Utility Bills and the Environment—Cost and Benefits

by: Dr. Lynn Reaser

San Diegans are probably unhappy every time they receive their utility bills. Although we typically use less electricity to cool and heat our homes because of the mild climate, rates are high. This is a statewide problem.

According to the U.S. Energy Information Administration (EIA), electricity rates averaged $14.54 per kilowatt-hour (kWh) in December, 2014, a 44% premium over the national average. This was even greater than the 33% premium paid just a year earlier. This is another factor boosting the cost of living and the expense of doing business in the state.Blog photo utility bill

Much of the differential reflects the public’s endorsement of efforts to focus on alternative sources of energy. Specifically, utilities must generate one-third of their electricity from solar, wind, geothermal, or biomass sources by 2020. This clearly puts us at a disadvantage when the price of natural gas, along with oil, has plummeted.

This may be critical to achieving a reduction in our emissions of greenhouse gases, but it does come at a cost.

Fast-Tracking in Congress

By: Lynn Reaser

The Obama Administration is asking Congress to adopt “fast track” legislation that would facilitate the approval of international trade agreements. By allowing only a “yes or no” vote on trade bills, the logjams that seem to consistently strangle bills in the House and/or Senate could be avoided in the consideration of key trade agreements that the U.S. has negotiated with other countries.blog post photo. Fast track

Expanding international trade and investment is one of the best economic polices a country can pursue both for its own interests and those of the world at large. Because trade agreements usually face a long and tortuous negotiations process, avoiding another series of roadblocks in our own Congress by only allowing an “up-or-down” vote would be beneficial. If Congress were to instead make various modifications, the entire negotiating process would have to restart with other nations.

The United States is at a critical juncture in terms of two multinational trade agreements—one with the European Union and one with the Pacific Rim. Easier access to markets in Europe, Latin America, and Asia would be a major win for San Diego companies and jobs.

Jobs and Interest Rates—Good News for Main Street, Bad News for Wall Street

By: Dr. Lynn Reaser

mmj-jobs

February’s jobs report brought some great news.  Despite record snow levels on the east coast and port stoppages on the west coast, companies added nearly 300,000 new jobs.  The jobless rate fell to 5.5%, a level many economists have pegged as representing close to full employment.

Financial markets were not happy.  Both stocks and bonds sold off over fears that the Federal Reserve might be moved to quickly boost interest rates.  How close might a rate hike be?

The Fed has indicated that no rate hike will occur before June. The first increase seems likely between then and September. February’s jobs report was robust, but wage growth is still sluggish, inflation is well below the Fed’s 2% target, and growth in real gross domestic product (GDP) appears to have been soft this quarter. The economy rarely moves in a straight line. Momentum appears to be building but could be derailed by lagging productivity, a stronger dollar, or weak conditions abroad.

Higher interest rates seem probable this year, but the Fed will be cautious in launching the first hike.

Providing More Affordable Housing for Californians

By: Dr. Lynn Reaser

Assembly Speaker Toni Atkins has proposed legislation to help pay for more affordable housing in California. Her assembly bill would imaffordable-housing-crisispose a fee on property transfers to raise the state’s low-income housing tax credit by $300 million.

Housing affordability remains a major problem throughout California, especially for low-income households. In the City of San Diego, there are currently 50,000 on the waiting list for 15,000 vouchers for low-income housing. California has 12% of the nation’s population but 20% of its homeless. Many low-income workers cannot find housing near their place of work.

The proposed tax increase would exempt sales of residential and commercial properties. It would affect primarily refinancing and a multitude of smaller deed recordings, with fees capped at $225 per transaction. The funds raised would help offset the approximately $1 billion previously provided by redevelopment agencies that have now been eliminated.

More attention now needs to be directed to reducing the cost of housing, a significant part of which is due to the burden of regulation. Special attention should be given to cutting the long approval process often involved in the development phase.

Image Credit: chieforganizer.org

The Threat of a Long-Term Drought to San Diego

By: Dr. Lynn Reaser

As rainfall totals continue to lag behind normal, fears are mounting that we could face a prolonged period of drought in San Diego County. This could have deep and widespread repercussions for our economy.

Unless relief comes with more rainfall and water, changes will be necessary both on the supply and demand sides. San Diego needs to diversify its supply sources from its current dependence on water imported from northern California and the Colorado River. Those sources now account for three-fourths of our supply. Recycled water, currently at only 4% of our water portfolio, would appear to be particularly promising.

On the demand side, we have seen per capita water consumption fall from about 200 gallons per day to about 150 gallons over the last decade, but more needs to be done. Pricing needs to be rationalized to encourage more efficiency. Below market pricing has encouraged more consumption than is sustainable in agriculture, industry, recreation, and by households. Phasing in change over time can avoid massive economic disruptions, but change will be necessary.

Image Credit: http://bit.ly/1EsB3lw

Economics and a New Charger Stadium

By: Dr. Lynn Reaser

The debate over the Chargers and a new stadium is again in the headlines. While we all love the Chargers, does a new stadium meet the business and economics test? It would appear that the answer is “no.”

If the economics argument was compelling, the Chargers organization or private investors would have already provided the necessary funds to build a new stadium. If public funds are necessary, the return on such an investment is still in question. This is especially true since the alternative use of taxpayer dollars in terms of roads, water systems, police protection, and other public projects and services must be considered. An economics analysis must also consider risk. Football could lose much of its allure if concussion concerns mount and the Chargers might still leave down the road, leaving San Diego with not a glistening stadium, but just a white elephant.

Bigger Raises—Is It Time?

By: Dr. Lynn Reaser

As job growth has picked up and the unemployment rate has fallen, the missing link in the labor market has involved wages. For the past five years, they have been rising about 2.0% per year. While the drop in oil prices has helped pull inflation down to about half that level, workers and the Federal Reserve have been frustrated that larger pay hikes have not yet appeared.

Over the next year, some pickup in wage growth should take place. As the jobless rate moves towards 5.0%, competition for key workers is likely to heat up. Technology firms are already seeing that pressure. On average, wages are likely to be up about 2.5% by year-end.

Each firm, however, will need to assess its own situation in terms of productivity gains, employee morale, and its ongoing financial stability. As a result, all employees might not see the gains they would like, but most should find themselves better off over the next two years.

Image Credit: Agence France-Presse/Getty Images