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Commentary: Cost/Benefit Analysis Needed for Tunnel

Mar 07, 2012

Delta National Park Blog

Using the “buying a pick-up” analogy, the folks at the California Farm Water Coalition’s News Line argue that it’s premature to do a cost/benefit analysis of the BDCP’s recent work.

It’s a lot like making a decision to buy a new pick-up. You have to tell the dealer how you want it equipped before you can be quoted a price. That’s the same dilemma confronting the state’s water leaders. They’re still considering options.

But that’s not really what happens when someone buys a pick-up, is it?

Of course, the BDCP process is unwieldy, with many alternatives (ostensibly) still being contemplated. And part of this contemplation, which presumably all sides would agree, involves weighing the costs and benefits of each alternative.

So, I wish to offer a contrasting and equally specious analogy about pick-up buying. Keep in mind, pick-ups cost about $26 thousand per unit. Callifornia water infrastructure/ecosystem restoration buying costs about one million pick-ups per co-equal artifact. Unless of course you live in Devin Nunes’s world, in which you just take what you need.

In my version of the analogy, a pick-up buyer isn’t entirely certain what equipment they want, or can afford. The pick-up buyer needs information. The pick-up buyer investigates the full range of options and what those options cost. The pick-up buyer is quoted many prices, each for different equipment packages. If the pick-up buyer is dissatisfied with the information provided by the salesperson, the pick-up buyer walks away from the table.

Analogies aside, that could very much happen, and is not a good outcome.

The pick-up buyer must decide if the heated seats and kick-ass sound system are more important than the piano lessons and after-school athletic programs his children enjoy at the public school.

Really what we have here is a chicken and egg situation. The BDCP, and water consumer advocates argue chicken, saying “it’s premature to do any rigorous cost/benefit work because the alternatives are not yet specific enough.” The opposition argues “why spend time and money on the full range of options without defining where the line of fiscal absurdity is?”

From Alex Breitler’s recent piece, here is the chicken argument for not doing the analysis:

The problem with attempting a full cost-benefit analysis in a case like this is the sheer complexity, said Ken Schreiber, coordinator of a separate habitat plan that aims to balance growth and protection of natural resources in the Santa Clara Valley. That plan, also, will not include a cost-benefit analysis.

“Technically, could you do it? Yes,” Schreiber said. “Would the results mean anything? The answer is no. The problem is that you’re dealing with something so long-term, so complicated, with so many moving parts.”

 

This argument makes no sense. The point of doing a cost/benefit analysis is precisely to understand the fiscal implications of the moving parts. Such analyses provide the public with concrete economic data that makes their decision making all the more informed.

Jerry Meral makes another argument that makes no sense. Breitler writes in the same piece:

Even if it were done, Meral said, the impacts on the Delta economy likely would not be in the same ballpark as the costs and benefits to Southern California, and thus would have little effect on the findings of the analysis.

This is patently obvious, and therefore truly useless or misleading information. At least in the quote, Mr Meral seems to want to emphasize the “benefit” side of the analysis, and ignore the “cost” side. At this point in the process, both are impossible to precisely quantify. Fifty years from now, perhaps. But part of the job is to provide the best information possible. Not to stonewall.

Speaking for the egg, here’s Dr Jeff Michael in Breitler’s article:

“These (cost-benefit) analyses are a standard part of policy now. It’s an incredibly reasonable request,” said Jeff Michael, a University of the Pacific economist who has contracted with the Delta Protection Commission, a locally-leaning board of officials that generally opposes a tunnel.

“You consider all of the third-party effects, positive and negative, and a full range of benefits and costs, not just those that accrue to people paying the checks,” Michael said.

In other words, this is different than buying a pick-up.

Not every element of the plan can or should be reduced to numbers, especially the question of how nature is valued.

But predictions, however provisional, made through the rigors of cost/benefit number-crunching help people trying to understand how this relates to their daily lives. Of their mortgage obligations, school programs, how they decide to tax themselves, climate change, natural disasters, etc. Even guesstimates are useful, and lead to people making informed decisions.

Such an analysis would remove much of the ideological “should do” thinking that both sides use in the debate.

It would be a good thing if decisions about such huge investments were not based on strategically vague economic equivocations about the value of early estimates..

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