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Jeffrey Michael: Water won't wash away Valley's recession

Jeffrey MichaelDr. Jeffrey Michael is Director of the Business Forecasting Center at the University of the Pacific in Stockton, CA.  Jeff’s 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.  His research has received numerous grants, been published in scholarly journals and received local and national press coverage including the Wall Street Journal, New York Times Magazine, San Francisco Chronicle, Washington Post, NPR, CNN and PBS.  Jeff received his Ph.D. from North Carolina State University, and B.A. from Hamilton College (NY).

Originally published May. 1, 2009 in the Sacramento Bee

What is causing unemployment in the San Joaquin Valley? According to water contractors and their political supporters, a "regulatory drought" has eliminated water-dependent farm jobs, and they point to high unemployment rates in farming communities as proof. Their solution is to suspend the Endangered Species Act and build a multibillion-dollar peripheral canal around the Delta.

However, the facts don't support the water contractors' view. The latest payroll data through March finds that farm jobs have grown faster than any other sector of the economy in the past 12 months, even outpacing health care. In fact, farm jobs have been growing throughout the three-year drought. Compared with 2006, farm jobs have increased 5 percent in California, while private nonfarm jobs have decreased 5 percent.

The same is true in Fresno County, home to communities such as Mendota that have been the focus of water exporters' news releases.

In Fresno County, farm payrolls increased 3.2 percent in the past 12 months, compared with a 3.4 percent decrease in private, nonfarm payrolls.

Since the drought began three years ago, Fresno County farm payrolls have increased by 12 percent, while nonfarm employment has crashed, led by a loss of more than 7,000 construction jobs.

In light of these statistics, how can water exporters, politicians and others claim that rising unemployment in the Valley is a result of water shortages for farms rather than the broader recession? The foreclosure crisis is at the heart of the recession, and the Central Valley has the highest foreclosure rates in the United States. Homebuilding has shut down, and service sectors have cratered, costing many former farmworkers their higher paying, nonseasonal jobs.

Water contractors point to 40 percent unemployment in Mendota as evidence of the water crisis. These unemployment estimates for towns aren't a current survey, but are crude extrapolations from the 2000 Census, the last time any real data were compiled for these areas.

The 2000 census gives a good picture of the prosperity that increased water pumping would bring to Mendota's hard-working residents. Delta water exports were above average in 2000, and local farm employment was at a nine-year peak. Despite this, the 2000 census found unemployment in Mendota exceeded 32 percent, highest of the state's 494 towns.

Per-capita income was below $8,000, the lowest level in the state, nearly 20 percent lower than Mexico and many developing nations in Africa, Eastern Europe and South America. Not surprisingly, water contractors don't issue news releases about unemployment when they have water.

In fact, growers have been complaining about shortages in recent years, even as Mendota's unemployment estimate was 25 to 30 percent.

There will be substantially fewer seasonal farm jobs this year as thousands of acres are idled, and this will further increase the pain of the recession in farming areas south of the Delta water pumps. As these impacts appear, it is important to consider them over the entire three-year span of the drought, rather than treat agriculture's recent unsustainable peak as normal.

In the early years of the drought, agriculture expanded in response to a commodity bubble that more than doubled crop prices, farm profits, and farmland values in a span of a few years. Much of the increase is attributed to permanent crops in desert regions with interruptible junior water rights. Between 2006 and 2008, more than 50,000 acres of new almond orchards were planted, mostly south of the Delta pumps, while a nut glut led to a price collapse for all growers. Similarly, California's enormous dairy industry expanded rapidly, and now taxpayers are spending millions to buy surplus milk and prop up prices in an oversupplied market.

Taxpayers are the forgotten stakeholders in the various Delta planning processes. With no one protecting taxpayer interests, it's no surprise that Delta Vision recommended the most costly options to the governor. The Bay Delta Conservation Plan does not plan to make a cost estimate of their plan until after it is complete.

Recent state tax increases are hurting families, businesses and private sector job creation, while California has the lowest bond rating of any state. Water contractors think the state should borrow billions for their cause, crowding out investments in education, energy, transportation and other critical areas that will support the high-paying jobs of the future.

Their plan would also have adverse impacts on Delta agriculture, recreation and tourism, commercial fishing and the jobs supported by these industries.

Delta Vision, water contractors and now the Bay Delta Conservation Plan are primarily making economic arguments for their plans. While spending millions on engineering studies and public relations, the state is not sponsoring any serious research to comprehensively evaluate economic effects of the water plan.

California's overburdened taxpayers deserve better.

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