Is the Metropolitan Water District Going to Pay 25% or 75% of the Cost of a Delta Tunnel?

The working assumption of BDCP is that water contractors will pay for tunnel conveyance in proportion to their share of Delta exports.  For Metropolitan Water District, that would be about 25% of the cost, and that is the share they say they expect to pay in their public statements.

However, the financing chapter (8) of the BDCP (page 8-89) declares that conveyance is financially feasible, because the per capita cost of construction is smaller than some recent capital projects built by smaller urban water agencies.  They divide the conveyance cost by the 25 million people who are served by agencies that derive at least part of their water supply from the SWP and CVP to come up with a per capita cost of $508.  This is less on a per capita basis than, for example, San Francisco's Hetch Hetchy aquaduct improvements.  However, it is important to note that Metropolitan represents 75% of the population in this per capita calculation, much higher than their 25% share of Delta water exports and the 25% cost share that they have pledged to pay.  There are many reasons why this per-capita cost comparison is irrelevant, but it has been used by the Southern California Water Commitee, and now it is prominent in the BDCP's own argument for financial feasibility.  At minimum, the per capita cost shouldn't be used at all unless Metropolitan really is supporting a per capita financial plan, which means they will pay 75% of the cost.

As discussed in earlier posts, assuming water exports were to increase by 1.2 maf with a canal (a big if for environmental reasons) as stated in the draft BDCP, the annual capital and operating costs of $1.2 billion in the draft BDCP imply this new water will cost $1,000 af - just to get the untreated water to the pumps near Tracy.  That is very expensive and financially marginal for urban users, and clearly infeasible for agricultural users who receive most Delta water.  [Yes, canal proponents use an average cost of nearly $200af averaged over all Delta exports - including those they will still receive without a canal.  This is a common error made by utilities and boosters of infrastructure mega-projects to promote investments that are not in the best interest of their captive ratepayers.  And the latest rumors are that half this amount of additional water is the best case scenario, putting the marginal cost at a minimum of $2,000 af.]

The reality is that Metropolitan will actually have to pay something close to the 75% cost share implied by the per capita cost comparison for the project to have any chance at being financially feasible.  Even that may not be enough.  Their ratepayers could probably stretch to make the payments (hence making it technically feasible), but it surely isn't a good deal for their ratepayers who have lower cost options.  Most importntly, it is not what Metropolitan has been telling their customers and their board that they are going to pay.

First Impression of the new PPIC water economics report

It's good.  Really, I mean it.

They have brought in some very solid new economists that were not part of their earlier reports, and they acknowledge that some key facts have changed since their 2008/2010 report endorsing a peripheral canal that I have criticized so much over the years.  Most importantly, these facts include the ever increasing cost of new conveyance, as well as better understanding of the real costs of earthquake interruptions, and an increasing understanding that urban water demand is declining due to the combination of conservation and slower growth.

This report contains no statement that a peripheral canal or tunnel is the best choice for California's economy, a statement that has been made in previous PPIC reports written by the smaller UC-Davis based group.  In fact, it even has a more accurate statement of the what the previous PPIC/Davis studies actually found  (see page 15).

Past PPIC research has shown that a peripheral canal would be the best option to meet the "coequal goals" of water supply reliability and ecosystem health (Lund et al. 2010) Today, options have multiplied—from a canal to a tunnel to two tunnels—and cost estimates have increased significantly. In 2008, official estimates for new above-ground conveyance ranged from $4 billion to $9 billion (California Department of Water Resources 2008). By 2012, as attention has shifted to building tunnels, cost estimates have increased to roughly $14 billion—not including the costs of financing and added operational expenses. With cost estimates growing, the question arises: Are the benefits of new conveyance great enough to justify the expense?

They are describing their previous report as evaluating the co-equal goals, not cost-benefit analysis, which is how one correctly determines if a canal/tunnel is the best economic choice.  This is an important point.  In a blog post last fall, I discussed the conflicts between the co-equal goals and cost-benefit analysis as analytical frameworks.

I am focusing on this one issue, because the Delta conveyance question is the single most important policy choice facing California at the moment, and PPIC is generally cited as the independent, academic support for building it. 

The vast majority of the report isn't about the conveyance at all, and I generally agree with the discussion and recommendations surrounding these other issues.  I particularly liked that the report led off with some much needed perspective on the importance of water to the California economy, and some optimistic comments about our ability to manage future water scarcity.  Cutting down on the crisis talk greatly improves the quality of discussion on California water issues.

Update June 1:  Buried in footnote 40, the author's confirm that they have not done the analysis to conclude that conveyance is the best economic choice, and that it requires cost-benefit analysis.  Specifically, it says.  "To determine which strategy is best for the economy, the net costs of new conveyance need to be compared to the net costs of implementing alternatives with reduced exports."  Footnote 41 is pretty darn interesting too, and corrects a lingering error in the 2008 PPIC report that said ending Delta exports would cost over 100,000 jobs.  Glad to see it.

Why not a 4 day school week?

California stateworkers may be going to a 4-day workweek (with 9.5 hour days, 38 hours per week) as a proposal to save 5% in costs of state compensation.

With schools also facing budget cuts, why not a 4-day school week?  Except instead of longer school days, I would propose a longer school year with 3 day weekends.

The traditional calendar is 36 weeks x 5 days = 180 days  Why not 42 weeks x 4 days = 168 days? 

Some school districts around the country have gone to 4 day weeks with longer school days - similar to the state worker proposal - in order to save money on fuel and utilities for buses and heating buildings, etc.  I oppose that concept. 

But I bet students would actually learn more with a shorter summer break and 3 day weekends throughout the year. 

As a parent facing school budget cuts, and dreading the too long summer break with bored children, this idea sounds really good to me now.

California DOF revises 2050 population projection down by 8.5 million. Huge Implications for Water, Transportation, and Budget Planning

California DOF makes the state's official population projections.  The DOF forecasts have been notoriously aggressive in the past.  Until this week, the most recent DOF forecast was issued in 2007 and projected the state population at 59.5 million in 2050.  This week, DOF released new projections that estimate a population of 51 million in 2050. 

I am pleasantly surprised by the extent of the downward revision, and very pleased to see that the State's official growth projection is now much more realistic and fits well with our own modeling.  My research associate has just returned from a meeting about these projections for San Joaquin Valley counties, and came away really impressed with the improvements the DOF demographers are making to their models.  Kudos to them, it will really help the state improve planning and decision making.

For example, it is critical to things like estimating future water demand, a topic near and dear to many of the readers of this blog.  This 15% cut in future population projection is a big deal.  That's 15% less water demand - regardless of what you assume about efficiency improvements - and 15% fewer ratepayer/taxpayerss to tap for future debt payments - whether those are revenue bonds issued to pay for conveyance or a a general obligation water bond.

Way back in 2008, the very first thing I criticized in the PPIC/Davis analysis of the peripheral canal, was the population forecast used to estimate future urban water demand.  Their model used the absurdly high figure of 65 million, when DOF's own high forecast was 59.5 million, and most private forecasters and extrapolation of U.S. Census 2040 estimates were coming in around 54-55 million in 2008.  That was before the Great Recession, and I think the new DOF estimate of 51 million is pretty realistic now.

To their credit, the PPIC team has made some adjusments and they are thinking more constructively about the implications of slower growth and conservation, and I suspect some modeling of this will be evident in their new book on water economics.  I particularly liked this passage in a recent blog post,
  

The prospect of a long-term plateau or decline in water use in California is fundamentally positive for the politics of water in California (although it has some negative implications for utility finance). No longer should policymakers fear vast inevitable growth in long-term water use, with apocalyptic zero-sum consequences. California can have growth and prosperity without continued increases in water use. Water conflicts need not become increasingly severe and debilitating. 

[Edited on 5/12 to correct some very poor grammar.  I shouldn read these posts a second time before clicking publish.  My apologies to the English majors who suffer through my blog posts.]

Will Water Contractors' Have a Maloof Moment on the BDCP?

Over the past month, the Sacramento arena deal collapsed when the Sacramento Kings' owners, the Maloofs, backed out of the deal.  Many people were incredulous at the Maloofs flip-flop, as they have been saying they needed a new, modern arena for years.  The Maloofs killed the deal because they realized that the a new arena wouldn't generate enough new revenue compared to their imperfect current facility to justify the new debt.  While City officials are upset with the Maloofs, city taxpayers should not be.  The Maloofs may have accidentally saved the City of Sacramento from a financial fiasco as well.

I think we may be headed towards a similar moment with some of the water contractors and the BDCP deal.  The agricultural contractors are most likely to play the role of the Maloofs and wake up to the financial reality.  According to the draft BDCP, the marginal cost of new water the contractors get out of the tunnel is going to be $1,000 af ($1.2 billion in debt service and new operation cost for an average of 1.2 maf of new water).  Environmental deficiencies with the draft BDCP could mean even less new water, driving the marginal cost of new water supplies even higher for the contractors.  If you prefer to look at averages (spreading the $1.2 billion over all 6 maf), all the water delivered through the tunnel will cost about $200 af more.  Without the BDCP, the contractors would still receive the vast majority of that water, that's why the marginal cost for incremental water supplies is the most important number for decision making. 

I have heard farmers in the Valley talk about the burden of paying $200 af for supplemental water in 2009 to keep their almond orchards alive while railing against the Delta Smelt.  How can they seriously support a plan that would raise their water costs of all their water (not just the supplemental supplies) to this level in wet and dry years?  The BDCP is a solution to the Delta Smelt problem that will cost Valley farmers far more than the Smelt and Salmon biological opinions ever will.

With so much political effort expended to get the BDCP and a potential tunnel/canal to this point, it's promoters are not going to let it die easily.  The public officials, including water agency directors, and some environmental groups pushing the project are not the ones who will pay the costs, and like Mayor Johnson and the arena, the public officials will not be the ones to back out of the deal.  It will be the farmers, who like the Maloofs, take a step back, look at the numbers and come to their financial senses.

New Forecast Is Out

Our April economic outlook was just published (yes, I know it is May 1).

CALIFORNIA AND METRO FORECAST:  April 2012

California remains on the path of slow recovery according to the latest projection from the Business Forecasting Center at the University of the Pacific.  For 2012 and 2013, real gross state product is forecast to grow at an average 2.5% rate for both 2012 and 2013, and jobs will increase at a 1.5% pace.  In 2014 and beyond, the pace of recovery will gradually accelerate as housing and construction begin making a positive contribution to the economy.

California’s unemployment rate is currently 11.0%, and is projected to remain in double digits through the last quarter of 2013.  Housing starts are projected to grow modestly to 54,000 in 2012 with most growth in coastal multi-family construction while single-family homebuilding remains near historic lows.

The regional outlook predicts that 2012 is the first year of economic recovery in the hard hit Central Valley.  More details here

My take on the Sacramento Kings' Arena Debacle

Yikes, it seems the blog took a month of vacation.  Time to wake it back up.  I wrote this commentary on the Kings' arena for our forecast publication about a week ago.  With the arena deal dying again last Friday, the perspective is still timely, and it's good blog material.

  

Sacramento Arena Deal Collapses in Spectacular Fashion

It’s been hard to avert our eyes from the train wreck that is the Sacramento Arena deal, especially since the Business Forecasting Center just opened a satellite office in Sacramento and one of our professional colleagues, Chris Thornberg of Beacon Economics, took center stage as a consultant to the owners of the NBA’s Sacramento Kings.  Thornberg questioned the revenue projections underlying the arena financing assumptions, and questioned the City’s financing plan and whether the deal was in the best interest of the City.  The focus on the public benefit from the City’s financing plan was odd for a consultant of the Kings.  Presumably, the Kings would want to persuade the City to increase their Arena subsidy, and it is hard to see how highlighting the City’s financial risk and weak economy helps persuade the City to improve the deal for the Kings.  One plausible explanation for the Sacramento bashing tactic is that the Maloofs are trying to persuade the NBA that Sacramento is an unviable market so the league will approve relocation to another city.  The Maloofs flip-flop and Thornberg’s harsh criticism of Sacramento elected officials led to a heated public war of words, including dueling op-eds in the Sacramento Bee between Thornberg and City Manager John Shirey.

Underlying the drama are objective economic and financial calculations.  Are the revenue and economic projections realistic?  Is it a good business deal for the Sacramento Kings?  Is it a good deal for the City, or a looming financial disaster?  An even more fundamental question is whether a new arena generates enough new economic value to justify a $391 million investment, regardless of who pays for it. 

From the Kings’ financial perspective, the new downtown City-owned arena must be compared to their current team-owned arena in Natomas, and realistic future alternatives including relocation or even renovation of the current arena.  The Kings are reported to be profitable, unlike most of their NBA peers playing in larger, more modern arenas.  The Kings would contribute about $70 million in new arena construction costs, plus agree to a 5% ticket surcharge that would send several million dollars a year back to the City.  Even assuming a conservative $20 million annual revenue boost from a new arena, the Kings could support these direct costs.  However, there are a host of additional provisions that likely make it a poor financial deal for the Kings.  In addition to the direct arena costs, the Kings’ owners would no longer receive revenue from non-basketball events at the current arena like they do currently at the team-owned Power Balance Arena.  The deal also locks them into the Sacramento market for another thirty years in addition to a host of other smaller concerns.  The Kings’ best strategy would seem to be to stay in the existing arena for a while, explore its renovation, while waiting to see if Sacramento or another city makes a more favorable offer as the economy and municipal finances improve.

What about the City?  Is the proposed arena deal a financial disaster?  It is definitely a fiscal risk, but whether it is a potential disaster depends on your perspective and the civic value you place on an arena.  Compared to other publically-financed arena deals over the past twenty years, the deal is more protective for taxpayers than many.  While the City pays about 60% of direct development costs, the City’s real contribution is significantly less than 50% when revenues from a 5% ticket surcharge, profit sharing with arena operator AEG, and other terms are included.  Although the economic development benefits of an arena are badly overstated, it will bring some new net dollars to the region and the Arena is clearly a civic amenity of some value.  Despite these positive aspects to the deal, it is still a significant public subsidy and considerable risk for a City that is in the midst of a serious budget crisis.  The positive cash flow from parking facilities is an asset the City of Sacramento has to get it through the crisis that many similar cities lack.  Financing the arena could involve a 50-year lease on parking facilities to fund an arena whose economic life will likely be less than fifty years.  Some of those parking assets are in key locations, and committing them to a parking lease for fifty years could entail significant opportunity costs.  The same can be said for selling city-owned land such as the 100 acres in Natomas adjacent to the current arena.  The City’s finance plan clearly adds new burdens to the municipal budget, even though some arena costs will be “backfilled” with ticket surcharges and other tax revenue.  Some public expenditure for an arena can be justified - all civic assets have costs - but the Mayor and City Council have clearly pushed the City's side of the deal to its boundary, especially considering the minimal contributions from the surrounding cities and the clear unwillingness of taxpayers to support a dedicated arena tax in the past.
The Mayor has worked hard to retain the Kings and has come up with the best proposal he could, one that pushes the City to its financial limit, and yet still doesn’t appear to be a better deal for the Kings than the alternatives, including the status quo.  The inevitable conclusion is that, like most sports arenas in medium to small markets, a $391 million arena in downtown Sacramento simply doesn’t generate enough new value to equal its cost.  No amount of financial engineering is likely to change that.  The new arena is simply infeasible without an owner and/or a City that is both wealthy and passionate enough about pro basketball in Sacramento to overlook significant financial risks.  Judging from recent events, both sides seem to have an abundance of passion, but a shortage of wealth.

End of Furloughs Vaults Sacramento County into Top 5 in wage Growth in 2011, 3rd quarter

The BLS just released the Quarterly Census of Employment of Wages for the 3rd quarter of 2011. 

Sacramento County has been near the bottom of the nations 323 largest counties in this report quarter after quarter.  However, the latest report shows Sacramento vaults to #5 in the nation in average year-year wage growth with 9.8% increase between 2010Q3 and 2011Q3. 

Job growth was still close to zero, but wage growth jumped.  The furloughs definitely had an effect.  Interesting timing how the temporary taxes and furloughs expired at the same time. 

Pacific Moves to West Coast Conference

I am really happy about the University of the Pacific's return to the West Coast Conference. 

We are finally back in a league with peer, independent universities, rather than being a misfit with large, public universities because of the history of our former football program.

As a big college basketball fan, I am excited for regular match-ups with Gonzaga, BYU, and St. Mary's.  Hopefully, we still keep UC-Davis on the schedule for an easy win.

Wow, my tax rate really is higher than Mitt Romney

It was an exciting weekend completing my taxes.  I know I am in the 28% bracket, but I have never bothered to precisely calculate my average tax rate before.  Given all the commotion about Mitt Romney's taxes, I thought I would check.

In 2011, my wife and I had an effective (i.e. average) federal tax rate of 14.5%, and we are paying 28% on any marginal gains in income (plus 9.3% for CA).

Mitt Romney's effective tax rate is 13.9%, and he is paying 15% at the margin for his investment income.

I don't see how these relative tax rates are equitable or foster economic growth. 

(Note: My support for at least partial expiration of the Bush tax cuts and equal tax rates for investment and labor income should not be conflated with support of Governor Brown's "millionaire" tax proposal.  That will probably be the subject of longer posts in the months ahead.)

Six figure firefighters and the Valley Economy

One of the biggest surprises to me moving to California was learning about the compensation of firefighters. 

Every firefighter I know is a great person and dedicated public servent, before and after I moved to California.  Everywhere else I have lived, they have been paid about the same as teachers, and fire captains/chiefs were like principals.  In the Valley, they typically earn double teacher salaries and have better pensions.  In many communities, they are the best jobs in town.  While I value public service greatly, compensation has to be rationally tied to the income and tax base in the community. 

It is a significant economic problem in the Valley, because the deplorable state of many public services in the Valley is directly tied to the unnecessarily high cost of providing those services.  I was glad to see the Sacramento Bee making this connection in an article today:

The (Consumnes Community Service) district, like many others, gave firefighters enhanced benefits during better times so they could retire at age 50 and earn, for life, 3 percent of their salary for every year of service.


Since then, firefighter salaries have risen, increasing pension payouts. CSD firefighters earned, on average, $115,000 in 2010, actuary reports show.

A 2 percent pay raise for a 25-year veteran firefighter making that much translates to an extra $1,700 a year in annual pension payments.

Six-figure firefighter salaries and large pensions today are the norm. Sacramento County Metropolitan Fire District firefighters averaged $121,000 in salary during 2010. About 140 of Metro Fire's retirees draw annual pensions exceeding $100,000.

CSD has recently curtailed capital improvements, funneling more of its revenue toward payroll and benefits, including retirement. Several other fire districts across the region have scaled back spending not related to compensation.

Could a Peripheral Canal/Tunnel Increase Drought Risk?

If you have been following the Delta Plan and discussions around levees, you have heard the argument that improving levees will actually increase risk by encouraging development.  Improving levees will reduce the probability of a flood, but the argument is that the amount of property at risk of flooding will increase more as a result, thereby potentially increasing total flood risk. 

Last Saturday in Stockton, Jason Peltier said that Westlands farmers planted more orchards despite uncertain water supplies because of the increasing cost of water.  If a peripheral tunnel/canal is built, the cost of water to these farmers will go up a lot, in wet years and dry years.  Thus, his statements suggest they will plant even more of their land in permanent crops to cover these costs, even though a canal won't prevent droughts.  Thus, the consequence of drought will increase, and therefore drought risk increases since risk equals probability x consequences.

Thus, the increasing risk argument is as applicable, if not more applicable to building a peripheral canal as levees.  There are two reasons why it is more applicable to a canal than levees.

First, building is heavily regulated, especially in the Delta, whereas the choice to plant permanent crops is not regulated.  The levees increase risk argument is pretty weak in my opinion, since we can gain the risk reduction benefits of levees and use regulation to prevent any undesirable side effects like urbanization in a flood plain.  The regulations regarding this have been significantly toughened in recent years, and the Delta Plan will tighten it up even more.  There is little prospect of regulations on orchard planting, although some have recommended it.

Second, the canal/tunnel doesn't actually reduce the risk of drought, whereas levees do reduce the risk of flood.  All the analysis I have seen suggests that a canal/tunnel will not increase water supplies in dry years, any increase in water supplies would come in wet years.

In the past, I have blogged about the fact that I don't really believe that almonds were planted on the west side because water got more expensive.  Most of that planting was before the Wanger decision, and I think they were riding the almond wave just like everyone else in the Valley, and if anything got more confident about planting them when they thought their water had gotten more reliable from 2000-2006.  However, I do believe that paying for a tunnel will create a lot of pressure to invest in permanent crops, and the farmers themselves have said this is how they respond to higher prices.  Thus, it seems a canal/tunnel would certainly increase the economic consequences of drought, increasing the risk.

This is not a major argument against building a peripheral canal/tunnel; but I do think it has more merit than the argument that improving levees increases risk.  In both cases, risk is only one aspect of decision making, and is a pretty useless concept if it isn't balanced with a discussion of reward.

Why not Modesto?

An interesting comparison of Modesto and Stockton municipal finances from the Modesto Bee. 

http://www.modbee.com/2012/03/03/2096191/a-tale-of-two-cities.html

Isolated Conveyance Tunnel Debt Service $1.1 billion annually

The BDCP finally posted chapter 8 on financing.  This is the most important sentence regarding the estimated cost of the revenue bonds the state and federal water contractors would use for the proposed tunnel (page 8-88).

The annual debt service would average approximately $1.1 billion from 2021 through 2055.

This is much higher than the working number of $670 million per year that has been out there for the past year or two.  (see this MWD presentation for an example)  Why is it higher? The capital costs haven't gone up, they are still using $12.7 billion for a tunnel rather than the $14 billion suggested in a recent Sacramento Bee article.  The difference is they are now using more realistic financing terms.

The preliminary estimates had assumed 50 year financing at 5%.  It is very unlikely that there would be a market for a 50 year revenue bond for a risky project at those rates.  

The new estimates assume 40 year revenue bonds issued in 4 stages throughout construction.  It estimates an interest rate a little over 6%, and that 1-2 years of the initial interest would be capitalized to reduce repayment burden during the construction period.  I think that is a far more realistic financing assumption.

Given that the incremental water supply being discussed by the conveyance is 0.3 maf to 1.5 maf requested by the water contractors.  That comes out to between $3600 and $730 per acre foot of new supply - not counting operations costs - just to get the new water to the Tracy pumps.  Add a few hundred dollars more for operating costs and pumping to Los Angeles.  [I deleted a confusing sentence here from the original post and updated below.] 

Is it any wonder that south Valley agricultural interests prefer the Nunes bill to the BDCP?  Even desal sounds cheap by comparison to new BDCP water, and it is more reliable.  

There is a lot of hullabaloo about benefit-cost analysis vs. financial feasibility analysis at the moment.  The debate may be moot, because I can't see how the conveyance can clear the financial feasibility bar with these numbers.

Update 3/1: This afternoon I am told BDCP said 5.9 maf of exports which implies more incremental supplies than my initial interpretation of the EIR above. Perhaps I misread the EIR. I will try to confirm this and update in the future.

Update 2:  I now see the 5.9 maf in the BDCP documents, and 1.2 maf in incremental supplies.  With an $84m annual cost for operations and maintenance bringing the $1.1b in debt service up to about $1.2b per year, the 1.2 maf would be about $1,000/af

However, the EIR and  BDCP discuss alternative operations with lower exports that could be required to meet environmental goals.  It looks like this would cut the level of additional water exports to an increase of .558 maf, that would be about $2,000/af. 

The different scenarios and the volume of documents may take a while to sort out definitively, so these per af costs should definitely be interpreted as a preliminary impression.

Update 3:  And to be fair, I should point out that the project will presumably continue to provide incremental new water supplies for the exporters after the 40 year bond repayment period is over.  Thus, the cost over the entire life-cycle per af would be somewhat lower.  It will be good to see more accurate, formal analysis of these issues that should be available in the coming months.

Stockton's Possible Bankruptcy

The financial situation of the City of Stockton and its impact on its citizens is very sad.  As Mr. Deis said, there is no single cause of the situation, a severe economic recession, extremely generous employee/retiree compensation and benefits, a string of risky and/or poor decisions with bond financed investments by city leaders.  With more prudent decisions, the economy would still have created severe financial trouble and severe budget cutting for the city, but it is these bad decisions that have pushed it to the brink of bankruptcy.

I just finished reading the City Manager's budget update as well as the consulting report.  The City Manager is indeed proposing severe actions just to make it through the end of this fiscal year.  It's awful, but I don't have a better plan to suggest.  The most newsworthy of these actions is the plan to suspend payment on a few of its bonds.

The most significant missed payment will be on the $40m 2007 bond that financed what was seen at the time as one of the cities' shrewdest investments: the purchase of the Washington Mutual building to serve as a new city hall. 
The Washington Mutual building was hailed as a bargain, much cheaper than building a new building, but today it sits mostly vacant and the city hasn't had free cash to pay for the move.  In 2007, foreclosures were a new crisis and the residential market had just started a nosedive with the broader economy soon to follow, but tax revenues had not yet started to plummet.

Here is an excerpt from an old column from Mike Fitzgerald at the time of the 2007 deal for the vacant city hall upon which the city is about to default.  This is not to pick on Mr. Fitzgerald or play Monday morning quarterback.  His column is a window on the general sentiment at the time and is an interesting time capsule given the imminent default.  This occurred around the time I came to Stockton to interview for a job, and I remember this story because I was just starting to read the local news and learn about the City, and I was also following the financial vultures circling an increasingly desperate Washingotn Mutual.

Stockton leaders hit home run
By Michael Fitzgerald
Record Columnist

October 05, 2007

It seemed Stockton's current leaders, for all their talents, could not make the big play. But the purchase of Washington Mutual's building for a new City Hall - well, a soccer announcer would yell, "Goooooooaaaaaalllllll!"

The City Council this week approved the $35 million purchase of WaMu's classy eight-story office building, saying the old City Hall was cramped and leaky.

Leaders crowed the purchase is a bargain. Constructing a new building would have cost twice that much. At least.

I ran the deal past Mahala Burns, administrator and broker of Cort Cos., which deals in downtown real estate.

"It looks like a fabulous deal to me," Burns raved. "The parking is a huge asset, the location is fabulous, the building is in mint condition. We would expect a building like that to go for $48 million."

By way of comparison, San Joaquin County government, spending $109 million for its new administration building, gets 250,000 square feet and 38 parking spaces.

The city, spending $74 million less, gets 211,000 square feet and 518 (underground) parking spaces.

Looks like the county missed a bargain. Look for the blue light next time, guys.

Seriously, the benefits of the deal go beyond price.

Currently, City Hall stands on downtown's edge. The relocation surrounds it with banks and businesses, placing it in a true city center.

Though WaMu is selling, it intends to keep some workers in the building; the city, as landlord, is in a position to encourage this major employer to stay.

City jobs are not only higher-paying but more stable. The lending crisis may thin WaMu's ranks, but City Hall's staff will, if anything, grow as the city does.

Finally, departments such as the permit center and Parks and Recreation draw hundreds downtown. By one estimate, the building's foot traffic will double.