Economist: Twin Tunnels would spell disaster for California agriculture
by Gene Beley, Delta Correspondente

June 15, 2014 9:00pm
Comment Print Email

•  Jeffrey Michael says BDCP shifts risks to taxpayers

•  “The financial plan is a mess”

Solano County Supervisors meet
(Photo by Gene Beley)

The controversial Bay Delta Conservation Plan, if implemented, would spell disaster for California agriculture, says University of the Pacific economist Jeffrey Michael.

The massive, 40-foot in diameter twin water tunnels that are the reason more than $100 million has been spent on the BDCP plan could cost $67 billion, including interest on borrowed money, making the cost of any water the tunnels sent south of the Delta too costly for farming. Water for farming is the ostensible reason for the tunnels.

While it may have been a decent sounding project to the state’s water contractors when they started planning it back in 2006, the economics of the world have changed greatly since then, making it a huge financial risk, Mr. Michael told a recent meeting of the Solano County Board of Supervisors.

“So if these [water district] agencies are looking for good reasons to walk away form the project, I’ve given them a list of five,” he said.

Here they are:

• Construction cost estimates for the BDCP’s twin water tunnels have increased from $4 billion to $15 billion;

• Anticipated water exports have decreased from 6.5 million acre-feet to about 5 million acre-feet with no increase in the water supply;

• Seismic benefit estimates have declined substantially;

• Chances of federal and state funding now or in the future have severely declined;

• Urban water demand is declining and future population forecasts have dropped significantly.

“How much is this water going to cost?” Mr. Michael asked rhetorically. “Dr. Rodney Smith, a well known consulting economist who works with a lot of these water agencies, has expressed a lot of skepticism about the BDCP financing. Basically, he says, ‘I can’t tell you what the water will cost because no one will tell me what the yield of the product (twin tunnels) will be. It ranges from no extra water to best case scenario of 1.7 million acre feet of yield.’

“According to Dr. Smith, the best assumption is the water will cost over $500 an acre-foot to get it to Tracy. So that doesn’t work well for agriculture. If it doesn’t work well for agriculture, will it work for urban areas?”

That’s when Mr. Michael told about his experience appearing at Assemblyman Jim Frazier’s economic accountability hearing on the BDCP project February 12 and interacting with Dennis Cushman, assistant general manager of the San Diego Water Authority. Mr. Cushman told how they would have to pay $1.1 to $1.2 billion and that the “optimistic yield scenario” would be about 76,000 acre-feet.

So, although they have not opted out of the $67 billion BDCP twin tunnels yet, they opted to spend about $1 billion to build a desalination plant in Carlsbad that is guaranteed to produce 56,000 acre feet of purified water every year. “Basically, they said that the (BDCP) deal can not get any worse for us and keep us in,” said Mr. Michael.

“The product is designed as a very marginal product for urban areas and there has to be a lot of shifting of costs from agriculture users to urban users to make it work,” Mr. Michael said. “The financial plan is a mess. They still don’t have one after seven or eight years. The BDCP is counting on two or more water bonds to pass to finance the habitat.”

Risk Reduction – For Whom?

The UOP economist, who is the director of the university’s Business Forecasting Center, said that when BDCP’s supporters talk about risk reduction, they are talking about a select minority, not all users of water from the Delta, let alone all Californians.

“My view is most of the BDCP is reducing risk for the junior water rights holders that are customers of the projects and the State Water Project under the Department of Water Resources and increasing the risks to other users in that process. And that’s pretty important,” he said.

California water rights have been shaped by 150 years of legislation, litigation and violence. “Junior” water rights are much like the term would suggest – other rights holders have more say on getting water. Many of those getting water from the State Water Project and the federal Central Valley Project are junior rights holders.

Mr. Michael said if the Sacramento-San Joaquin Delta needs more water, it would have to come from somebody else, which increases the risk to upstream users and taxpayers. “All this stuff needs to be accounted for from a state wide perspective,” he said.

“Another reason they [the water contractors] are worried is this big flood scenario. I have no idea what the probabilities are for that. In the Delta there are a lot of stakeholders who have an interest in flood control and integrity of those levees. It’s not risk reduction. It’s risk shifting. Be clear about that. The BDCP’s approach to risk reduction is to create an individual solution to take them out of the puzzle and leave everyone else on their own. If you take the water exporters out of the picture, indeed you’ll have less people there to share the common burden of that flood controls system.”

Regarding other parts of the BDCP package, he said the state “doesn’t have to build the tunnels to have that ‘stuff.’ It’s not being financed by the water exporters. It is being financed by bonds and the people of California. The BDCP — whether it is in the EIR [environmental impact report] or in their benefit cost analysis, in my view, shouldn’t be counted as benefits from habitat projects that aren’t financed by the proponents that can be reasonably expected to go forward within the tunnels. Those should be part of the baseline. If the state follows the 2009 Delta Reform Act, it says they have to achieve these co-equal goals, but doesn’t say only if we have a BDCP With or without the tunnels, they have to achieve that stuff. That is the proper baseline.”

He said in economics, if you want to make a project look good, you set up a weak alternative. “Another issue is evaluating environment,” Mr. Michael continued. “This is a sticky issue to do in economics.” He said he found an error in the BDCP: “Once it starts talking about environmental benefits of BDCP, it switches back to the EIR baseline.”

“I submitted those comments to the author of the report. They said they were going to correct the errors, but I haven’t seen a revised report yet.”

Mr. Michael also said there are “lots of optimistic assumptions” about construction by the BDCP — like no delays and everything happening on time. Nor have they factored in that San Diego’s Carlsbad desalinization plant will be on line by 2016, or other technological improvements that will happen in the next 50 years.

“I don’t think anybody that has an interest in California agriculture in the Delta or south of the Delta should be excited about the BDCP,” said Mr. Michael.

About Jeffrey Michael:

Mr. Michael received his Ph.D. from North Carolina State University. His areas of expertise include regional economic forecasting and environmental economics including work on the economic impacts of the Endangered Species Act, climate change, and regulation on land use, property values and employment growth.

He has been published in scholarly journals such as the Journal of Law and Economics, Southern Economic Journal, Energy Policy, and Ecological Economics.

Mr. Michael makes frequent presentations to the regional business and government audiences, and is cited over 200 times per year in the local and national press including the Wall Street Journal, New York Times Magazine, Los Angeles Times, San Francisco Chronicle, Newsweek, National Geographic, Washington Post, NPR, and PBS.

Before coming to Pacific in 2008, he spent nine years as faculty, associate dean, and director of the Center for Applied Business and Economic Research at Towson University in Maryland.

You can watch Jeffrey Michael give much more detail in his June remarks to the Solano County Board of Supervisors in the following video:

Economist Dr. Jeffrey Michael addresses the Solano County Board of Supervisors June 3, 2014 from Gene Beley on Vimeo.

Comment Print Email

  • How to compete against Wal-Mart
  • Stockton mom turns a need into a business
  • The entrepreneur is in
  • Writing her own success story
  • Growing a small business the family way
  • The future pencils positive for this company
  • Niche marketing -- Italian style
  • Sipping success with niche marketing
  • Roasting a business out of his passion
  • Success as an independent consultant takes more than expertise
  • Avoiding the traps of employee law violations
  • Cracking the voice-over market
  • The American Dream realized, one package at a time
  • Female winemaker plunges into business
  • A new take on nurse education
  • Family sees moving business success
  • STEM thrives in pockets of education innovation
  • STEM goes solar in Stockton
  • Quick! There’s a robot in my pool
  • Retiring seniors can mean new business
  • Predawn biotech class trains next generation of science workers
  • Staying ahead of the competition the old fashioned way
  • Central Valley sees mismatch between high-tech jobs and job seekers
  • STEM starts young
  • Get ready – the future is here now
  • STEM Education: Growing the Valley's Future
  • They’re low power in wattage only, not ideas
  • Thinking success spawns Successful Thinkers
  • Small business success can mean finding the right niche
  • This franchise has real muscle behind it
  • Getting the scoop on small business success
  • Reshoring could rebuild America's manufacturing
  • Marketing that’s deliberately anchored to the past
  • Guitar artist plays his way to success
  • Paralysis no handicap for this entrepreneur
  • Boost sales with better communication
  • Making sandwiches sexy with a franchise
  • Going solar without spending a lot of money
  • They’re cute and cuddly. But are they a business?
  • Opportunity sails forth in the Delta
  • How bad etiquette on the job could kill your career
  • Growing their way out of hunger and poverty
  • Finding small business success from floor to ceiling
  • Why he’s public enemy #1 – for gophers
  • Running a home-based business successfully
  • Your boss needs a vacation – really
  • Couple makes transition from big corporations to small business
  • Carving a small business niche with a better idea
  • Calm is the goal of computer service and education franchisor
  • Developer squeezing new life into downtown with juice franchise
  • Signs of a recovering economy
  • How to keep a family business in the family
  • Ford dealership expands despite the Great Recession
  • Utility Telephone connects with customer service
  • Crowdfunding basics
  • The roar from crowdfunding is getting louder
  • California water wars’ bulldog
  • Water wars heat up in California
  • Helping businesses grow with a stronger STEM
  • How to retain your best employees
  • Small business runs success up the pole
  • Winery expands in Lodi
  • Lodi wineries tapping into growing Chinese market
  • Has the jobs picture brightened for the Valley for 2012?
  • The right education will be needed for 21st Century jobs
  • Where new jobs for San Joaquin will come from
  • Developing jobs for San Joaquin – Part 2
  • Developing jobs for San Joaquin
  • Fruits of his labor
  • Helping grow food security in the Valley of plenty
  • Doing a business turnaround despite the recession
  • Keeping customers loyal helps build her business
  • Expo exposes businesses to utility contracting ideas
  • Drink mix maker taps expertise to blend success
  • Entrepreneur finds success in a basket
  • Tips for catching resume fraud
  • There’s no checking out for this small business owner
  • Entrepreneurs take Valley sports play-by-play to the world
  • Starting a winery from scratch
  • Job hunting tips for the long-term unemployed
  • In the Central Valley, opera isn’t always the Grand Ole Opry
  • Branding ideas for small businesses
  • The ump’s not blind, but the players are
  • Finding success by tapping your brain in a new way - Part Two
  • Finding success by tapping your brain in a new way
  • Machines talking to machines is the future
  • Getting involved in the fight against AIDS
  • Franchised divorce says it’s a better way
  • Small business owner is brewing a success story
  • To beat the Great Recession, they’ve expanded
  • Taking a swing at strokes
  • Alert your taste buds – here comes Taste of San Joaquin
  • This franchise has real muscle behind it
  • Passion for his city drives him
  • Vicente Fox speaks out on U.S.-Mexico relations
  • Give your support staff recognition and reap top performance
  • Central Valley baker gets top honors for Royal Wedding pie
  • Asparagus Festival ends on high note
  • Stockton close to annual ‘tipping’ point
  • Framing small business success
  • Small business sees Affordable Care Act helping its bottom line
  • What you eat – and when – helps local restaurants
  • Coping with the aftermath of foreclosure
  • How to raise charming children
  • Central Valley grad school goes all-iPads
  • Solution to Delta water wars voiced
  • Making sure your personal bottom line is covered
  • Small California winemaker is all family
  • Small winery relies on family and innovation to compete
  • Central Valley company says it has a better way to store solar power
  • What’s wrong -- and right -- about local TV news
  • What planning means to small business success
  • Making the leap to small business
  • Out of work at middle age? Experts offer advice
  • Small business marketing, one article at a time
  • Congress on your corner as it’s supposed to be
  • Central Valley city’s heritage rediscovered
  • Central Valley school is building students’ foundations
  • Job tips from the expert
  • Long-term jobless worker re-invents himself
  • Building a new power plant means jobs for Central Valley
  • Sacramento reaches for the stars with new science center
  • Lodi Chamber opens China’s doors to small business
  • Writing books for fun – and sometimes profit
  • Black Friday shopping? How to protect yourself from scams
  • California winemakers can find added rewards overseas
  • Wine makers tap overseas markets from Lodi
  • A new revenue stream for Central Valley small businesses
  • Food bank seeks more business support
  • Tips for finding a job in the Great Recession
  • State may solve some of its prison woes with new Stockton facility
  • A solution to underwater mortgages
  • Should public libraries be managed by private firms?
  • Central Valley moves ahead with critical water project
  • Dee Dee Myers and the increasing impact of women on small business
  • How women are growing their small businesses
  • A market with a mission
  • Retailer 'paints' solutions to cash flow challenge
  • An answer for the unemployed – return to school
  • A ‘golden’ small business success story
  • Central Valley winegrapes blessed
  • Rubbing out the recession with a franchise
  • Surviving the recession as a small business
  • It’s personal, union says of Stockton fire cuts
  • How old it too old to start a new business?
  • They've found the recipe for small business success
  • MBA students help revive Central Valley farmers market
  • Classic wooden yachts anchor in Stockton for weekend
  • Foreclosures, short sales – a bank president comments
  • The strength of family helps this small business compete
  • Festival spears success in Central Valley
  • Social media helps keep family business prospering
  • Central Valley students get training in ‘green’ futures
  • Knives readied as Valley cities slash services
  • Central Valley jobless picture still grim
  • Delta residents told to ready for water war
  • Opportunities outlined for Central Valley small businesses
  • Rewiring your brain for success
  • Central Valley no longer ‘shell shocked’ by recession
  • To fix California’s government, look to London
  • Taking your sales pitch to the next level