First American CoreLogic released its negative equity report today, and for the first time I can remember has published data for more than just the 50 biggest metro areas. That allows us to see how Valley metros are fairing, and the news (unsurprisingly) is not good. Here is the list for California metros with the % of all mortgages with negative equity (the U.S. avg. is 23%), and the rank among 165 largest U.S. metro areas. These rates will come down over time as foreclosures continue
1. Las Vegas, 72.8%
2. Stockton, 62.4%
3. Modesto, 59.6%
4. Vallejo-Fairfield, 57.9%
9. Bakersfield, 52.0%
12. Riverside-San Bernadino, 51.3%
16. Fresno, 46.8%
20. Visalia, 44.8%
26. Sacramento, 43.4%
27. Salinas, 41.6%
35. Oakland-Fremont, 32.4%
37. San Diego, 30.5%
41. Santa Rosa, 29.2%
43. Santa Barbara, 27.0%
50. Los Angeles - Long Beach, 25.3%
63. San Jose, 19.8%
64. Santa Cruz, 19.5%
71. Orange Cty, 18.1%
128. San Francisco, 9.5%
Most of the non-California areas in the Top 20 are Florida (and Phoenix and Reno). Merced isn't large enough to make the list, but you have to wonder if they would have challenged Vegas for the top spot. I am a little surprised by Los Angeles and Orange County, I thought they would have a littley higher negative equity, closer to San Diego's 30%.
A discussion of economic, business, and environmental issues of importance in the Central Valley.
Thursday, August 26, 2010
Monday, August 23, 2010
Sacramento Wastewater Report
Today, we released a study of the economic impact of of requiring total nutrient (primarily ammonia) removal from the Sacramento Wastewater Plant. SRCSD estimates the capital cost at $770 million, and it will take about $30 million per year to operate it, including a lot of electricity. Over a 30 year period from the start of construction, we find that the average annual economic impact on the Sacramento area will be a $94 million loss in income, and a decline of 390 jobs. The full report is posted on our website, http://forecast.pacific.edu/.
So, is this a lot? A $94 million income loss is a lot, about $65 to $70 per capita each year, but it is not an economic catastrophe. For comparison, Sacramento County's total personal income is about $50 billion, so this amounts to a total income loss of 0.2%.
Given the political debate, a more relevant comparison would be to the cost of the biological opinions on agriculture in the San Joaquin Valley. We will release an updated estimate of this loss in a few weeks that shows pretty clearly that the lost agricultural income from environmental restrictions on pumping is actually lower than the loss in income from removing ammonia from Sacramento wastewater. (The ag. cost is more concentrated on a smaller area, and does create more employment loss.)
Another current Sacramento comparison would be the 3 day per month state worker furlough program that is estimated to be reduce Sacramento incomes by $600 million per year. So, the effect of nutrient reduction would be about 1/6 the current furloughs, or like having 6 permanent furlough days per year (every other month) for state workers (of course, just like the agriculture example above, the effects of wastewater charges would be broadly distributed across households than furloughs).
Another way to think of it is a regressive tax increase. Unlike many utility bills (e.g. cable tv, phone, electricity), households are unable to reduce this cost by changing behavior or forgoing services. I am sure many households are willing and able to pay another $120 to $180 per year on their wastewater bill to help the Delta. Lower income households (and over half of Sacramento households have incomes below $50,000) will find it a tough burden, and likely have a different opinion.
So should Sacramento be required to incur the cost for more advanced treatment? I don't know. That depends on the environmental benefits, and the emerging science in this area. Cost is only one part of the decision.
So, is this a lot? A $94 million income loss is a lot, about $65 to $70 per capita each year, but it is not an economic catastrophe. For comparison, Sacramento County's total personal income is about $50 billion, so this amounts to a total income loss of 0.2%.
Given the political debate, a more relevant comparison would be to the cost of the biological opinions on agriculture in the San Joaquin Valley. We will release an updated estimate of this loss in a few weeks that shows pretty clearly that the lost agricultural income from environmental restrictions on pumping is actually lower than the loss in income from removing ammonia from Sacramento wastewater. (The ag. cost is more concentrated on a smaller area, and does create more employment loss.)
Another current Sacramento comparison would be the 3 day per month state worker furlough program that is estimated to be reduce Sacramento incomes by $600 million per year. So, the effect of nutrient reduction would be about 1/6 the current furloughs, or like having 6 permanent furlough days per year (every other month) for state workers (of course, just like the agriculture example above, the effects of wastewater charges would be broadly distributed across households than furloughs).
Another way to think of it is a regressive tax increase. Unlike many utility bills (e.g. cable tv, phone, electricity), households are unable to reduce this cost by changing behavior or forgoing services. I am sure many households are willing and able to pay another $120 to $180 per year on their wastewater bill to help the Delta. Lower income households (and over half of Sacramento households have incomes below $50,000) will find it a tough burden, and likely have a different opinion.
So should Sacramento be required to incur the cost for more advanced treatment? I don't know. That depends on the environmental benefits, and the emerging science in this area. Cost is only one part of the decision.
Friday, August 20, 2010
Unemployment Friday
The California unemployment rate holds steady at a miserable 12.3%. That's not a surprise. We expect it to stay 12% or higher for the remainder of this year, before declining in 2011.
Payroll jobs declined by 9,400, mostly due to Census lay-offs. Taking out government losses, private payrolls inched up by 13,700, continuing a pattern of painfully slow private job growth. For the past year, our forecast has been that private job growth would start picking up now, and we would see monthly private sector job gains of about 25,000 in the 3rd quarter. Given the recent string of weaker than expected economic reports at the national level, I expected this to come in much lower than our forecast (which we will be revising down next month).
The metro areas are hard to read this month, because they are all dominated by a loss in local government jobs. Local government jobs include schools, and they always decline a lot now due to summer break, not to mention the new fiscal year affects for local governments. So, there is a lot of noise in this data, and it will be hard to get a good feel for the depth of this effect until Sept/Oct. On the more postive side, construction job loss seems to have bottomed out now in most areas, although we have yet to see growth.
Taking a longer view, 6-12 mos., the best performing metro areas are clearly Orange County (hospitality rebounding well, as is health care and professional services), San Jose (computers, tech rebounding well), followed by San Diego and LA. Inland areas are lagging badly, and SF and the East Bay have not had a great year either.
I will be looking at this data and the outlook a lot in September/October, and will have more to say about it this fall. Turning my focus back to water for the next 2 weeks.
Payroll jobs declined by 9,400, mostly due to Census lay-offs. Taking out government losses, private payrolls inched up by 13,700, continuing a pattern of painfully slow private job growth. For the past year, our forecast has been that private job growth would start picking up now, and we would see monthly private sector job gains of about 25,000 in the 3rd quarter. Given the recent string of weaker than expected economic reports at the national level, I expected this to come in much lower than our forecast (which we will be revising down next month).
The metro areas are hard to read this month, because they are all dominated by a loss in local government jobs. Local government jobs include schools, and they always decline a lot now due to summer break, not to mention the new fiscal year affects for local governments. So, there is a lot of noise in this data, and it will be hard to get a good feel for the depth of this effect until Sept/Oct. On the more postive side, construction job loss seems to have bottomed out now in most areas, although we have yet to see growth.
Taking a longer view, 6-12 mos., the best performing metro areas are clearly Orange County (hospitality rebounding well, as is health care and professional services), San Jose (computers, tech rebounding well), followed by San Diego and LA. Inland areas are lagging badly, and SF and the East Bay have not had a great year either.
I will be looking at this data and the outlook a lot in September/October, and will have more to say about it this fall. Turning my focus back to water for the next 2 weeks.
Tuesday, August 17, 2010
Cardoza fired up over foreclosures
I am happy to see Dennis Cardoza being so critical of the Obama administration about foreclosures. Here is a link to his op-ed in the Fresno Bee, and he also wrote a letter to the President among other actions (including proposing to slash the HUD travel budget). I won't comment on his political tactics or specific proposals, but the first step is to move the issue to the top of the agenda.
As I have pointed out repeatedly, Obama's efforts on foreclosure mitigation have been the weakest part of his economic recovery agenda since the beginning.
I have given Valley Congressional Reps a hard time about expressing so much outrage over water when the foreclosure mess is at least 10x more important to their economic woes. That was the point of the Fish or Foreclosure report we published about a year ago. So, I am glad to see Rep. Cardoza getting more vocal (to his credit he has paid more attention to this issue than his colleagues since the beginning) on this issue, and would like to see some of his neighboring reps. co-signing these letters.
As I have pointed out repeatedly, Obama's efforts on foreclosure mitigation have been the weakest part of his economic recovery agenda since the beginning.
I have given Valley Congressional Reps a hard time about expressing so much outrage over water when the foreclosure mess is at least 10x more important to their economic woes. That was the point of the Fish or Foreclosure report we published about a year ago. So, I am glad to see Rep. Cardoza getting more vocal (to his credit he has paid more attention to this issue than his colleagues since the beginning) on this issue, and would like to see some of his neighboring reps. co-signing these letters.
Sunday, August 15, 2010
Democrats' State Budget Proposal
While I was away, the Democrats finally made a budget proposal. There is a lot to it, and I haven't been able to analyze it in detail. Here are my preliminary thoughts on a few parts of the proposal.
1. "Tax Swap": The proposal to increase income tax rates and decrease the sales tax is the headline, but it is not much of a budget solution. They also propose a sizable increase to the VLF (vehicle license fee), and that is what generates the net tax increase. I support the income-sales tax swap, and I am less enthusiastic about the VLF increase, but there may be no better alternative here. As the Democrats emphasize, both the income tax and VLF have the advantage of being deductible from federal income taxes, but they have been overplaying the size of the federal subsidy. (Sales taxes may not get the federal subsidy, but they are subsidized by visitor spending, and there is a macro case to be made for taxing consumption instead of income).
As I have pointed out in other posts, I would rather see the income/sales tax swap made with local governments, as I think the local government dependence on sales tax creates a lot of negative incentives to subsidize retail and encourage sprawl.
2. Assume the rosier LAO revenue forecast, a $1.4 billion solution. I think this is unwise, the number comes from the LAOs May analysis of the Governor's proposed budget. This came right as some a brief blip of positive economic data in April/May increased optimisim about the economy (remember Dow 11,000!), and most of the data in the past 3 months has been less positive.
Both the LAO and our Center are part of about 8 California forecasts compiled and compared by Arizona State. Last I checked (about 6 weeks ago), LAO had the most optimistic forecast (we were the 2nd or 3rd most optmistic). I really respect the LAO analysts, but I suspect that they, like most forecasters, have revised down their outlook since May. I think the older DOF revenue estimates in the Governor's budget are more realistic at this point.
3. Federal Government Assistance, $4.1 billion. Even with the recent $26 billion boost in federal funding for education/health, there is unlikely to be more than $3 billion coming from Washington.
Bottom Line: Although there are aspects to the proposal that I like, I think the Democrat's proposal is $3 billion or more short of being balanced even if they get their revenue additions passed with the Governor's signature. Deeper cuts will be needed, and we may not have a budget until after the election.
1. "Tax Swap": The proposal to increase income tax rates and decrease the sales tax is the headline, but it is not much of a budget solution. They also propose a sizable increase to the VLF (vehicle license fee), and that is what generates the net tax increase. I support the income-sales tax swap, and I am less enthusiastic about the VLF increase, but there may be no better alternative here. As the Democrats emphasize, both the income tax and VLF have the advantage of being deductible from federal income taxes, but they have been overplaying the size of the federal subsidy. (Sales taxes may not get the federal subsidy, but they are subsidized by visitor spending, and there is a macro case to be made for taxing consumption instead of income).
As I have pointed out in other posts, I would rather see the income/sales tax swap made with local governments, as I think the local government dependence on sales tax creates a lot of negative incentives to subsidize retail and encourage sprawl.
2. Assume the rosier LAO revenue forecast, a $1.4 billion solution. I think this is unwise, the number comes from the LAOs May analysis of the Governor's proposed budget. This came right as some a brief blip of positive economic data in April/May increased optimisim about the economy (remember Dow 11,000!), and most of the data in the past 3 months has been less positive.
Both the LAO and our Center are part of about 8 California forecasts compiled and compared by Arizona State. Last I checked (about 6 weeks ago), LAO had the most optimistic forecast (we were the 2nd or 3rd most optmistic). I really respect the LAO analysts, but I suspect that they, like most forecasters, have revised down their outlook since May. I think the older DOF revenue estimates in the Governor's budget are more realistic at this point.
3. Federal Government Assistance, $4.1 billion. Even with the recent $26 billion boost in federal funding for education/health, there is unlikely to be more than $3 billion coming from Washington.
Bottom Line: Although there are aspects to the proposal that I like, I think the Democrat's proposal is $3 billion or more short of being balanced even if they get their revenue additions passed with the Governor's signature. Deeper cuts will be needed, and we may not have a budget until after the election.
Thursday, August 5, 2010
On Vacation
I will be on vacation until August 16, so no new posts for a while.
Unfortunately, I am confident there will still be no state budget, continuing water wars, high unemployment, and a foreclosure crisis when I return. It seems there are a few bits of better news starting to appear, but perhaps my spirits are being lifted by vacation.
Unfortunately, I am confident there will still be no state budget, continuing water wars, high unemployment, and a foreclosure crisis when I return. It seems there are a few bits of better news starting to appear, but perhaps my spirits are being lifted by vacation.
Thursday, July 29, 2010
Governor Vetoes Farm Worker Overtime Bill
Sen. Florez is right, the differential labor laws for agriculture are discrimination, and it is a shame that the Governor turned down this opportunity to right a historic injustice.
Echoing the farm bureau's position, the Governor says the veto is justified because agriculture is "different." However, the biggest difference in agriculture labor from other industries is its history of poverty and exploitation, not the characteristics cited here as excuses not to modernize the industry. Seasonality, weather, thin profit margins describe many industries, some more than farming which has faired relatively well in the recession.
The Governor touts the importance of leadership when he wants California to go beyond other states in cutting greenhouse gases, but when it comes to farm worker rights, he hides behind the fact that other states exempt agriculture from labor rules. He should adopt his global warming attitude on this issue, position California as a leader, and as the state with the most labor-intensive agriculture industry we can clearly lead the way in securing equal rights for farm workers in the entire United States.
Yes, I am a mainstream economist, and I agree that this bill will do more than just take money from the pockets of farm owners and put it in the pockets of farm workers. There will be side-effects such as adjustments to work schedules, incentives for mechanization and other efforts to reduce the increased labor costs created by the bill. However, some of these side-effects are actually good for the Valley Economy in the long-run and do not overly concern me.
If this is too costly and burdensome for agricultural businesses, then California labor laws are too costly and burdensome for all businesses. Once standards are aligned, farmers are free to work with other businesses for relief from the rules.
See a post from a few weeks ago for more comments.
Echoing the farm bureau's position, the Governor says the veto is justified because agriculture is "different." However, the biggest difference in agriculture labor from other industries is its history of poverty and exploitation, not the characteristics cited here as excuses not to modernize the industry. Seasonality, weather, thin profit margins describe many industries, some more than farming which has faired relatively well in the recession.
The Governor touts the importance of leadership when he wants California to go beyond other states in cutting greenhouse gases, but when it comes to farm worker rights, he hides behind the fact that other states exempt agriculture from labor rules. He should adopt his global warming attitude on this issue, position California as a leader, and as the state with the most labor-intensive agriculture industry we can clearly lead the way in securing equal rights for farm workers in the entire United States.
Yes, I am a mainstream economist, and I agree that this bill will do more than just take money from the pockets of farm owners and put it in the pockets of farm workers. There will be side-effects such as adjustments to work schedules, incentives for mechanization and other efforts to reduce the increased labor costs created by the bill. However, some of these side-effects are actually good for the Valley Economy in the long-run and do not overly concern me.
If this is too costly and burdensome for agricultural businesses, then California labor laws are too costly and burdensome for all businesses. Once standards are aligned, farmers are free to work with other businesses for relief from the rules.
See a post from a few weeks ago for more comments.
Tuesday, July 20, 2010
The Cost of AB 32 vs Delta Levee Failure
Quiz: Choose the smaller amount of money?
A. $4 billion to $34 billion
B. $0 to $1.6 billion
If you answered that A is a smaller number, Congratulations! You can get a job analyzing environmental policy for the state of California. If you answered B is lower, you might be pretty upset since A is clearly 20 times larger. But in California environmental policy, the amount of costs don't matter, it is the issue.
If we are talking about global warming, any cost to reduce greenhouse gases is modest and small.
If we are talking about water supply, any disruption has catastrophic costs.
An open letter from economists released yesterday calls the cost of AB 32 on California "modest." The Air Resources Board has also called the cost small. So what is small? According to the ARBs latest analysis that most economists think is the best standard, the annual cost in 2020 will range between $4 billion and $34 billion.
What about the scenario of the Delta earthquake that floods 30 islands, etc? We are always told that this would be catastrophic for the California economy, a "$40 billion disaster." According to the analysis from URS corporation done for the Department of Water Resources (look at figure 6a if you want 1 picture), the range of expected 25 year cumulative costs is between $0 and $40 billion. The midpoint (50% exceedance probability) looks to be $15 billion cumulative over 25 years. On an annual basis, the midpoint is $0.6 billion with a range from $0 to $1.6 billion.
Obviously, it isn't a perfect comparison, one event is the estimated cost of doing something (AB 32), whereas the other is the estimated cost if we do nothing in the Delta. There are other key differences too.
Still, the differences between the adjectives that are used is very revealing. AB 32 is small and modest, whereas not "fixing" the Delta in the way preferred by water exporters will cause "catastrophe", the economy to "run dry", and cut off the economys "lifeblood."
(last sentence deleted due to error. ARB/AB 32 is not funded by the state General Fund)
A. $4 billion to $34 billion
B. $0 to $1.6 billion
If you answered that A is a smaller number, Congratulations! You can get a job analyzing environmental policy for the state of California. If you answered B is lower, you might be pretty upset since A is clearly 20 times larger. But in California environmental policy, the amount of costs don't matter, it is the issue.
If we are talking about global warming, any cost to reduce greenhouse gases is modest and small.
If we are talking about water supply, any disruption has catastrophic costs.
An open letter from economists released yesterday calls the cost of AB 32 on California "modest." The Air Resources Board has also called the cost small. So what is small? According to the ARBs latest analysis that most economists think is the best standard, the annual cost in 2020 will range between $4 billion and $34 billion.
What about the scenario of the Delta earthquake that floods 30 islands, etc? We are always told that this would be catastrophic for the California economy, a "$40 billion disaster." According to the analysis from URS corporation done for the Department of Water Resources (look at figure 6a if you want 1 picture), the range of expected 25 year cumulative costs is between $0 and $40 billion. The midpoint (50% exceedance probability) looks to be $15 billion cumulative over 25 years. On an annual basis, the midpoint is $0.6 billion with a range from $0 to $1.6 billion.
Obviously, it isn't a perfect comparison, one event is the estimated cost of doing something (AB 32), whereas the other is the estimated cost if we do nothing in the Delta. There are other key differences too.
Still, the differences between the adjectives that are used is very revealing. AB 32 is small and modest, whereas not "fixing" the Delta in the way preferred by water exporters will cause "catastrophe", the economy to "run dry", and cut off the economys "lifeblood."
(last sentence deleted due to error. ARB/AB 32 is not funded by the state General Fund)
Thursday, July 15, 2010
Department of Water Resources Says Economic Impact Study Costs $450,000
Is this a joke? From a Hanford Sentinel article on Juan Arambula's (now co-sponsored by Fran Pavley) bill regarding the sale of agricultural surface water to cities outside the San Joaquin Valley.
I am truly stunned by this $450,000 annual cost for economic impact studies of a very small number of proposed transfers. If this kind of work really paid that well, I would have a house in Aspen. Seriously.
The irony is that the water exporters would actually like to use my assessments of water supply economic impacts in this case. My estimates of water shortage economic impacts have tended to be lower than their estimates and therefore would be more supportive of water transfers.
I suspect the truth is that DWR doesn't want the bill to pass and doesn't want to do te analysis, so they made up some crazy cost figures to give legislators an excuse to oppose it. Of course, DWR has been incurring the cost to assess the economic impact of the drought, and update it every month for their drought updates. If they can't bear the cost of assessing Vidovich's "man made drought", then they should immediately stop assessing the impacts of the current drought since it is too costly. [As a side note, I find it interesting that DWR is now doing the economic impact estimates themselves now rather than quoting the UC-Davis estimates or citing joint modeling projects with UC-Davis as in their previous updates.]
Update: 7/18
The Fresno Bee ran a story on this bill today as well. It appears that the sellers are required to pay for the economic assessment, not DWR. Still, their cost assessment is odd.
Assemblyman Danny Gilmore, R-Hanford, was one who didn't jump on the bandwagon. Gilmore said he sympathized with Arambula. But Gilmore didn't support the cost of putting the bill into action during a state budget crisis. The state Department of Water Resources estimated it would cost $2.3 million a year to oversee the groundwater monitoring and another $450,000 annually to do the economic impact studies.I can't comment on the groundwater monitoring, but I would bid about $15,000 for our Center to do the economic impact work, and I know consultants who would do it for $3,000 to $5,000. Heck, I'll do it for free just because I would like to see this bill pass. Clearly, Arambula's bill reveals true motives even more than I initially realized.
I am truly stunned by this $450,000 annual cost for economic impact studies of a very small number of proposed transfers. If this kind of work really paid that well, I would have a house in Aspen. Seriously.
The irony is that the water exporters would actually like to use my assessments of water supply economic impacts in this case. My estimates of water shortage economic impacts have tended to be lower than their estimates and therefore would be more supportive of water transfers.
I suspect the truth is that DWR doesn't want the bill to pass and doesn't want to do te analysis, so they made up some crazy cost figures to give legislators an excuse to oppose it. Of course, DWR has been incurring the cost to assess the economic impact of the drought, and update it every month for their drought updates. If they can't bear the cost of assessing Vidovich's "man made drought", then they should immediately stop assessing the impacts of the current drought since it is too costly. [As a side note, I find it interesting that DWR is now doing the economic impact estimates themselves now rather than quoting the UC-Davis estimates or citing joint modeling projects with UC-Davis as in their previous updates.]
Update: 7/18
The Fresno Bee ran a story on this bill today as well. It appears that the sellers are required to pay for the economic assessment, not DWR. Still, their cost assessment is odd.
Assembly Bill 2776 requires water users wishing to make long-term transfers of surface water to pay for an evaluation detailing the economic, social and environmental effects of the sale. Also, users would not be allowed to replace the water with ground water unless the underground basin is strictly monitored.
New Forecast Released
We released our most recent economic forecast today. Click here for more information, including how to subscribe!
The Highlights of the California outlook are below. It has not changed much over the past year. I'll discuss the metro areas tomorrow when the EDD releases new data tomorrow - yes, tomorrow is unemployment Friday!
Highlights of the July 2010 California Forecast
• California remains in the sluggish, early stages of a long, slow five year recovery.
• California unemployment peaked at 12.6% in the first quarter of 2010, and will remain at or above 12% through the end of 2010, and above 10% through all of 2011.
• Payroll jobs bottomed out this winter nearly 1.35 million jobs below their 15.2 million job peak in Summer 2007. Although California will add 250,000 jobs over the next 12 months, this is less than one-fifth the total lost. Jobs will not recover their pre-recession peak until the 1st quarter of 2015.
• After 7.5 years of zero net job growth from 2007 through 2014, the state’s population will have grown by over 2.4 million people, keeping unemployment above 8% through most of 2014.
• Growth in real gross state product will average a modest 3.1% over the next four years.
• Construction has lost 390,000 jobs, by far the most battered sector through the recession, and will lose another 10,000 jobs by year-end. This cyclical sector will eventually bounce back, and should experience almost 11% job growth during 2012 and 2013.
• With the NUMMI closure in the past, manufacturing is growing again. Next year could bring the first annual increase in California manufacturing employment in a decade.
• Retail jobs have bottomed out after declining more than 10%, and are projected to rebound by 47,000 jobs (3%) over the next 12 to 18 months.
• Professional and Scientific Service jobs are projected to increase by 55,000 (5.5%) over the next year after a steep decline in 2009.
• State and local governments, including public schools, will drive most remaining job loss and shed 36,000 jobs over the next year.
• Housing starts bottomed in 2009 at a record low 36,000 units. Although housing starts will recover to 45,000 units in 2010, this is still the 2nd lowest level in 50 years. By 2014, housing starts will be back to normal levels exceeding 150,000 units as foreclosures finally ebb and existing home prices recover to close the gap with construction costs.
• Retail sales are growing again, but will not recover their 2007 level until 2011.
The Highlights of the California outlook are below. It has not changed much over the past year. I'll discuss the metro areas tomorrow when the EDD releases new data tomorrow - yes, tomorrow is unemployment Friday!
Highlights of the July 2010 California Forecast
• California remains in the sluggish, early stages of a long, slow five year recovery.
• California unemployment peaked at 12.6% in the first quarter of 2010, and will remain at or above 12% through the end of 2010, and above 10% through all of 2011.
• Payroll jobs bottomed out this winter nearly 1.35 million jobs below their 15.2 million job peak in Summer 2007. Although California will add 250,000 jobs over the next 12 months, this is less than one-fifth the total lost. Jobs will not recover their pre-recession peak until the 1st quarter of 2015.
• After 7.5 years of zero net job growth from 2007 through 2014, the state’s population will have grown by over 2.4 million people, keeping unemployment above 8% through most of 2014.
• Growth in real gross state product will average a modest 3.1% over the next four years.
• Construction has lost 390,000 jobs, by far the most battered sector through the recession, and will lose another 10,000 jobs by year-end. This cyclical sector will eventually bounce back, and should experience almost 11% job growth during 2012 and 2013.
• With the NUMMI closure in the past, manufacturing is growing again. Next year could bring the first annual increase in California manufacturing employment in a decade.
• Retail jobs have bottomed out after declining more than 10%, and are projected to rebound by 47,000 jobs (3%) over the next 12 to 18 months.
• Professional and Scientific Service jobs are projected to increase by 55,000 (5.5%) over the next year after a steep decline in 2009.
• State and local governments, including public schools, will drive most remaining job loss and shed 36,000 jobs over the next year.
• Housing starts bottomed in 2009 at a record low 36,000 units. Although housing starts will recover to 45,000 units in 2010, this is still the 2nd lowest level in 50 years. By 2014, housing starts will be back to normal levels exceeding 150,000 units as foreclosures finally ebb and existing home prices recover to close the gap with construction costs.
• Retail sales are growing again, but will not recover their 2007 level until 2011.
Wednesday, July 7, 2010
Farm Worker Overtime Bill Goes to Governor
It will be very interesting to see whether Governor Schwarzenneger signs SB1121, a bill that would apply the same overtime rules to farm workers that apply to other workers in California. Except for agriculture, California law requires 1.5x regular pay for hours beyond 8 in a day, and 40 in a week. In agriculture, overtime does not apply until 10 hours in a day, and 60 in a week.
Opponents argue that the bill will hurt farm workers, because employers will reduce hours (using larger crews) to avoid paying overtime. I have no doubt that some of this will occur, especially when there is a lot of unemployed labor like there is now, but I don't think that farmers will be able to or want to completely avoid overtime. Thus, the law will increase the total income and reduce poverty in farm workers in the Valley, and will decrease the net income of farms in the Valley. This will be true in total, even if some workers experience a reduction in hours and income and farmers make adjustments to minimize the cost of the law.
The change will probably accelerate the current trends toward less labor intensive production through mechanization, crop choice, advanced irrigation, etc. But this change will not occur overnight, it will occur over years and decades. It will reduce agricultural jobs, but it should increase average wages either through overtime pay or by increasing the productivity of workers in higher-skill, more capital intensive positions. In the long-run, the Valley Economy will be better off if the wage level and quality of agricultural jobs increase, even if the number of farm jobs decreases as a result.
I have listened to the agriculture industry's arguments of why they are different and should be exempted, and I find it unconvincing. Lots of industries have these same characteristics of seasonality, competition from cheaper states/countries, and are family owned businesses with thin profit margins.
I appreciate the economic argument that minimum wage, overtime and other labor regulations can reduce jobs and increase unemployment, although the argument is often over-simplified and exagerrated. It is true that you can't legislate higher average incomes and regional prosperity, and too much government redistribution can reduce total income and prosperity.
There is a case to be made for California to be more like other states and loosen up it's labor-friendly employment regulations, but if it does, it should do so for all industries. Why not reduce overtime rules for industries with higher base pay or have a sliding scale? Shouldn't we be more worried about the international competitiveness of high-wage industries that aren't tied to the land? I can think of other industries and occupations that might have a better argument for exemptions from minimum wage and overtime rules than agriculture.
Although I certainly see the potential downsides, I am in favor of the farmworker overtime bill and hope the Governor signs it. My support is primarily based on equity, and I think it will encourage some long-run changes in the industry and culture that are good for the Valley economy.
If California farmers feel this puts them at a competitive disadvantage with other states, I recommend that they lobby to remove agricultural exemptions at the federal level. If they feel that it makes them less competitive with other countries and increases the costs of business too high, then I recommend they join with other business interests in California and lobby to change state law for all industries.
Opponents argue that the bill will hurt farm workers, because employers will reduce hours (using larger crews) to avoid paying overtime. I have no doubt that some of this will occur, especially when there is a lot of unemployed labor like there is now, but I don't think that farmers will be able to or want to completely avoid overtime. Thus, the law will increase the total income and reduce poverty in farm workers in the Valley, and will decrease the net income of farms in the Valley. This will be true in total, even if some workers experience a reduction in hours and income and farmers make adjustments to minimize the cost of the law.
The change will probably accelerate the current trends toward less labor intensive production through mechanization, crop choice, advanced irrigation, etc. But this change will not occur overnight, it will occur over years and decades. It will reduce agricultural jobs, but it should increase average wages either through overtime pay or by increasing the productivity of workers in higher-skill, more capital intensive positions. In the long-run, the Valley Economy will be better off if the wage level and quality of agricultural jobs increase, even if the number of farm jobs decreases as a result.
I have listened to the agriculture industry's arguments of why they are different and should be exempted, and I find it unconvincing. Lots of industries have these same characteristics of seasonality, competition from cheaper states/countries, and are family owned businesses with thin profit margins.
I appreciate the economic argument that minimum wage, overtime and other labor regulations can reduce jobs and increase unemployment, although the argument is often over-simplified and exagerrated. It is true that you can't legislate higher average incomes and regional prosperity, and too much government redistribution can reduce total income and prosperity.
There is a case to be made for California to be more like other states and loosen up it's labor-friendly employment regulations, but if it does, it should do so for all industries. Why not reduce overtime rules for industries with higher base pay or have a sliding scale? Shouldn't we be more worried about the international competitiveness of high-wage industries that aren't tied to the land? I can think of other industries and occupations that might have a better argument for exemptions from minimum wage and overtime rules than agriculture.
Although I certainly see the potential downsides, I am in favor of the farmworker overtime bill and hope the Governor signs it. My support is primarily based on equity, and I think it will encourage some long-run changes in the industry and culture that are good for the Valley economy.
If California farmers feel this puts them at a competitive disadvantage with other states, I recommend that they lobby to remove agricultural exemptions at the federal level. If they feel that it makes them less competitive with other countries and increases the costs of business too high, then I recommend they join with other business interests in California and lobby to change state law for all industries.
Saturday, July 3, 2010
Millions and Billions and Carly Fiorina
Mike Taugher quoted me in a story in the CC Times/Oakland Tribune about Carly Fiorina trying to put the Delta Smelt and jobs at the forefront of her Senate campaign.
I am glad that Mike wrote this article, and hope it gets her to be a little more responsible with the rhetoric. In fact, I don't have an issue with any of Fiorina's statements in this article, she is more responsible when a reporter is asking tough questions and questioning her facts. She is right that the ESA has indeed created a thicket of regulations, and it does have real economic costs, but it has benefits too and is nowhere near a top economic problem. In the case of the smelt and salmon biological opinions, there is a salmon fishery among other economic interests that benefit from reduced pumping, so it isn't even clear that California suffers any net economic loss at all.
Fiorina's website on the issues doesn't even mention the housing and foreclosure crisis at all, while exagerrating the impact of the Delta Smelt as Taugher's article points out. That's inexcusable for someone running on the economy and jobs, it's very negative for the Central Valley (of which Westlands is just a corner), and that is why I have written so much about this issue.
If there is a Senate debate about the Central Valley economy, housing should receive 10 times the emphasis of the biological opinions. If moderating a Central Valley economic discussion, I would also give education, workforce skills, the struggle to diversify the economic base, raising agricultural wages, immigration, and even AB 32 - equal or higher billing than the biological opinions.
An ex-HP CEO should know the difference between millions and billions.I should be careful about being too clever with these comments, but my point is that we need to put the problems of the Central Valley economy in proper perspective. The foreclosure crisis has generated many billions in lost income and wealth in the Central Valley, and the drought impact is measured in millions, and the biological opinion is only a fraction of that.
I am glad that Mike wrote this article, and hope it gets her to be a little more responsible with the rhetoric. In fact, I don't have an issue with any of Fiorina's statements in this article, she is more responsible when a reporter is asking tough questions and questioning her facts. She is right that the ESA has indeed created a thicket of regulations, and it does have real economic costs, but it has benefits too and is nowhere near a top economic problem. In the case of the smelt and salmon biological opinions, there is a salmon fishery among other economic interests that benefit from reduced pumping, so it isn't even clear that California suffers any net economic loss at all.
Fiorina's website on the issues doesn't even mention the housing and foreclosure crisis at all, while exagerrating the impact of the Delta Smelt as Taugher's article points out. That's inexcusable for someone running on the economy and jobs, it's very negative for the Central Valley (of which Westlands is just a corner), and that is why I have written so much about this issue.
If there is a Senate debate about the Central Valley economy, housing should receive 10 times the emphasis of the biological opinions. If moderating a Central Valley economic discussion, I would also give education, workforce skills, the struggle to diversify the economic base, raising agricultural wages, immigration, and even AB 32 - equal or higher billing than the biological opinions.
Wednesday, June 30, 2010
Thoughts on delaying the water bond
1. Is anyone happier about this news than the folks at the Environmental Defense Fund and Natural Resource Defense Council? I suspect that having "no position" on a major piece of environmental policy was going to become increasingly uncomfortable as the election grew near. The PPIC may be happy for the same reason.
2. Although I am sure that political strategy is probably the primary cause of delay, I have to wonder if some people in the administration, if not the Governor himself, were having some buyer's remorse about an enormous General Obligation bond. It is good that the Governor is putting the budget as a higher priority, because it is. I have no doubt that the more time he (and legislators) spend thinking about solving this budget mess, the GO bond will look worse and worse - and not just for political reasons, but for real human welfare reasons.
3. Lois Wolk had a great line, the bond is "not going to get better with age. It's not fine wine - it's just pork." Although it's a great line and attacking pork is an excellent political tactic, I don't get all that upset about a little bit of pork in the policy making process. My problem with the bond is that it's fundamentally bad policy even if the "pork" is removed.
4. There isn't any guarantee that the legislature will muster a 2/3 vote to get the bond off the ballot. Thus, it is still important to articulate why the water bond is terrible economic and environmental policy:
2. Although I am sure that political strategy is probably the primary cause of delay, I have to wonder if some people in the administration, if not the Governor himself, were having some buyer's remorse about an enormous General Obligation bond. It is good that the Governor is putting the budget as a higher priority, because it is. I have no doubt that the more time he (and legislators) spend thinking about solving this budget mess, the GO bond will look worse and worse - and not just for political reasons, but for real human welfare reasons.
3. Lois Wolk had a great line, the bond is "not going to get better with age. It's not fine wine - it's just pork." Although it's a great line and attacking pork is an excellent political tactic, I don't get all that upset about a little bit of pork in the policy making process. My problem with the bond is that it's fundamentally bad policy even if the "pork" is removed.
4. There isn't any guarantee that the legislature will muster a 2/3 vote to get the bond off the ballot. Thus, it is still important to articulate why the water bond is terrible economic and environmental policy:
- The bond subsidizes water supply projects, and will result in artificially low water rates that encourage overuse and discourage conservation of a scarce natural resource.
- The bond substantially increases California’s debt beyond its current record level, and puts further pressure on the nation’s lowest bond rating that increases the cost of all public borrowing.
- Water bond annual debt service will exacerbate California’s long-run structural deficit, and will inevitably lead to higher taxes or cuts to general fund expenditures such as education.
- The most valuable water supply projects will still be constructed if the bond fails. Financially feasible projects will be appropriately paid for by the water users who benefit.
Tuesday, June 29, 2010
House Votes 409 to 5 to encourage tax fraud
The homebuyer tax credit has always been bad policy, but voting to extend the closing deadline is horrible. 409 - 5! Unbelievable. Those homebuyers who signed contracts before April 30, had a minimum of 60 days to close, and have known it from the beginning.
Nancy Pelosi says (emphasis added).
Reuters also notes.
Count me among the critics. The credit has always been bad policy, but this just makes it worse.
Nancy Pelosi says (emphasis added).
Up to 180,000 homebuyers will now receive the tax credit they deserve
Reuters also notes.
Critics say the three-month extension is an invitation for fraud, providing prospective home buyers time to back date contracts to a date before April 30 and subsequently closing on those contracts by the new September 30 deadline.
Count me among the critics. The credit has always been bad policy, but this just makes it worse.
Stockton City Council 10-point Action Plan for Employee Costs
I agree with this plan to create more realistic public employee costs, and I commend the City Council for adopting these principles. The document is 8 pages, and can be accessed here, see pages 53-60.
Key provisions are that employees need to make a contribution to their health and retirement benefits, salary levels should not be automatically tied to those paid by other, much richer cities like Huntington Beach, and more. Even if all these changes are made, city employees will still have a very good compensation and benefits package.
Key provisions are that employees need to make a contribution to their health and retirement benefits, salary levels should not be automatically tied to those paid by other, much richer cities like Huntington Beach, and more. Even if all these changes are made, city employees will still have a very good compensation and benefits package.
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