These contrasting results were underlined Friday by officials with the federal Central Valley Project — the U.S. government’s elaborate system of moving water around Northern California and in the Central Valley using dams, pumps and canals. Normally, farms get at least three-quarters of this federal water, though not in times of drought, when cities are favored. As the San Jose Mercury-News reports, the feds’ interpretation of its own rules leads it to widely different conclusions about how much water goes where:

South [Bay Area] cities will receive 55 percent of their contracted water amounts this summer — up from 25 percent last year — from the Central Valley Project, California’s largest water delivery system.

 

Heavy rains in March boosted the amount of water in Northern California’s large reservoirs such as Shasta and Folsom, allowing farmers in the Sacramento Valley and wildlife refuges to receive 100 percent of their contracted amounts, while the Contra Costa Water District also will receive 100 percent, up from 25 percent a year ago.

Water allocations: Some farmers more equal than others

But the news was brutal elsewhere. In the San Joaquin Valley, federal regulators announced that only 5 percent of normally supplied water would be available. In interviews with the Sacramento Bee, farmers and their allies said the drought essentially had never left:

While a 5 percent supply is better than the zero allocation they received in each of the past two years, those farmers will again have to scramble to buy water from growers with stronger water rights – assuming the officials who monitor endangered fish in the Delta even allow for the extra water to be pumped south. The limited water shipments will put continued pressure on the valley’s groundwater basins, which in many areas have been pumped to record low levels in the drought.

 

The huge disparities in water allocations reflect California’s hodgepodge water rights system, which generally favors farmers north of the Delta. … On top of that, concerns over critically endangered fish have prompted federal and state officials to limit pumping to the south state even though Delta flows surged dramatically after March storms. The pumping restrictions drew complaints from south-of-Delta advocates who argue that stormwater flowing out to sea is being “wasted.”

 

[Federal reports] said that, in total, the federally operated reservoirs hold 86 percent of their average water for this time of year, but the south-of-Delta facilities are comparatively empty. New Melones Reservoir, which dams the Stanislaus River and is the state’s fourth-largest reservoir, is just 26 percent full – a figure so low that the Central San Joaquin Water Conservation District and Stockton East Water District will receive no water from the CVP this year.

Most, but not all, of SoCal struggling with supplies

In Southern California, meanwhile, the raw numbers illustrate the drought’s continued hold on the region:

The water level of Lake Mead, the reservoir behind Hoover Dam that stores Southern California’s Colorado River supply, stood last week at 1,081.32 feet above sea level — a recovery of about 6 feet since it reached a recent low point in June. But that’s still the lake’s lowest level in any March since 1937, when it was still filling for the first time. Mead is currently at about 39 percent of capacity. …

 

Reservoirs in Central and Southern California remain well below their averages, with Don Pedro Reservoir in the Sierra foothills at 82 percent of its average and 60 percent of capacity, and Perris Lake in Riverside County at 43 percent of its average and 36 percent of capacity. While the snowpack is calculated at 87 percent of normal overall, its depth varies widely across the state — rising over recent months to roughly 100 percent of the average in the far north of the state, but reaching only about 75 percent of the average toward the south. The U.S. Drought Monitor still shows much of Southern and Central California to be facing long-term “exceptional drought.”

That’s from an L.A. Times’ analysis calling for a “statewide approach” to address California’s continuing water crisis.

Only San Diego County is doing well in the state’s southern realms. The county water authority’s 25-year-old emphasis on seeking new sources of water independent of the Metropolitan Water District of Southern California has paid off so well that two months ago, its reservoirs brimming, it had to dump some 500 million gallons of treated drinking water.

Newspapers around the Golden State have focused on this seeming contradiction.

This story is from this week’s Orange County Register:

It’s a conundrum statewide: Officials demand that people conserve water. People respond, and water use goes down. But less water sold means less money flowing into public coffers, so prices rise to make up for lost revenue.

 

Folks feel that they’re being punished for conserving. But what else can the water agencies do to cover fixed costs, which don’t fluctuate like the rain? …

 

Southern California cities and water districts are selling less water now than they did back in 2003, but are bringing in much more money nonetheless, a Register analysis found. Rising rates are an integral part of that equation … . The cost of water has doubled and rates at most agencies have risen in recent years, and is expected to rise even more.

‘The financial logic is inexorable’

Last week saw a similar piece in the San Diego Union-Tribune:

Whenever drought hits, Californians invariably do their part to save water. They cut back on watering lawns, shorten showers and fix leaks.

 

This conservation ethic has taken hold quickly during the current drought. Ratepayers in San Diego County and elsewhere in the state are meeting or often significantly exceeding their state-mandated reduction.

 

Now for the unpleasant but predictable sequel. As water use goes down, the rates charged are going up. And many of those good citizens, who are dutifully pitching in for the public good, are outraged. But the retail water agencies, who directly supply residential, business and agricultural customers, say they have little choice.

 

The financial logic is inexorable. If you sell less of something, to balance the budget you must either cut costs, raise the price, or a combination of both, the agencies say.

The Los Angeles Times also reported on sharply rising rates in areas served by the L.A. Department of Water and Power, but without the context of recent conservation drives.

Agencies ‘uncomfortable’ with conservation

David Sedlak, a professor of civil engineering at UC Berkeley and a water infrastructure expert, suggested this issue is a little bit more complicated in an op-ed for the San Francisco Chronicle:

Water utilities have an uncomfortable relationship with conservation. They prefer that we consumers gradually reduce per capita water use as our region’s population grows so they don’t have to make costly investments in new supplies. When we abruptly start cutting water use during a drought, the utilities fear the resulting plunge in their revenue. They have good reason to worry: During the last drought, the Los Angeles Department of Water and Power had to lay off workers when it experienced a $70 million revenue shortfall after customers answered the city’s call for conservation by decreasing water use by 30 percent.

 

Some of the blame for the misconception about the relationship between water consumption and the cost of providing water lies with how we are billed for water. To incentivize conservation, California’s utilities have created complex billing schemes in which rates go up when consumers use more than a reasonable baseline allocation of water. This is an effective way of rewarding conservation and making life a little easier for low-income families, but it feeds into the mistaken idea that water is a commodity rather than a fixed-price service.

But to consumers shocked by higher bills, just about any justification is likely to produce a sharp response or be dismissed as double-talk. Here’s how San Diego resident John Oliver responded to a Union-Tribune story about conservation forcing higher costs:

“And this is yet another reason why I refuse to cut my use below the level I want to use water at,” he wrote on Facebook. “Anyone who falls for this ‘There’s a drought, it’s terrible, we all have to do our part, but not the smelt or the almond farmers or the developers or the poor or the sick or the elderly or the illegal aliens’ nonsense is a fool.”

When county supervisors were asked about this prideful stance, they’ve long pointed to the city of San Diego’s financial struggles — triggered by disastrous decisions by the City Council to intentionally underfund the local pension system in 1996 and 2002 — as a sign of their superiority.

But this narrative of “county smart, city dumb” has been badly undercut by the county’s own pension travails since 2009. The problems haven’t been financial; the San Diego County Employees Retirement Association has had one very good year during that span but overall average to somewhat above average returns. Instead, the negative headlines have been generated by an unusual — even unprecedented — level of deference that the SDCERA board gave its lead investment strategist before formally cutting ties with him this month.

The strategist — a charismatic, personable Texan named Lee Partridge — was hired by SDCERA in 2009 after an unremarkable stint advising the Texas teachers pension system. Yet the terms of his appointment suggested the SDCERA board thought it was getting the Warren Buffett of investment gurus.

Examples of Partridge’s special treatment by the board:

• He was paid more than four times the $210,000 salary of the investment adviser he replaced in his first year, and his compensation grew far bigger in subsequent years. The pension board only got around county legal limits on his salary by reclassifying him as a consultant. Many key details related to his compensation weren’t initially revealed.
• He was allowed to work out of Houston.
• He and his firm were allowed to have other clients.
• His plan to outsource investment research to employees of a company he controlled was given the go-ahead by the board. It was only derailed after attorneys warned that it wasn’t just a huge conflict of interest for Partridge to benefit financially from a plan he crafted; it was plainly illegal under state law.

National honor — followed by national incredulity

But Partridge remained in the good graces of the pension board after his aggressive investment strategy yielded strong returns in fiscal 2010-11 and won him the Small Public Fund Manager of the year honor from Institutional Investor.

But when returns lagged, Partridge kept getting more aggressive. In 2013 and 2014, Union-Tribune business columnist Dan McSwain — a businessman-turned-journalist and a savvy student of investment practices — laid out how unusual and risky the Partridge approach was for a government pension fund. His Aug. 9, 2014, column, headlined “County bets all-in at pension casino,” led to front-page coverage in The Wall Street Journal, which led to broad national attention.

Here’s part of it:

Don’t bet more than you can afford to lose. …

 

This basic life lesson, to risk only within your means, has somehow escaped the people who oversee San Diego County’s public pension system.

 

In April, pension board members unanimously approved a new investment strategy that dramatically increases use of “leverage,” a form of borrowing.

 

There’s nothing inherently wrong with leverage, which allows you to buy a lot of asset with a little equity. But it also magnifies losses when markets turn against you, as millions of homeowners learned in the recent real estate crash.

Hoping to beat odds — day after day after day

McSwain noted that the SDCERA board had been denied access to experts who questioned Partridge’s approach and that such a list of experts would start with Warren Buffett. Yet as of July 1, 2014, Partridge was …

… authorized to use the county’s $10 billion fund to put at least $20 billion at risk, mostly with options, derivatives and other arcane financial instruments.

 

Under the previous policy, Partridge was limited to 35 percent leverage in the county’s portfolio. Now he gets to place bets amounting to 100 percent.

 

And while the previous policy approved leverage to bet on the direction of relatively stable U.S. Treasuries, the new policy moves much of the county’s nest egg to volatile areas of speculative investing. Foreign junk bonds, emerging-market stocks, options on the future value of zinc … almost anything is fair game. …

 

Partridge is a very smart guy. However, his success depends on being smarter, every day, than the very smart people on the other side of his trades.

Pensioners turn on pension board

The national media coverage of the SDCERA strategy was as incredulous as McSwain’s column. This led county pensioners to begin attending pension board meetings and ask board members variations of the question, “Are you nuts?”

By November, only one board member opposed a resolution to end the county pension agency’s relationship with Salient, the Houston-based firm Partridge established that earned tens of millions in county fees the past six years.

This month, the final links to Partridge were severed. His replacement, as many expected, couldn’t have a more conventional background. Stephen Sexauer previously …

… worked at Allianz Global Investors as Chief Investment Officer of Allianz Global Investors Solutions, managing over $7 billion in multi-asset institutional portfolios and retirement income solutions. Mr. Sexauer is also the co-author of papers on retirement portfolios published in the Financial Analysts Journal, The Institutional Investor Journal of Retirement, and The Retirement Management Journal. He graduated with an MBA in Economics and Statistics from the University of Chicago, IL.

Salient, meanwhile, has established itself as one of Houston’s largest money-management firms, and now has a San Francisco branch. But it seems unlikely to attract many government clients after Partridge’s unusual stint in San Diego.

“In October 2003, the Cedar Fire … broke out in the Cleveland National Forest, started accidentally by a lost hunter trying to signal rescuers. It burned more than 2,800 structures and caused 15 deaths, almost entirely in East County. …

“In October 2007, the Witch-Creek fire broke out east of Ramona, triggered by a power line buffeted by Santa Anas. Before it was contained, the blaze destroyed more than 1,650 structures — with more than 300 in Rancho Bernardo, within San Diego city limits. Ten people were killed in the Witch-Creek blaze and other county wildfires that fall.”

Local, state, military and federal officials have been preparing for the next California fire apocalypse ever since. U.S Interior Secretary Sally Jewell even came to San Diego County last week to talk about wildfire preparedness and tout what the feds have done to help out, prompted by the state’s extreme drought.

Confidence in the face of chaos

What are these officials saying? There’s lots of grousing about homeowners who haven’t done enough to reduce fire risk by clearing their property of flammables. But by and large, they say they’ve been gearing up for years to prevent encores of 2003 and 2007, and that they think they’re up to the task. They cite additional personnel, big upgrades in technology and equipment, and a healthy emphasis on interagency cooperation.

This official confidence was evident in San Diego County on Wednesday even after a wild day in which at least seven separate wildfires brought out:

“[Officials] stressed that far more resources — both firefighters and equipment — were available than in 2003 and 2007, and that agencies were working well together.

“’This region is the best-prepared it’s ever been,’ said Dianne Jacob, the chairwoman of the county Board of Supervisors.

“’We’ve come a long way in the last 11 years,’ said county Sheriff Bill Gore.”

We shall see. In San Diego, the specter of multiple out-of-control wildfires is so scary that it’s tough to think from a broader perspective. But when you do think from that broader perspective, you start with the fact that there are only a few responsibilities that just about everybody thinks government should do and do well. The most obvious is public safety.

This year in parched California, millions of people with reason to worry about their safety have to hope that the local, state and federal governments rise to the challenge.

]]> https://calwatchdog.com/2014/05/15/ca-2014-fire-season-a-test-of-government-competence/feed/ 16 63651 https://calwatchdog.com/2012/07/06/court-sides-with-charter-cities-on-prevailing-wages/ https://calwatchdog.com/2012/07/06/court-sides-with-charter-cities-on-prevailing-wages/#comments Fri, 06 Jul 2012 14:50:06 +0000 http://www.calwatchdog.com/?p=30141 July 6, 2012

By Joseph Perkins

The California Supreme Court ruled this week that the state’s prevailing wage law does not apply to public works projects financed entirely by taxpayers residing in one of the state’s 121 chartered cities.

The decision is a huge win for chartered cities. It enables them to save millions of dollars in construction-related labor costs.

The case in question involved the city of Vista, where voters in 2006 approved a half-cent sales tax to fund several municipal projects. That included a seismic retrofit of an existing fire station, as well as construction of a new civic center, a new sports park and a new stage house for the city’s amphitheater.

In 2007, Vista’s city attorney submitted a report to its city council recommending that Vista, then a general law city, take steps to become a charter city.

That would give the San Diego County municipality the latitude, the report determined, not to pay state-mandated prevailing wages on its planned public works projects, which would result “in millions of dollars in savings over the next few years and beyond.”

Indeed, in a study of low-income housing construction in California, UC Berkeley researchers found that the state’s prevailing wage mandate drove up costs of such projects by an average 21 percent.

That’s because the state formula for calculating the prevailing wage for a given locality is based not on the average wage rate at actual construction sites, but on higher, union wage rates. 

That’s why Vista’s city council heeded the recommendation of its city attorney and placed a measure on the city ballot to convert to a charter city. And that’s why an overwhelming two-thirds of the city’s electorate approved the conversion.

Not long after officially becoming a charter city, Vista’s city council promptly amended an existing city ordinance to prohibit city contracts requiring payment of prevailing wages unless mandated under terms of a state or federal grant, specifically authorized by the city council or unrelated to a municipal affair.

Legal battle

Vista’s moves did not set well with the State Building and Construction Trades Council of California, an umbrella group for construction unions, which in 2007 filed suit in San Diego County Superior Court to compel the new charter city to compel with the state’s prevailing wage law.

The legal battle took five years to wend its way through the courts.

The union maintained that the matter of prevailing wages was a “statewide concern,” and, therefore, the state had authority over the city of Vista. Vista countered that the matter of wages paid to workers on construction projects financed by local revenues was a municipal affair and, therefore, governed by city ordinance.

“We agree with the city,” the state Supreme Court declared this week, in its 5-2 decision.

Vista Mayor Judy Ritter said the city’s legal victory was critical not only for her charter city, but for every other such city throughout the state that aims to control the cost of local public works projects.

Had the court sided with the union, she said, “it would have required the taxpayers of even the poorest charter city in the state to pay the highest possible wages to build their municipal facilities.”

That may not matter to the State Building and Construction Trades Council, which believes that unionized workers have an entitlement to artificially inflated wages on public works projects.

But it matters a great deal to cities like Vista that endeavor to be fiscally responsible; that do not want to find themselves in a similar position to the woebegone city of Stockton.