and like the 2009 drought, it has brought out claims of economic loss. The claims of loss are higher than were experienced with the 10% allocation in 2009, so on the surface they would appear to be exagerrated.
For example, Westlands General Manager Tom Birmingham says Westlands farmers alone will lose $350 million in revenue, and total economic impact will exceed $1 billion. In this letter (that I only read thanks to Mark Borba's infamous rant), Congressman Costa says there will be agricultural production losses in the San Joaquin Valley of $873 million and economic impacts of $2.2 billion. Neither statement reveals the source of the numbers.
The Westlands website (which to their credit, provides nice data) includes a page with historic water supplies and fallowing, and includes a prediction of 2013. Their forecast for 2013 is for an all-time high of 175,000 fallowed acres. That's 20,000 acres of fallowing more than in 2009, when they had 100,000 af less water. That doesn't seem right, but maybe there is a logical explanation for it (if you know why, or have a plausible explanation, feel free to put it in the comments).
I created some simple regression models this afternoon, and got forecasts ranging from 113,000 to 120,000 acres of fallowing for Westlands in 2013. If I use my prediction of 120,000 acres of fallowing instead of their predicted 175,000 acres, what is the economic loss. Baseline fallowing in a wet year is about 60,000 acres, so my prediction is that about 60,000 acres more out of production in 2013 compared to a wet year. Of that 60,000, no more than about 20,000 could be reasonably blamed on environmental restrictions, the rest is due to the dry weather.
What will be fallowed? If history is a guide, it will mostly be cotton. So my quick estimate of the impact of the biological opinions in 2008 on Westlands is about 20,000 acres of lost cotton production, representing about $50 million in farm revenue. [Of course, the farmers loss is more than that, because supplemental water and groundwater pumping is more expensive than CVP supplies. However, Westlands cost for water transfers is another farmer's income in the Valley.]
Across the entire San Joaquin Valley, I think a reasonable estimate would be $100-150 million in revenue losses and about 2,000 jobs due to the biological opinions in 2013.
That's a real economic impact that shouldn't be ignored, but it is about 85% less than claimed by Mr. Birmingham and Congressman Costa.
For example, Westlands General Manager Tom Birmingham says Westlands farmers alone will lose $350 million in revenue, and total economic impact will exceed $1 billion. In this letter (that I only read thanks to Mark Borba's infamous rant), Congressman Costa says there will be agricultural production losses in the San Joaquin Valley of $873 million and economic impacts of $2.2 billion. Neither statement reveals the source of the numbers.
The Westlands website (which to their credit, provides nice data) includes a page with historic water supplies and fallowing, and includes a prediction of 2013. Their forecast for 2013 is for an all-time high of 175,000 fallowed acres. That's 20,000 acres of fallowing more than in 2009, when they had 100,000 af less water. That doesn't seem right, but maybe there is a logical explanation for it (if you know why, or have a plausible explanation, feel free to put it in the comments).
I created some simple regression models this afternoon, and got forecasts ranging from 113,000 to 120,000 acres of fallowing for Westlands in 2013. If I use my prediction of 120,000 acres of fallowing instead of their predicted 175,000 acres, what is the economic loss. Baseline fallowing in a wet year is about 60,000 acres, so my prediction is that about 60,000 acres more out of production in 2013 compared to a wet year. Of that 60,000, no more than about 20,000 could be reasonably blamed on environmental restrictions, the rest is due to the dry weather.
What will be fallowed? If history is a guide, it will mostly be cotton. So my quick estimate of the impact of the biological opinions in 2008 on Westlands is about 20,000 acres of lost cotton production, representing about $50 million in farm revenue. [Of course, the farmers loss is more than that, because supplemental water and groundwater pumping is more expensive than CVP supplies. However, Westlands cost for water transfers is another farmer's income in the Valley.]
Across the entire San Joaquin Valley, I think a reasonable estimate would be $100-150 million in revenue losses and about 2,000 jobs due to the biological opinions in 2013.
That's a real economic impact that shouldn't be ignored, but it is about 85% less than claimed by Mr. Birmingham and Congressman Costa.
Monday, April 8, 2013
What Should We Assume About New Technology in California Water Policy?
When we talk water in our Center at Pacific, my colleague Dr. Pogue always brings up the lack of emphasis on new technology in California water debates, and the assumption of constant technology that undergirds virtually all economic and planning studies. Dr. Pogue's PhD is in the economics of technological change, and I should listen to his advice more. But I am as guilty as anyone in making conservative technology assumptions, as I don't want to be accused of making unrealistic assumptions to tilt an analysis.
However, California water policy is driven with built in expectations of sea-level rise, changing precipitation and levee-exploding earthquakes. We accept those assumptions, but not assumptions about advancing technology. I am confident that we will have game-changing technological advances concurrent with if not before any of those climate change and natural disaster impacts hit California water in a large way, and I am certain we would if our policies did more to encourage these technological advances. If water policy analysis is going to assume 18 or more inches of sea-level rise by 2050 and a 2/3 chance of levee destroying earthquake by 2050, it seems realistic to also assume that the real cost of alternative water supplies, including desaliniation, will drop by half or more in the same time frame.
In fact, last month, Lockheed Martin acheived a patent for Perforene, a carbon membrane the width of a single molecule that promises to reduce the energy requirements of desalination by one-hundred times.
But that isn't the only new desalination technology on the horizon. In the past year, Lawrence Livermore National Lab has been touting its own technological breakthrough, flow-through electrode capacitive desalination. They have a prototype and patent application pending, and are seeking industrial partners to help it bring the technology to market.
If California were to focus more on these types of technological breakthroughs, we would not only be solving our own water problems but helping to solve a critical present and even greater future problem in poor, developing countries. We could develop technologies and advanced manufacturing here, and sell to a global market.
Instead, California water policy is fixated on a pair of $14+ billion concrete tunnels, where an estimated $3 billion of the total will be spent on foreign tunneling machines and plumbing components. It seems so last century and unCalifornia to me. This is the state that funds stem cell research, that has moved ahead with cap-and-trade and supported alternative energy supplies, and has the most innovative technology center in the world in Silicon Valley.
What if it became a goal of state policy to shut-down the state water project pumps over the Tehachapi mountains in 20 years? What if both southern California and Silicon Valley were to stop importing water from the Delta. It sounds less crazy to me than past technology goals like putting a man on the moon, or current California policy goals like bringing carbon dioxide emissions down to 1990 levels by 2020.
Unlike the current Delta plan, developing these water supplies would actually increase the state's water supply, and pumping less over the mountains would make more low-cost water available for San Joaquin Valley agriculture as well as support higher outflows for fish. Developing these alternative water supplies would create thousands of jobs in California, save energy, and foster the development of new California industries to sell water technology around the globe. The only loser would be the Metropolitan Water District (the agency itself, their customers would benefit), and therein lies a major problem.
The only way to finance the collosal debt of the Delta tunnels will be to keep southern California and silicon valley dependent on Delta water. I have heard people say the state should do the BDCP and develop advanced water technologies and alternative supplies, but the two visions are fundamentally in conflict.
However, California water policy is driven with built in expectations of sea-level rise, changing precipitation and levee-exploding earthquakes. We accept those assumptions, but not assumptions about advancing technology. I am confident that we will have game-changing technological advances concurrent with if not before any of those climate change and natural disaster impacts hit California water in a large way, and I am certain we would if our policies did more to encourage these technological advances. If water policy analysis is going to assume 18 or more inches of sea-level rise by 2050 and a 2/3 chance of levee destroying earthquake by 2050, it seems realistic to also assume that the real cost of alternative water supplies, including desaliniation, will drop by half or more in the same time frame.
In fact, last month, Lockheed Martin acheived a patent for Perforene, a carbon membrane the width of a single molecule that promises to reduce the energy requirements of desalination by one-hundred times.
we believe that this simple and affordable solution will be a game-changer for the industry,” said Dr. Ray O. Johnson, senior vice president and chief technology officer of Lockheed Martin...At only one atom thick, graphene is both strong and durable, making it more effective at sea water desalination at a fraction of the cost of industry-standard reverse osmosis systems.
But that isn't the only new desalination technology on the horizon. In the past year, Lawrence Livermore National Lab has been touting its own technological breakthrough, flow-through electrode capacitive desalination. They have a prototype and patent application pending, and are seeking industrial partners to help it bring the technology to market.
LLNL has developed an innovative technology that promises to unlock an almost inexhaustible water source for U.S. and global population markets.And they aren't the only ones working on new desalination technologies, and more advances continue in water efficiency, recycling, and stormwater capture. Now that we have reached the point where two highly credible sources like LLNL and Lockheed Martin are a few years from bringing important new technology to the market, I think it is time to more explicitly embrace technological innovation in California water planning and policy.
If California were to focus more on these types of technological breakthroughs, we would not only be solving our own water problems but helping to solve a critical present and even greater future problem in poor, developing countries. We could develop technologies and advanced manufacturing here, and sell to a global market.
Instead, California water policy is fixated on a pair of $14+ billion concrete tunnels, where an estimated $3 billion of the total will be spent on foreign tunneling machines and plumbing components. It seems so last century and unCalifornia to me. This is the state that funds stem cell research, that has moved ahead with cap-and-trade and supported alternative energy supplies, and has the most innovative technology center in the world in Silicon Valley.
What if it became a goal of state policy to shut-down the state water project pumps over the Tehachapi mountains in 20 years? What if both southern California and Silicon Valley were to stop importing water from the Delta. It sounds less crazy to me than past technology goals like putting a man on the moon, or current California policy goals like bringing carbon dioxide emissions down to 1990 levels by 2020.
Unlike the current Delta plan, developing these water supplies would actually increase the state's water supply, and pumping less over the mountains would make more low-cost water available for San Joaquin Valley agriculture as well as support higher outflows for fish. Developing these alternative water supplies would create thousands of jobs in California, save energy, and foster the development of new California industries to sell water technology around the globe. The only loser would be the Metropolitan Water District (the agency itself, their customers would benefit), and therein lies a major problem.
The only way to finance the collosal debt of the Delta tunnels will be to keep southern California and silicon valley dependent on Delta water. I have heard people say the state should do the BDCP and develop advanced water technologies and alternative supplies, but the two visions are fundamentally in conflict.
Wednesday, April 3, 2013
Could Stockton Bankrtupcy Case Threaten Proposition 13?
As the Stockton bankruptcy case moves into the next phase, two questions will loom large:
1. Does the City's plan of adjustment treat similarly situated creditors equitably?
2. Can Federal bankruptcy law invalidate state laws?
These are the headline issues because the bond insurers argue that pensions, protected by state law, should be adjusted in the City's bankruptcy.
CalPers made an interesting response to this argument in a recent op-ed in the Sacramento Bee titled "CalPers Protects State Constitution."
Update: I should note that I am not a lawyer, and just found this to be an interesting argument I have not seen elsewhere. This argument about invalidating Prop. 13 may be a good political argument, but a weak legal one. It could be that the federal bankruptcy law is limited in its scope to impairing contracts and would not have broader applicability. This case is going to get more interesting as it progresses.
1. Does the City's plan of adjustment treat similarly situated creditors equitably?
2. Can Federal bankruptcy law invalidate state laws?
These are the headline issues because the bond insurers argue that pensions, protected by state law, should be adjusted in the City's bankruptcy.
CalPers made an interesting response to this argument in a recent op-ed in the Sacramento Bee titled "CalPers Protects State Constitution."
In bankruptcy court, the bondholder creditors – and their insurers – are seeking to use the power of the federal government to invalidate this decision of the city. These creditors have argued that federal bankruptcy laws allow the court to ignore California law and to impose a type of "pension reform" on the city, against its will.
The legal dispute is not over the level of benefits provided to city workers; instead, it will turn on a much broader issue: the ability of the federal government to invalidate laws enacted by California that govern its cities, their pension plans and the pension benefits provided to public workers....
We also shouldn't ignore the inherent danger in accepting the arguments made by bondholders and their brethren insurers. If the bankruptcy court can invalidate state laws governing pensions, then why not other state laws? For example, why not Proposition 13? Of course, raising taxes would be in the interest of these creditors and they have argued that the city should be thrown out of bankruptcy court because it failed to increase taxes.I wonder if this foreshadows where CalPers will take the bankruptcy case if creditors are successful in their argument that pensions can be cut despite state law. Will CalPers make the argument that property taxes should be raised above Proposition 13 limitations if the City isn't constrained by state law in federal bankruptcy protection? Would the City itself even argue that it prefers property tax increases to pension cuts in this case?
Update: I should note that I am not a lawyer, and just found this to be an interesting argument I have not seen elsewhere. This argument about invalidating Prop. 13 may be a good political argument, but a weak legal one. It could be that the federal bankruptcy law is limited in its scope to impairing contracts and would not have broader applicability. This case is going to get more interesting as it progresses.
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