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A cost-benefit analysis at last?

by admin on November 30, 2012

November 29 was a busy day for everyone trying to keep track of what the Bay Delta Conservation Plan (BDCP) is up to.

At a Finance Working Group meeting in the morning, BDCP representatives announced their willingness to do a complete statewide benefit-cost analysis, something they have refused for years to do. Dr. David Sunding of U.C. Berkeley and the Brattle Group announced that he is prepared to do a new cost-benefit analysis as soon as he has an actual project (an actual water supply) to analyze for benefits. He spent a lot of time talking about methodology.

Sunding is the analyst who produced an earlier cost-benefit analysis for BDCP finding that the project will benefit the contractors who are paying for it, but only if it results in “regulatory certainty”: guarantees that the fish agencies won’t step in now and then to limit diversions. Dr. Jeff Michael of UOP’s Business Forecasting Center did an analysis without those guarantees and found that the project would cost $2.50 for each dollar of benefit.

Dr. Sunding must be on the right track this time. Dr. Michael, who was at the November 29 meeting, said that this meeting showed “tremendous improvement,” although he is concerned about calculating benefits out to infinity and using an unrealistically low interest rate for borrowing associated with the project. Click here  to read Dr. Michael’s November 29 posting on his blog, Valley Economy. We’ll give him the last word on this matter:

“Really, the biggest key to [Sunding's] benefit-cost analysis of the tunnels is defining a good no-tunnel alternative instead of comparing the tunnel alternatives to a crappy, no-action, status-quo straw man.”

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