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

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

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

Rail boosters gave these effusive quotes for Tim Sheehan's article in the Fresno Bee:

“Today it takes three to four hours to drive from Fresno to the Silicon Valley,” [CA HSR Authority CEO Jeff] Morales said. “We’re talking about a rail connection of 45 minutes or so, and that’s a game changer for both economies, opening opportunities for people in the Central Valley and helping the Bay Area with its housing crisis.”

In the Bay Area, Silicon Valley Leadership Group executive director Carl Guardino was ecstatic about the new rail plan. “What excites us most is that this is a convergence of commute options all into downtown San Jose,” 

This all sounds really exciting, so I looked deeper in the business plan for more details on the length and cost of this commute.  According to the Ridership and Revenue Forecast, it is a 72 minute (not 45 minutes like Morales claimed) ride and a 1-way ticket would be $63 in 2015 dollars.  That's a long ride but people are making similar length train commutes to Silicon Valley on ACE and BART today.  However, nobody is paying that kind of cost for commuter rail.  ACE from the North San Joaquin Valley to Silicon Valley costs $20-$25 for a round trip, and a monthly pass is $300 to $350.  An hour long commute on BART is about $12 round trip.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Marketing Survey finds Stockton is Perceived More Positively In San Jose Than Sacramento

A recent survey confirmed something I have noticed through many anecdotal observations through my work across Northern California.

Stockton seems to have a worse reputation in Sacramento than the Bay Area.  My theory about this has been that Sacramento and Stockton share the same local TV market, so many Sacramento residents receive a steady diet of crime stories (with a side of political dysfunction) through local TV news that Bay Area residents do not see.  In contrast, commuting and migration patterns show stronger economic and social connections between Stockton and the Bay Area than Stockton and Sacramento.

Thus, Sacramento residents are more likely to generate their impression of the City through media, whereas San Jose residents are more likely to generate an impression through personal experience.  The marketing study, as reported by the Central Valley Business Journal in the following quote, appears to provide some objective data to support my anecdotes.

One area some local leaders found surprising was how much more positively Stockton is viewed among people in San Jose than in Sacramento.
When asked if they thought Stockton was improving, declining or staying the same, about 41 percent of people in San Jose said Stockton was improving, compared to just 14 percent of people in Sacramento.
People in San Jose were also more likely than those in Sacramento to recognize Stockton as a place that is affordable, diverse and beautiful.
The research also found that people in the Bay Area are more likely to visit Stockton to see family or friends. 

P.S.  This is not to say that Stockton is being treated unfairly by the local press.  The City certainly has had and still has many serious and newsworthy problems.  One could reasonably argue that the average Sacramento resident is better informed about Stockton than the average San Jose resident.  In fact, most of my media complaints related to Stockton have been about national media stories (i.e. city ranking lists with dubious statistical methods), not local.

New data shows large increase in commuter income for SJ County

BEA released new local area personal income data today for 2014.  San Joaquin County had an above average annual gain.  Looking at the breakdown among components and industries, the most notable item is a strong surge in net commuter income, called "adjustment for residence".  This is a negative adjustment for places like San Francisco with more jobs than workers, and a positive adjustment for places like SJ County.

Here is the graph for SJ County showing the large gains in 2013 and 2014.  A strong piece of evidence that the Bay Area's strong economy is starting to spill over the Altamont pass.

Digest Version of my Delta Tunnels Comments

Comments on the Delta Tunnels environmental documents are due today.  Here is a summary of my comments, which focus on two issues that severely bias the analysis in favor of the tunnels.

• The analysis is based on a project description that is widely known to be economically unviable due to its minimal water yields.  Because of the tunnels extreme cost, the intention to pay for the tunnels through steep increases to water rates, and the fact that the tunnels design capacity allows for much higher water exports; a complete project description must include a financial analysis that shows the proposed water yields are economically viable (especially for agricultural users).  The lack of such a financial analysis and plan in the face of well-known questions about economic viability mean that the project description is at best incomplete, and at worst making false statements about intended levels of water exports in order to gain environmental approval.  

• Obvious alternative actions to building the tunnels are ignored in both the No Action scenario and the Alternative Scenarios.  Many of these actions have been repeatedly recognized by both the state and water agencies as either viable alternatives or their planned actions if the tunnels are not built.  The result is a No Action scenario that is unreasonably pessimistic about water supply reliability and environmental conditions, and an unreasonably weak and narrow set of alternatives.  The four most obvious alternatives ignored in the RDEIR/SDEIS are:
• Investment in Delta Levees: Multiple assessments sponsored by the California Resources Agency have identified this as a viable, and in many aspects preferable, alternative to the Tunnels.  Its total exclusion from RDEIR/SDEIS alternatives is unjustified.
• Increased Delta Flows and Reduced Exports for Environmental Benefits: This is the No Action Scenario DWR uses in previous economic analysis, and continues to argue is their expected outcome without the tunnels use when questioned on costs.  But the RDEIR/SDEIS invalidly and inconsistently ignores higher flows in either the No Action scenario or alternative scenarios.  
• Increased Investment in Alternative Water Supplies such as recycling, conservation, storm water capture, and desalination:  Many water agencies have stated that they will increase investment in alternative water supplies in the absence of the tunnels.  In fact this strategy is in the official resource management plan of some of the agencies, and water agencies have put forward economic analysis that describes much of the benefit of the tunnels as avoiding these obvious alternatives.  Thus, it is inexcusable to exclude increased investment inalternative water supplies from the No Action and alternative scenarios.
• Move the Intakes Downstream to the West Delta:  This is another obvious alternative that is ignored in the analysis.  It would reduce environmental and socio-economic impacts in the Delta and potentially reduce costs to the water agencies by greatly shortening the lengths of the tunnels.  While there are advantages to water exporters of being further upstream, there is no valid reason to completely exclude a full analysis of moving the intakes downstream.   

How many commuters are there between Sacramento and the Bay Area?

Barry Broome has brought new energy to marketing Sacramento through the new Greater Sacramento organization, and a big part of his strategy appears to be aggressively targeting Bay Area firms.  His favorite factoid is that there are over 100,000 Sacramento commuters to the Bay Area, and 200,000 going back and forth between the two regions.  Since he started citing these figures months ago, I have received a number of inquiries asking if that number is correct.  The figure popped up in two more stories this week (here and here).

My answer is that it depends on how you define commuting.  The best estimate of the number of people physically commuting is about 1/3 of the figure Greater Sacramento is quoting, and the largest destination for these Sacramento commuters is Solano County - which may be the Bay Area but is not Silicon Valley.  As someone who spends a lot of time traveling between Sacramento, Stockton, and the Bay Area, I can attest from experience that the commuter traffic is much worse over the Altamont Pass to the North San Joaquin Valley than through Dixon to the Sacramento area.  The Census Bureau estimates of commuting patterns, known as CTTP and shown below, back up this personal experience on the highways.

But Greater Sacramento did not make up the number.  The 100,000 figure comes from a huge dataset, known as LEHD, and as shown in the figure below, it offers a much different perspective on worker interchange between regions.  LEHD is based on employer tax filings, matching the place of employment as recorded by employers to employees addresses.  In contrast to the Census data, LEHD shows more Sacramento area residents have paychecks originating from San Francisco, Alameda and Santa Clara than Solano Counties. Another interesting difference between LEHD and CTTP is that LEHD shows much larger flows in the "reverse commute" from the Bay Area inland to Sacramento and the North San Joaquin Valley.

While LEHD is in some ways a more detailed data set of economic connections, our Center has found it to have a lot of misleading information on work locations when trying to use it over the years and prefers the CTTP data, as do many transportation planners.  LEHD administrative records do not always match actual work sites, and it also includes telecommuters who work from home, as well as construction workers, sales reps and others whose work location is constantly changing. 

As a personal example, my wife works remotely for a North Carolina based consulting firm, but hasn't actually been to the administrative office in a decade.  She spends her day communicating with people in Florida, Seattle, and Pennsylvania about project sites located in New Jersey, Wisconsin, and Oklahoma.  According to LEHD, she "commutes" from the Sacramento area to the Raleigh, NC area, not 15 feet to the home office.  LEHD also shows me as a commuter from Sacramento to Stockton, but I mostly commute within the Sacramento area.  Most people that I know in the Sacramento area who work for Bay Area employers are in similar arrangement, they only go to the Bay Area a few times per month - and work remotely, travel to clients and sites in various locations, etc.  These people are economically connected to the Bay Area, even if they aren't physically moving between regions that much.  But these additional workers picked up by LEHD that are not included in CTTP are not necessarily a workforce that would prefer a Sacramento employer to shorten their commute as they are sometimes marketed by economic developers.  LEHD is a valid and interesting measure of economic connections, the flow of paychecks between regions, but it overestimates commuters.

Thus, I would recommend taking the 100,000+ commuter figure with a pinch of salt.  It is a count of Sacramento area residents receiving paychecks from Bay Area addresses.   However, I think Greater Sacramento's overall message to market in the Bay Area and talking about growing inter-regional connections and partnerships are correct.  I believe there is increasing recognition in the Bay Area that inland areas, both Sacramento and the North San Joaquin Valley, are going to have a larger role in the Bay Area's economic future - and that the relationship will be deeper than just commuters.  The Northern California Mega-region will be emerging in the coming years as a more integrated entity. 

Delta Stewardship Council Must Stop Ignoring the Delta Tunnels' Cost

At it's next meeting, the Delta Stewardship Council (DSC) will be considering four draft Principles for Water Conveyance in the Delta contained within a larger statement of principles on conveyance, storage and operations.  Considering that the proposed Delta Tunnels would be by far the most expensive water infrastructure project in California's history (construction costs currently estimated at $16 billion and rising), and cost is increasingly at the center of its controversy, it's pretty surprising to me that the DSC continues to ignore it.  The omission is particularly noticeable since the DSC does not hesitate to focus on cost for other, much less expensive, water infrastructure like storage and levees in the same document and meeting.

Here is my short summary of the 4 principles.

1. Enhance ecosystem and reliably export water when it is available (the DSC's co-equal goals).
2. Flexible to changing environmental conditions.
3. Increase resiliency to risks of flood and earthquakes.
4. Integrated with other projects, since tunnels alone don't do much for water supply.

No mention of costs, just a list of benefits.  And even this list of benefits is notably absent a valuation of these benefits relative to the costs of the conveyance improvement.  Does it make sense to reject a project that only achieves 3/4 of the principles even if it is 10% of the cost of a project that goes 4/4? After all, we are mostly talking about irrigation water - it's not life or death. 

Some state officials try to duck the cost issue by stating that it isn't their business and it is up to the water agencies to decide if they want to invest in the tunnels.  That argument naively assumes that there is no link between paying the Tunnels' mammoth costs and all of the other DSC goals that are explicitly their concern such as operations, reducing reliance on the Delta, ecosystems, water quality, investment in levee integrity, and more.

Here are some constructive suggestions for edits/additions to these principles.

Revised #4: Must have a finance plan that clearly demonstrates that the cost of improving conveyance will not adversely effect the ability of agencies to finance other integrated water management projects, including enhanced storage and projects that reduce reliance on the Delta.

#5: Must have a finance plan that does not increase the incentive to export more water from the Delta.  The plan must show that the project is cost-effective at levels of water exports that protect the Delta ecosystem. 

#6  Benefits beyond the co-equal goals (e.g. public safety, recreation, Delta as a place) are recognized and encouraged.

New Data Continues to Show Solid Growth in Farm Jobs in Early 2015 Despite Deepening Drought

The Bureau of Labor Statistics released Quarterly Census of Employment and Wages data today for the first 3 months of 2015.  As shown below, farm jobs are up about 10,000 (3%) from 2014, continuing a trend that began in 2010 despite the drought.

For a number of years, the largest growth in farm jobs has been in the winter months rather than the peak summer months.  It suggests there is some restructuring going on in the seasonal patterns of the labor market, probably caused by the increasing number of permanent crops.  It could also reflect a tighter labor market which makes employers (in all industries) less willing to layoff workers during slack times.  

An Encouraging Story for Downtown Stockton

One should never read too much into a single, relatively small event, but Roger Philips' story today about a San Francisco furniture designer moving from the Mission District to downtown Stockton is worth reading.

Everybody is so impressed with Silicon Valley that far-fetched hopes for the tech industry often dominate economic development talk.  But the best assets of Stockton, proximity to Bay Area markets with relatively low real estate costs, are not that important to tech industries who aren't sensitive to rents and sell to a global market.  The tech industry has moved up the peninsula to even more expensive San Francisco.  Much of the attraction is the art and cultural attractions of the City, and there is much concern in SF that the tech workers are damaging the City's cultural fabric as they drive rents into the stratosphere.

I have long thought Stockton should focus its economic development on artists (broadly defined to include craftspeople, musicians, etc.), since they are more likely to be attracted to what the city has to offer.  They are sensitive to rents, and value access to the Bay Area market but do not necessarily have to live and work there every day.  Stockton's history, diversity, and urban environment can also be a plus.

These type of moves don't bring the number of jobs or millions in investment of the big corporate projects typically targeted.  But they can make positive changes to the culture and identity of the city, and that will help attract higher-paying, higher-skill employers and workers down the road.

So are these designers the start of a wave or just a small blip?  I don't know, but Stockton's economic developers should do what they can to promote this scenario and build some momentum.

"Troglodytes" Defend the Governor's Delta Tunnels

Governor Brown has become an international leader on taking action to combat climate change, repeatedly calling business-funded opponents of such action "troglodytes."  Thus, I found it surprising that the chief sponsor and promoter of the most broadly ridiculed and discredited report opposing California's climate change policies was the author of the rebuttal of my recent op-ed criticizing the economic rationale of the tunnels.

The Small Business Association's infamous climate-change report predicted that implementing AB 32 would create an economic doomsday that would permanently erase 1.1 million jobs, and cause a 26% decline in discretionary spending by California households among other ridiculous findings.  The report is a prime example of why Governor Brown calls his climate change opponents "troglodytes", and it was universally and very publically blasted by academic experts, and even the LAO.

In this pro-tunnels Sac Bee op-ed, Ms. Toccoli, the long-serving President of the California Small Business Association, once again shows an inability to interpret an economic report, a lack of understanding of environmental projects/policies, and a taste for bogus, doomsday economic scenarios.

Here is a look at the 4 "facts" she uses to support the tunnels.

First, she dismisses the importance of the 50-year regulatory assurance from an ESA section 10 permit that is no longer in the plan.  Never mind the permit, she says without the tunnels we face

"a guaranteed future of diminishing water supplies if we fail to act. According to economist David Sunding, without a new conveyance system, if wildlife agencies impose continued or even greater flow restrictions to protect fish, we could lose more than 1 million acre-feet of water supply a year."

Read more here: http://www.sacbee.com/opinion/op-ed/soapbox/article31330550.html#storylink=cpy

Wrong.  Dr. Sunding's scenario was intended to capture the benefit to water exporters of the regulatory assurance from the BDCP's proposed 50-year permit that was the hoped for result of the combined conveyance and habitat restoration plan.  It does not stem from building the tunnels as she claims.  It's irrelevant now, because the revised Water Fix plan does not include this element.  The water exporters have no regulatory protection from an increase to flows that may be needed to protect fish, even if they build the tunnels.  It is well known that they are extremely concerned about this important change that Ms. Toccoli dismisses.

Second, and most importantly, she wildly overstates the earthquake risks and consequences, misrepresenting the protection offered by the tunnels a 100 times with some numbers taken out of context from an old report.  She concludes, 

"The total cost of disruption to our water system would cost the economy $30 billion to $40 billion over five years – more than twice the total construction costs of the pipelines."

Read more here: http://www.sacbee.com/opinion/op-ed/soapbox/article31330550.html#storylink=cpy

Wrong on multiple levels.  First, I will point out that the report she authoritatively cites in her first argument, estimated the cumulative avoided costs of the earthquake scenario at $400 million over 50 years, 1% of the value Ms. Toccoli uses.  And unlike regulatory assurance, the amount of earthquake protection is something that is unchanged between the 2013 BDCP proposal and the 2015 Water Fix.  That means Sunding's report is a current source for valuing earthquake protection, but outdated on water yield and regulatory protection.

Here is the source she is using to support her claim of $30-40 billion in costs.

Ms. Toccoli's $30-40 billion comes from the far right (72 month disruption) corner of the figure.  Unfortunately, she isn't alone in inaccurately throwing around outrageously inflated cost figures for the doomsday earthquake scenario. Specifically,

• She assumes a ridiculous 6 year disruption.  Even DWR says it would be "weeks or months" which is the far left corner of this graph where the costs in billions are low single-digits and hard to distinguish from zero in some cases.
• She assumes the tunnels protect from all of these costs.  In fact, DWR's documents show exports would still decline by about 50% with the tunnels in place, so the tunnels only protect against about half of these costs.
• She uses the top-line economic impacts, when the lower bottom set of lines, economic costs, are the appropriate measure to use for comparing to the cost of the tunnels.
• Her 68% probability of a catastrophic 20+ island flood over the next 25 years is inflated too, although it is often cited as the probability of a large quake in the Bay Area that could damage delta levees.

Rather than plucking numbers out of context from obscure reports that she does not appear to understand, I recommend using a common sense comparison to other water surface-water shortages.  In the unlikely event of a Delta-destroying earthquake flood, the tunnels would protect 50% of Delta exports for a period of weeks or months according to DWR.  That's a shortage of about 1 maf of surface water supplies, a significant shortage, but one that the state already has plenty of experience managing.  In fact, it's only about 10% of the loss of surface water supplies in the current drought, and the economy still grows robustly.  The disaster talk to water supplies sounds much scarier than the reality.  We should be more focused on water shortages from an extended drought (a scenario where the tunnels do little to help), and less afraid of water shortages from a Delta earthquake.

And like most tunnel proponents, Ms. Toccoli callously ignores the death and destruction in the Delta itself from the disaster scenario she is hyping for water exporters.  Seismic levee upgrades would actually offer more protection for water exports than the tunnels, and would save lives and other vital transportation, energy and water infrastructure that benefit her small business supporters.  Why keep pushing expensive and divisive tunnels instead of a lower-cost, win-win alternative?

Third, she makes a claim about wet year water exports that is mostly a repackaged version of the invalid first argument.  The wet year yields described in the EIR/EIS are not as large as she claims.  It is just a repeat of the argument that the tunnels benefit water exporters because they are hoped to stave off more environmentally-protective operating rules in the future.  As I have pointed out previously, this line of argument directly contradicts the EIR/EIS. 

Fourth, she makes an inaccurate comparison to the costs of alternatives.

A comparison of various alternatives shows the relative affordability of California WaterFix. The cost of water will be approximately $1,000 per acre-foot for Southern California and less than $500 per acre-foot for Central Valley farms. A recent recycled water project in San Francisco came in at more than $8,000 per acre-foot, while the Poseidon desalination plant in San Diego comes to more than $2,200 per acre-foot.

Read more here: http://www.sacbee.com/opinion/op-ed/soapbox/article31330550.html#storylink=cpy

Wrong again.  A consistent and correct comparison focuses on the incremental or marginal costs of alternative projects.  Ms. Toccoli's figure averages the cost of the tunnels across all 4.9 maf of expected exports after the tunnels are built, including spreading the costs over the roughly 4.7 maf that water exporters would receive anyway.

The San Diego desalination plant is 100% new water supply to the system, all 56,000 af of yield is an incremental new supply.  A valid comparison to the tunnels, only looks at the new incremental water yield that results, which is a little over 250,000 acre feet according to the EIR/EIS.  Veteran water economist Rodney Smith published a handy table that shows the cost of water from the tunnels under various assumptions of incremental water yield.  At the yields in the latest EIR, the tunnels water supplies are over $3,000 per acre foot.  Not only are the tunnels more expensive than desalination, their water supply is less reliable, lower quality, and hundreds of miles away from where it would be used.  Of course, the choice isn't really tunnels vs desal, but tunnels versus myriad alternatives including fixing leaking pipes, recycling, stormwater capture, groundwater clean-up, and conservation that the state has not come close to fully developing.  Desalination is the most expensive alternative, and used for comparison only to highlight the tunnels' extreme cost.

The article wraps up with the $5 per month ($60 per year) cost which it describes as "a pittance." That will only pay for Metropolitan Water District's 25% share, and is hardly a pittance to many households.  The tunnels will cost some irrigation districts hundreds of millions of dollars each year, and there are individual farming operations that could be on the hook for a million or more each year. The word pittance best describes the tunnels' contribution to the State's water supply, and its cost is best described as by far the most expensive and risky water supply investment in the State's history.

Ms. Toccoli is a savvy political player with a lengthy history of political advocacy which includes passing out coveted business endorsements to Democrats.  I don't know about her positions on other issues, and perhaps she is a positive factor in other discussions.  But her inaccurate forays into economic analysis of environmental issues have distorted serious policy debates, and are ultimately unhelpful to the small business interests her organization represents.

DWR Director contradicts the Environmental Impact Report that he just released, and other observations on the Sac Bee's article questioning whether farmers can/will pay for the delta tunnels

The Sunday Sacramento Bee had a front page story by Dale Kasler and Ryan Sabalow titled "Delta Tunnels: Farms weigh project risks."  It contained a lot of interesting quotes from farm leaders who receive water from the Delta and public officials.  In my view, the most important one was this from Department of Water Resources Director Mark Cowin:

"It's not a question of 'Do I want 5.2 (million acre feet) or 4.9?" Cowin said.  "It's a question of 'Do I want 4.9 or 3.5 or 3, or shut down the facilities altogether over time?'"

Really?  You just released the official Environmental Impact Statement that clearly describes the question as a choice of 4.7 - 5.3 million acre feet with the tunnels, and 4.7 million acre feet without the tunnels.  According to the EIS, the average expected water yield (increase to exports) with the tunnels is only 257,000 acre feet, and it is clear that the $15+ billion investment offers a terrible return on investment to water exporters in that case.

Cutting exports to 3.5 or 3 is the proposal of the most intense environmental activists, the "Responsible Exports Scenario" that they have been demanding be analyzed in the EIS/EIR and the Delta Plan for years.  The State has ignored them, and yet the DWR Director is making public statements that this is in fact the outcome if the Tunnels are not built - never mind what it says in their EIR/EIS.  Not even the most extreme environmentalists are asking to shut-down the facilities all together, and yet the DWR Director suggests it will happen if we don't build the tunnels.

Back when the Bay Delta Conservation Plan was seeking 50-year regulatory assurance, there was some justification for using an alternative no-tunnel baseline when evaluating the project's return on investment to water exporters (but not for statewide benefit-cost analysis as the regulatory assurance was not risk-reduction, it was risk-shifting from exporters to upstream users, taxpayers and the environment).  With the regulatory assurance now eliminated from the project, how can Cowin keep making this argument to the exporters?  As the article notes, many of them are unconvinced by the increasingly hard-to-believe sales pitch.

Director Cowin is in a bind.  The State must use a different no-tunnel scenario for its economic case than its environmental case, but it is this constantly changing story that causes immense distrust in both the agricultural and environmental community.  It is also going to cause major problems for the project when the EIR/EIS is litigated.  I suppose he has no other choice, as long as the Governor is still strongly pushing the delta tunnels.

The tunnels are simply a bad project.  A good project can get a passing grade using the same no-project baseline scenario for both environmental and economic analysis.  The dramatically shifting no-tunnel baseline violates basic principles of objective scientific and economic analysis, and contradicts the statements that the project is governed by the "best available science".  
-------

The rest of the Sac Bee article features quotes from the reporters' tour of the Central Valley asking various farm leaders about their willingness to pay for the tunnels.  Kasler and Sabelow summarize the responses as "The answer, so far, is a very qualified "yes."  That is an accurate description of their public statements, but there are good reasons to believe that their assessments and their statements are a lot more negative when there are no reporters in the room.  The reporters should stay on this story and dig deeper.

Finally, I was moved by this quote form Jim Beck, general manager of the Kern County Water Agency.

"Think about the magnitude of that decision for these farmers and their families.  It's the most significant decision most will make in their careers."

I honestly feel for these farmers.  They want action and have historically supported big water infrastructure.  But they have never had to finance anything close to this magnitude, and they are now under tremendous political pressure to support a project that is bad for them economically and will especially harm their kids and the next generation that is stuck with the bill.  

Like many others, I believe that the footprint of Central Valley agriculture will shrink by 10% or more in the coming decades due to dwindling supplies of ground and surface water.  But I am also optimistic, and think Valley agriculture will continue to grow more profitable overall even as it uses less land and water.  The tunnels will make Valley agriculture less profitable in a desperate attempt to stave-off a loss of acres.

At the EIR/EIS water yields, the tunnels will keep 60,000 marginal acres in production in the long-run. Is that worth $10 billion (the ag share of the tunnel bill)?  That's $160,000 an acre.  It doesn't make sense - even with $4 almonds.  Even if you use DWR's poorly justified, high-water yield scenarios, it is $30,000 an acre, and farmers are still better off fallowing the most marginal land.

Mortgage Delinquency Rates Approach Normal Levels in Stockton

According to CoreLogic, the percentage of mortgages 90-days or more delinquent in the Stockton area is now down to 2.24%, pretty close to historic normal rates of 2%.

Five years ago, 20% of mortgages were 90-days delinquent during the peak years of the foreclosure crisis.  At that time, some economists were talking about whether there could be a "squatter stimulus" in the local economy, meaning that some local households actually had more disposable income because they weren't paying for housing.  Those impacts were never large, but it is just remarkable how much the conversation has changed in five years.  It's not surprising, in fact its what we predicted.  But it still seems strange to be talking more about the lack of affordable housing than the foreclosure crisis.

While foreclosures and delinquencies recede to normal levels, it doesn't mean the impacts of the housing crisis are in the past just as Stockton's emergence from bankruptcy protection does not mean the city governments financial challenges are in the past.  Nevertheless, the latest data on foreclosures and delinquencies is a very welcome sign of progress.   

The Consequences of a Massive Earthquake-Induced Delta Flood

The tunnels' PR campaign and some state leaders, including Governor Brown, talk about the catastrophic delta flood scenario as if the only consequence is water exports.  Given that the direct devastation of such an event would be in the Delta itself, there are some serious economic and moral problems with this argument that should be raised given it is the main argument made for the controversial tunnels.

The source usually cited by tunnels advocates for the earthquake risk is the DRMS Phase I study which assessed flood risk and consequences in the Delta.  Its assessment of levee failure probabilities was highly controversial but I will ignore that debate here, and focus on the consequences analysis.  The report described the consequences as follows in the fourth sentence of its executive summary.

"Levee failures and the flooding that follows can cause fatalities, destruction of property and infrastructure, interruption of a large portion of California's water supply, environmental damage and statewide economic impacts."

The first thing it mentions is fatalities, the second is property and infrastructure destruction in the Delta, and the third is water supply.  The DRMS authors put that list in the proper order, as public safety is typically given the highest priority in risk-assessment and the DRMS analysis found that the economic loss to property and infrastructure exceeded the economic loss from interrupted water exports.  Here are the Figures from the reports' executive summary that outline the public safety and economic costs.

For comparison, Katrina killed over 1,800 people and caused hundreds of billions in economic losses.  The 1989 Loma Prieta earthquake in the Bay Area killed 62 people and caused over $6 billion in structure damage and more in total economic costs.  DRMS describes a horrific scenario that could be worse than Loma Prieta and smaller than Katrina, but with a similarly devastating mix of fatalities and economic costs.  However, the public discussion of the Delta scenario is driven by water exporters and focuses almost exclusively on economic losses, whereas discussion of these other events have focused much more on life loss and public safety.

In recent years, I have heard informally that subsequent modeling has shown that shut-down of the export pumps in this Delta flood scenario are more likely to be weeks or a few months, rather than years that are more often heard in the media.  DWR Director Mark Cowin has recently said weeks and months.  I am aware of this presentation to BDCP from a few years ago that supports weeks and months.

I am not aware of any more recent analysis of fatality risk.  Perhaps that would decline in a more recent assessments as well - especially if the levee failure probabilities have been reduced to account for the lower frequency of floods seen in the past decade and levee and emergency response improvements.  However, it should be noted that the fresh water inflows which reduce the length of water export outages in some cases could still be just as devastating to lives, property and infrastructure in the Delta.

In this recent Bee op-ed, my language on this issue was probably too strong, and I would have toned down my earthquake statement if I had known the Bee was going to use it as a call out subtitle.  But this earthquake, salt water, shut-down the pumps argument has once again become the principal case for the tunnels' made by many state political and business leaders.  If that is the main argument, then it needs to face more tough questions about its economic, technical and ethical merits.

Addendum, July 29:
I realize I failed to include a graphic that shows DRMS found water export interruption was only 20% of the cost.  It is tedious to tabulate this from the appendices, but it is relatively easy to derive from this table from DRMS Phase 2 report (taken from Table 18-2).

The table shows that these two types of costs it categorizes as "Statewide" (water export interupption and state highway damage) are only 38% of the total cost from the mass flood scenario, and that water exports is only 51.5% of this 38% share.  Thus, water export interruption is 19.6% of the total cost (.515*.38).

Additional thoughts and information regarding my Delta Tunnels op-ed in the Sunday Sacramento Bee

Today, the Sacramento Bee published an op-ed by me on the economic benefits and costs of the Delta Tunnels.  As always, word constraints limit what you can see in an op-ed.  This post expands and clarifies a few things.

Financing the Tunnels. The op-ed focuses on economic benefits and costs, and doesn't discuss some of the serious problems with financing the tunnels.  Without going into details, these are myriad and deserve a separate op-ed of their own.  Most notably, farmers would have to pay the majority of the tunnels' cost because they receive the majority of water exported from the Delta.  It is highly unlikely that the agricultural agencies can pay their share, meaning costs will have to be shifted to urban agencies or general taxpayers.  Even if the agencies could somehow make the payments in an average year, how would they do it in a drought when they are receiving no water from these tunnels?  The plan quotes costs on households in Southern California at $5 a month - that calculation is a few years old but assumes that farmers are paying as much as 75% of the Tunnels' cost.  That's not going to happen.  You can count on costs being shifted to urban ratepayers, local property taxes or general taxes because it simply won't fly any other way.

Water Supply:  I hope no one thinks I am advocating a bunch of desalination plants is the best alternative to the tunnels by choosing this comparison to a current, very high cost source.  And yes, I know that energy costs are high with desal, but the energy requirements aren't much different than pumping Delta water hundreds of miles and over mountains to LA and San Diego.

I also could have compared them to new reservoirs.  The much criticized Temperance Flat has a projected water yield of about 70,000 af for a capital cost of at least $2.5 billion.  Yes, even these dams have a better water yield bang for the buck than the Delta Tunnels, but nobody pretends that water users could pay for them.  In fact, there are serious financial viability questions about these Dams even if general taxpayers pay the majority of the costs through the Water Bond and various sources.

Finally, I could point to Rod Smith's old blog that calculated the cost per acre foot per water yield.  Without the regulatory assurance in the Tunnels plan, it is pretty clear that the estimated water yield is only 257,000 af.  Using Rod's handy table, you can see the water cost of the tunnels is about $3,000 af assuming no risk premium.  That's almost 50% more than desal, for less reliable supply.  And the cost is orders of magnitude higher than other alternatives like recycling, conservation, and stormwater capture, and is also orders of magnitude higher than what farmers could afford to pay (their profit per acre foot).

Seismic Risk:  The Mark Cowin comment about weeks and months, not years, was a direct quote from his prepared statement for a media call as transcribed by the remarkable Maven.  It would be nice if the Governor would be so careful in his remarks on this subject.  The fact that the outage would not be as long as claimed seems to be one of those things that "everyone knows".  But this isn't my area, so the only reference I have is this presentation from a BDCP meeting a few years ago that Bob Pyke conveniently posted for the benefit of people like me.  Previous BDCP analysis shows exports from the Tunnels would be about 3 maf per year if the south Delta pumps were disabled, so that would be the benefits to the water exporters in the very unlikely case an outage lasted a full year.  So the loss the State's surface water supply would be about 1/4 the current drought (more in some areas very dependent on Delta exports), but it is not something that would destroy the economy the way the Tunnel advocates rhetoric claims.  The current drought shows the State's economy can do just fine in the face of more severe shortages. 

The loss of life and only 20% of economic damage from loss of water exports comes from the State's DRMS studies.  You won't find it in the executive summary of those studies, you have to compile the data from their consequences analysis the way we did in the Economic Sustainability Plan.  That finding was thoroughly vetted.  It's also common sense.  The Delta is not urbanized, but there is a lot of important stuff out there - including inter-regional highways, gas wells and storage, pipelines, inter-regional power lines, farmland, and people's homes. If we need to reroute the water canals around the Delta due to flood risk, what about the highways and power infrastructure.  Rerouting and elevating these would cost billions more even if we could figure out a route.  Fixing the levees to protect everything together makes a lot more sense. 

And I haven't even mentioned public safety.  I am not one to make moral arguments, but I think this constant discussion of a Delta flood without even mentioning the catastrophic impacts in the Delta itself - including significant life loss - is disgraceful.

The value of regulatory assurance:  The Governor calls it a "technical change" but it is a very big deal to the economics.  Here is my very first post on the subject written when the BDCP rolled out the argument that regulatory assurance was the reason water agencies should pay tens of billions of dollars on a project with such minimal water yield.  One thing to note in the post is that all of the science experts I consulted on this theory at the time told me the regulatory assurance claim was fictional as it would never get regulatory approval.  It is now clear that my sources were right about that.

On the media call, Mark Cowin mentioned that they might have some new economic analysis coming out next month.  It will be interesting to see if they come up with anything new to find more benefits.  I don't think they can, and I expect people to be very skeptical of any new benefits that miraculously emerge at this late point in the process.