Inland Empire Outlook Spring 2014 Issue

Economic and Political Analysis

Volume V | Issue 1 | Spring 2014

Prison Realignment pg. 2-9 The IE Narrows the Recovery Gap pg. 10-13 Photo Credit: California Department of Corrections

big changes

for

Corrections

Life is a Crowded Highway pg. 14-17 Water in the Inland Empire pg. 18-23

We begin this issue of the Inland Empire Outlook by examining the substantial changes at the county-level brought by prison realignment in 2011 (p.2). Next we examine the current unemployment data and observe that although the Inland Empire rate of 9.4% is still higher than the state and national rates, the unemployment rate gap between the Inland Empire and both California and the United States, is narrowing (p.10). Commuting, closely tied to employment in the Inland Empire as more than 40% of residents cross county lines for work, is the subject of our third article (p.14). Finally, we examine water governance and supply for the Inland Empire in our last article (p.18).

On April 10, 2014, the Inland Empire Center, in partnership with the UCLA Anderson Forecast, will hold the seventh CMC-UCLA Inland Empire Forecast Conference at the Miramonte Resort & Spa in Indian Wells. Jerry Nickelsburg of UCLA Anderson Forecast will present the state and national forecasts, Professor Manfred Keil of CMC will present the Inland Empire and Coachella Valley forecasts. The conference will also feature panels on industry perspectives on the forecasts and on energy, water, and economic development in the Coachella Valley.

Major sponsors of the conference include the Coachella Valley Economic Partnership and Rabobank.

We at the CMC Inland Empire Center hope you find this edition of Inland Empire Outlook a useful guide.

Please visit our website, www.inlandempirecenter.org, for updates to these stories and other Inland Empire news.

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Prison Realignment Photo Credit: Jennifer Cappuccio Maher | Contra Costa Times California

California’s prison population grew by a factor of seven between 1980 and 2006. State prison facilities, however, had not expanded to accommodate the inflow of inmates, and faced severe overcrowding. In 2011 the Supreme Court held in Brown v. Plata that California must reduce its prison population to 137.5% of design capacity. That opinion affirmed the holding of a special threejudge federal court that concluded that the deprivation of adequate medical care to prisoners violated the Eighth Amendment. The Supreme Court agreed with the three-judge panel that overcrowding was the primary cause of the violations and upheld the panel’s order to reduce the state prison population to 137.5% of its design capacity. The Court initially ordered the state to reach that benchmark within two years, however, the three-judge court recently granted California an extension until February 2016 to solve the overcrowding problem.

In response to Brown vs. Plata, California passed Assembly Bill 109, the 2011 Public Safety Realignment Act. In order to reduce the number of inmates in state prisons, AB 109 sought to place more responsibility on the county level. The bill specifically targets offenders whose last crimes were non-violent and non-serious and who are not convicted sex offenders. These inmates are also referred to as ‘triple-non offenders.’ In addition, those who fail to meet the conditions of their parole will also be handled by counties instead of returning to state prisons. However, those offenders who are serving for or have prior serious or violent felonies will remain in the state prison system. AB 109 went into effect on October 1, 2011, and counties across the state have adapted to meet the new burden of integrating offenders into the community and handling them within their own court systems.

In order to implement the changes outlined gives counties additional flexibility to access in the realignment act, each county has created funding to increase local jail capacity. AB 94 a Community Corrections Partnership (CCP). allows counties to relinquish previous grants for These committees are charged with allocating jail facility financing and reapply under a separate state funds to county departments and generally financing program and lowers the county’s recommending how to integrate the increased required contribution from 25% to 10%. AB number of offenders into the county. Each 118 focuses on the state level to establish the CCP is comprised of the Local Revenue Fund county chief probation 2011 for realignment officer, chief of police, financing revenues that the district attorney, the will be distributed among Because of the presiding judge of the counties and directs the superior court, and a deposit of certain sales overcrowding within representative from either tax revenues into that jails and prisons, the county Department account. SB 89 dedicates of Social Services, Mental a portion of the Vehicle many more offenders Health, or Alcohol License Fee to the Local have been handled and Substance Abuse Revenue Fund 2011.

Programs, as appointed Finally, Senate Bill 87 by county probation by the County Board of provides counties with departments and Supervisors. a one-time $25 million appropriation to cover Since implementing other alternative general costs associated the 2011 Public Safety with expanding sentencing programs Realignment Act, the county infrastructure state has struggled to than would have to accommodate the estimate the correct increased number of been without the amount of funding that offenders. should be allocated to

2011 Public Safety

each county. In the first As mandated by AB year of the program, 109, offenders who Realignment Act. California provided have been convicted for $400 million to support felonies, but who did not the realignment process, commit serious, violent, and has increased the budget each year. The or aggravated white collar crimes and are not sex following year the state provided counties with offenders, are now handled at the county level $850 million, and increased it further to over under the Post Release Community Supervision $1 billion in fiscal year 2013-14. In 2012 Departments (PRCS). In addition, offenders California also passed Proposition 30, which who violate their parole are now handled by allocated more funds to the California criminal county probation departments instead of justice system in order to help fund realignment returning to state prisons. The public realignment costs. act changes went into effect in October 2011, and since then all PRCS offenders have been The California legislature has also passed five handled at the county instead of the state level. bills related to realignment funding. AB 111

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Table 1: California Adult Correctional Control at Year-End

Status Prisoners Parolees Jail Probationers Total

2010 162,821 105,117 70,649 311,692 650,279

Prison and Jail

233,470 36%

211,813 31%

(21,657) -9%

State Control County Control

267,938 41% 382,341 59%

189,271 28% 495,292 72%

(78,667) -29% 112,951 30%

25% 16% 11% 48%

2012 132,935 56,336 78,878 416,414 684,563

19% 8% 12% 61%

Change (29,886) (48,781) 8,229 104,722 34,284

-18% -46% 12% 34% 5%

Source: Reallocation of Responsibility, Changes to the Correctional System in California Post-Realignment Stanford Criminal Justice Center, January 2014

Data from a Stanford study show that realignment is working to shift responsibility for a significant number of prisoners from the state to counties. The number of adults in the 33 state prisons fell from 162,821 in 2010 to 132,935 in 2012, shrinking by 29,886 or 18%. This dramatic drop is largely due to the major diversion of incoming prisoners. Lowlevel felons who would have been sent to state prison are now sentenced to terms in county jails or placed under other local supervision.

In addition, parole violators who used to be returned to state prison are now sent instead to county jails. The number of parolees under state supervision fell from 105,117 in 2010 to 56,336 in 2012. The total number of adults under state correctional control (prisoners and parolees) fell from 267,938 to 189,271 from 2010 to 2012.

The burden placed on counties as a result of realignment is large. In 2010 counties were responsible for 70,649 jail inmates and 311,692 probationers. Together they comprised 59% of all adults in the correctional system in California. That portion has jumped with AB 109’s dramatic shift of correctional control, to 72% in 2012.

The 2011 Public Realignment Act has resulted in many more offenders being handled by county probation departments and other alternative sentencing programs. Probation departments are now responsible for the majority of California’s offenders, 61%, up from 48%. The number of individuals held in jails or prisons fell from 36% to 31% of the total number in the correctional system.

One of the largest concerns with AB 109 is the threat to public safety from integrating more criminals into local communities. Local courts are also motivated to use alternative sentencing measures because of overcrowding within county jails, and many PRCS offenders may enter the community through probation and other programs instead of entering jails. As a result, community members have contact with a larger number of offenders than they would have without realignment measures.

RIVERSIDE COUNTY According to the Riverside County’s “Public Safety Realignment & Post-Release Community Supervision Final Implementation Plan,” the

Figure 1: Recent Trends and Projections in California’s Jail, Prison, Probation, and Parole Populations, 2004 - 2017

Source: Reallocation of Responsibility, Changes to the Correctional System in California Post-Realignment Stanford Criminal Justice Center, January 2014

Riverside County Community Corrections Partnership Executive Committee Work Group is comprised of seven subcommittees that advise how realignment measures should be funded and implemented. The Fiscal Sub-Work Group oversees accounting procedures and reviews reports regarding how AB 109 funds are being spent by programs and County departments.

The Operational Effectiveness Sub-Work Group manages data sharing between the Probation Department, the Department of Public Social Services, and the Sheriff’s Department in order to monitor offenders’ risk to public safety. The Post-Release Accountability and Compliance Team also works to ensure public safety by providing policemen to assist probation officers in compliance checks. The Health and Human Services Sub-Work Group also plays a significant role within the Community Corrections

Partnership since it aims to guarantee that all PRCS offenders receive sufficient medical and mental health resources. The Community Corrections Partnership also includes the Day Reporting Center, Measurable Goals, and Court Sub-Work Groups.

Riverside County faced significant troubles beginning the process of integrating triple-non offenders into the community. However, the largest problems arose due to miscalculations in state projections. For example, before October 1, 2011, the California Department of Corrections and Rehabilitation had projected that 1,688 offenders would be transferred from the state to Riverside’s PRCS Department. In fact, as of February 7, 2014, 2,057 offenders had been placed under county supervision, 22% more than the state estimate. Because funding allocations were based on the 2011 estimates,

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Riverside County received much less than was needed to accommodate the changes outlined in the 2011 Public Safety Realignment Act. The state also miscalculated the number of high-risk offenders that would enter the county, since it only considered the offenders’ most recent crimes in the assessment. After reviewing the criminal records of the inmates who entered the community, the County Corrections Partnership found that 67% were high-risk by state standards, whereas the state estimate was 40%.

By the end of 2011, the Riverside County jail had already reached its maximum capacity, with 3,743 beds occupied. An early prediction of the immediate effects by Steve Thetford, Chief Deputy Sherriff of Riverside County, suggested that there will be an overflow of approximately 480 inmates, 320 of whom can enter alternative sentencing programs, leaving 160 serious offenders outside of prison or a reintegration

program. Although that estimate appeared to be accurate in the earliest stages of realignment, it also highlights how the county may be receiving more offenders than it has the resources to deal with, and the potential threat that poses to public safety.

Riverside County was initially provided $21.4 million to implement its realignment plan. However, the county was slow to decide how to spend those funds in a way that would best prepare for the inflow of offenders. At the beginning of the process, the county probation department was one of the few that received concrete allocations to begin implementing changes, and it began by using part of its $6.45 million funds to hire 73 new agents. The Sheriff initially requested $11.6 million, but later agreed to reduce its request by $1 million in order to allocate more resources towards the District Attorney and Public Defender’s offices. The County mental health agency was only awarded

Photo Credit: “Overcrowding in California State Prison” | California Department of Corrections

$2 million of the $8.4 million it requested.

and other partnerships with existing programs.

Overall, the county is wrestling with the question of how many offenders it will place in the jail system versus alternative forms of reentry services.

Just a year after releasing its Final Implementation Plan, the Executive Committee of the Riverside County CCP submitted its “Implementation Plan Update” to the County Board of Supervisors. The report outlines how The Riverside County Sheriff’s Department state funds had been allocated so far, and what has seen the most stress in the realignment measures the county should take moving forward. process since it also has its own jail overcrowding Between 2011 and problems. In fact, as 2012, Riverside County of January 1, 2013, received three major almost 25% of the jailed allocations from the inmates in Riverside state. In order to expand County were PRCS Before realignment, its custody, supervision, offenders. Furthermore, and treatment services, those offenders generally counties were the county was require greater resources responsible for 59% granted $43,183,181 and demand higher to its Criminal security, thus placing of all adults in Justice Alignment/ a larger burden on two correctional Local Community the judicial system. In Corrections Account. order to accommodate systems. Now they are This funding partially more offenders, the responsible for 72%. provided the necessary Sheriff’s Department resources to compensate has increased its staff for the state’s initial and begun to utilize underestimate of how some alternative many offenders would sentencing programs, shift to Riverside County supervision. The CCP such as work release and electronic monitoring. also received $200,000 to allocate at its discretion.

The department has also worked alongside the The District Attorney and Public Defender’s Department of Mental Health to reintegrate offices have also struggled to accommodate and and provide services for offenders. Together, provide services for the influx of offenders, and they hope to reduce recidivism by creating the two were granted $344,651 and $852,762, opportunities for offenders to gain job skills and respectively. access mental and health resources.

Because many Riverside County jails are at full capacity, the County Probation Department has become essential in integrating PRCS offenders into the community. Some measures taken by the county include increased housing options, a Day Reporting Center (similar to what San Bernardino County offers), increased data sharing between offices and county departments,

Since Riverside County began adapting to realignment, it has significantly expanded its probation department and utilized its Community Corrections Partnership to provide offenders with the resources they need to assimilate back into the community. However, the county will have to work continuously towards providing these resources and expanding

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its jails in order to accommodate the inflow of triple-non offenders.

SAN BERNARDINO COUNTY At the beginning of the realignment process in September 2011, San Bernardino County’s CCP released its “2011 Public Safety Realignment Plan.” According to the report, as of September 1, 2011, San Bernardino County was in charge of supervising 19,000 adult felony offenders.

The county approached realignment with the goal of expanding its probation department to accommodate the increased number of offenders. Since San Bernardino County already had extensive rehabilitation programming and a well-organized probation department, it sought to expand its alternative sentencing resources.

In fact, it has expanded its three Day Reporting Centers in order to provide more resources for probation, rehabilitation, and treatment services. These centers help offenders assimilate into the community through job training classes and health screenings, among other services. In fact, 59% of all offenders released into the county as a result of the 2011 Public Safety Realignment Act received assistance from some post-release service. According to San Bernardino County Probation Department Spokesman, Chris Condon, the county has seen a decrease in recidivism by over 50% since the beginning of realignment. However, since the realignment process is only in its fourth year, it is hard to predict whether the county will see ongoing reductions.

In addition to providing services through the Day Reporting Centers, the county has also provided funding for its probation department to assist more offenders. The county hired 107 probation officers in 2011, some of whom are stationed in sheriff stations to assist law enforcement agencies.

The probation department has also worked to reduce recidivism

by providing resources such as evidence-based treatment practices to offenders.

In addition to providing more services and mental and health resources for PRCS offenders, San Bernardino County has also needed to expand its District Attorney’s office. In addition, the Public Defender’s office also immediately sought to hire an extra attorney and more staff to adapt similarly to handling more inmates.

The Adelanto Detention Center has also had to adapt to accommodate the changes mandated

by AB 109. According the “2013-2014 Adopted Budget,” San Bernardino County planned to spend $127.5 million on the Adelanto Detention Center Expansion Project, which would double its capacity and add 1,392 jail beds to that detention center. The state committed to provide $88.0 million as part of its County Jail LeaseRevenue Funding Program under AB 900, and would contribute more from its AB 109 growth funds in order to support the necessary increase in staffing. Due to unexpected costs, by January 2014 the county had paid over $30 million in expenses on top of its initial estimate of $91 million. The detention center finally hosted its grand opening in early February, although the final cost of the project was $145.4 million, almost $20 million more than was allocated by the county in its financial report .

The pressure from the inflow of offenders has also caused the county to reduce the amount of jail time for many offenders. California’s criminal sentencing law for felons used to be ‘determinate,’ specifying three possible sentence terms (short, medium, and long) for each crime.

Following realignment, judges can now split a determinate sentence between jail time and probation time. In fact, 20% of realignment inmates in San Bernardino County have faced split sentences instead of serving their full time.

In contrast, Riverside County has used split sentences for approximately 80% of its PRCS

offenders. Although San Bernardino County’s rate is much lower than its neighbor’s, it remains a fact that many offenders in both counties have been put under alternative sentencing measures and are being released early.

Similar to Riverside County, San Bernardino County has also found that many of the offenders transferred from state to county jurisdiction were mistakenly classified as low-risk offenders. In fact, 29% of the PRCS offenders’ earlier convictions were more serious than their most recent one (which is used to categorize them). While the county saw its overall crime rate increase by ten percent, its violent crime rate actually dropped by four percent (the property crimes rate increased by almost nine percent). There has been very little conclusive evidence tying the increased crime rate to the influx of PRCS offenders, and a report released by the Center of Juvenile and Criminal Justice suggested that there has been no proven correlation between a county receiving more PRCS offenders and an increased a higher crime rate.

Angeles County, which has only used them in 6% of cases. Proponents of realignment argue that counties can do a better job than the state of managing felons. They argue that now that the responsibility and cost for low-level felons can no longer be thrust upon the state, county officials may have greater incentive to pursue crime deterrence policies.

As counties continue to require more funds from the state for realignment, California officials will have to determine whether the state can sustainably provide the resources necessary for reducing prison populations. Furthermore, as Governor Brown already received an extension to reach the 137.5% goal by February 2016, there will be increasing pressure to provide those necessary funds to county sheriff and probation departments. IEO

As demonstrated by its increased use of split sentencing and reliance on alternative sentencing measures, San Bernardino has approached the realignment process by transferring a significant amount of responsibility to the probation department and other community service organizations. Nevertheless, the county has had to significantly expand the Adelanto Detention Center despite its best efforts, and the sheriff’s department is shouldering a much greater amount of work as a result of AB 109. In the coming years San Bernardino County will have to increase its efforts to accommodate the increase in inmates and determine whether the process has a negative effect on public safety.

Both Riverside and San Bernardino Counties have increasingly relied on alternative sentencing measures. In fact, they both have utilized split sentence much more than Los

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The IE Narrows the Recovery Gap Photo Credit: Maya Sugarman | KPCC

Mention the Inland Empire to anyone outside Southern California and you will most likely get a bemused or befuddled look. While it may not be as well-known as Los Angeles, OC, Malibu, Venice, Newport Beach, San Diego, Coachella Valley, or the Bay Area the Inland Empire plays a significant role in both the economy of California and the wider U.S. With almost 4.5 million residents, the Inland Empire is the third most populated Metropolitan Statistical Area (MSA) in California. Even more striking, the Inland Empire is the thirteenth largest MSA in the entire U.S. As is the case with any region containing such a large population, it is crucial to study the economy of the Inland Empire and its interactions with the surrounding economies.

This study generates valuable information for

commerce and the government, which can then be used to create policies that affect the wellbeing of the residents within and outside the area. What makes the Inland Empire even more intriguing is the economical dichotomy between it and its coastal neighbors. Inland Empire workers are, on average, less qualified than their coastal peers and make less money The economic gap between these regions is even more noticeable as, while few workers commute into the Inland Empire for work, over 40% of the Inland Empire’s labor force commutes to coastal areas such as Los Angeles or Orange County. Due to these disparities, the average Inland Empire worker is more likely to be laid off first in a downturn and will get hired later in a recovery. This lead-lag dynamic is what makes

Figure 1: Unemployment Rates in the United States, california, and the Inland Empire

16.0

Unemployment Rate (%)

14.0

Inland Empire

12.0 10.0

California

8.0 6.0

U.S.

4.0 2.0 0.0

Source: Federal Reserve Economic Data

the Inland Empire such an intriguing economic case study.

The current status of the Inland Empire’s economy is especially noteworthy when compared with a year ago. While California and the U.S. were slowly recovering from the Great Recession, the Inland Empire was still struggling to get off the ground, creating a recovery gap.

Over the past year, however, the Inland Empire has seen its economic fortunes improve. The drop in the Inland Empire’s unemployment rate over the past year has been especially noteworthy.

As seen in Table 1, the February 2014 seasonally adjusted unemployment rate stands

at 9.4%, which is the lowest it has been since October 2008 when it was at the same level.

While the Inland Empire’s recovery might have been lagging behind the rest of the nation in early 2013, its unemployment rate dropped noticeably faster than California and the U.S. throughout 2013 and into 2014. Note that it was not only the level of the unemployment rate that decreased substantially, but also the unemployment rate gap with respect to the U.S. and California. Most impressively, the gap between the Inland Empire and the U.S. narrowed by half a percentage point in the span of one year.

Table 1: Absolute and Relative Unemployment Rates, Inland Empire, Seasonally Adjusted (SA)

Date

Inland Empire

April 2010 February 2013 February 2014

14.8% 11.4% 9.4%

Inland Empire minus Inland Empire minus United States California 4.9% 3.2% 2.7%

2.5% 1.5% 1.4%

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This positive news has to be contrasted with the recently observed increase in the unemployment rate from December 2013 to January 2014. According to the numbers released

by California’s Employment Development Department (EDD), the unemployment rate in the Inland Empire increased by 0.6 percentage points during this period. While this increase (from 8.9% to 9.5%) might seem worrisome at first glance, a closer look at the historical trends of employment within the Inland Empire reveals a more reassuring picture of the state of

the economy. In contrast to regions that see unemployment change during periods of bad weather, such as the Midwest and the East Coast this past winter, the Inland Empire has historically seen shifts in its unemployment rate primarily due to employment changes resulting from seasonal hiring practices around the Christmas holidays. As seen in Table 2, the Inland Empire experiences a consistent increase in its unemployment rate over the past 14 winters during this two month period. As a result, the recent increase in unemployment

Table 2: Unemployment Rate Increase from December to January, Inland Empire, NSA, 2001-2014

Jan. 2001 0.7% Jan. 2008 0.4%

2002 0.7% 2009 1.2%

2003 0.4% 2010 0.8%

does not indicate a renewed slowdown in the recovery of the Inland Empire, but rather represents a recurring seasonal phenomenon, very much consistent with the historical data.

Employment trends within the Inland Empire have also been improving noticeably over the past year. In the aftermath of the Great Recession, the construction and manufacturing sectors were particularly devastated by the housing market crash. These two sectors, combined, saw employment losses of over 90,000 workers between September 2007 and early 2011. Even though the sectors saw a slight expansion in early 2012, growing by 8,500 workers, these gains were nowhere close to covering the losses experienced as a result of the Great Recession. To make matters worse, both sectors saw another downturn of 10,500 job losses between early 2012 and early 2013. Even though the situation seemed quite bleak for both sectors in early 2013, we observe clear signs of improvement over the past year. Construction has been

2004 0.6% 2011 0.5%

2005 0.5% 2012 0.3%

2006 0.4% 2013 0.5%

2007 0.7% 2014 0.6%

noticeably picking up over the last quarter, and there are some indications that manufacturing is soon to follow. The recovery of construction is of special importance for the Inland Empire and the U.S. as a whole, as housing starts are a significant and consistent leading indicator for the national economy for both recessions and recoveries.

Keeping the positive employment and unemployment trends in the Inland Empire in mind, we see two possible economic scenarios occurring in the wider US over the next few years that will affect the Inland Empire’s recovery. Under the first, and more likely scenario, we predict that the U.S. will see decent GDP growth over the next few years. This scenario is based upon promising economic trends such as a strong stock market, increased housing starts, improved government finances, a positive outlook for energy prices, and low interest and inflation rates. Taking into account forecasts by both the Federal Reserve

average length of expansions of just under nine years, this argument would suggest that the next recession begins in early 2018.

The Inland Empire’s unemployment rate dropped noticeably faster than California’s and the country’s throughout 2013 and into 2014.

and UCLA’s Anderson School, this scenario suggests that the U.S. will see GDP growth of around 2.7%-3.1% over the next two years. The second scenario paints a more cautious picture.

This scenario is based upon the historical length of expansions, which tells us that the recovery should end in the next few years. Using the average period of expansions between 19451980 (4.5 years), a new recession should have started in January 2014. As this has yet to occur, we can look to the average length of expansions between 1945-2007, which lasted just less than six years, and predict that the next recession will start in around May 2015. However, there may be some who argue that we should use the average length of expansions during the Great Moderation (starting after the Volcker recession of 1981/82 and ending at the start of the Great Recession) as our prediction metric, as some believe that the Great Moderation represented a paradigm shift in the length of expansions in business cycles of the U.S. economy. Using this

Whatever ends up happening in the economy over the next few years, it will be of paramount importance to continue to monitor the economic situation in the Inland Empire. This is because the Inland Empire is a strong leading indicator of national contractions. This is true even for recessions that occur due to shocks that are difficult to predict. For example, even though the Great Recession occurred as a result of the burst of the housing bubble, a shock difficult to forecast, the Inland Empire showed signs of slowdown before the rest of the nation, and indeed the world economy, was brought to its knees. Therefore, it is crucial to study economic trends in the Inland Empire as they should give us a good idea of when the next national slowdown will hit. But, for now, it seems as if all systems are set to go in the Inland Empire for accelerated growth over the next couple of years. IEO

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Life is a Crowded Highway Photo Credit: epSos.de | Flickr

Is commuting from the Inland Empire into the Greater Los Angeles area a nightmare, regardless of whether it is on the I-10, the I-210, or the CA-60? Is the Pope Catholic? The same holds for the reverse commute in the early afternoon/evening. Traffic is Los Angeles’ middle name. The carpool lanes ease the pain, but it is often difficult to tell the difference between the speed of a crawling turtle and that of a moving snail.

Clearly, our road system in Southern California struggles to meet demand. MetroLink provides some relief, but just getting to Union Station from the Inland Empire takes quite some time, and unlike other metropolitan areas, there are few express trains. For example, going from Claremont to UCLA by public transport is a three-hour nightmare. First, from the Claremont Metrolink Station, take the San Bernardino Line to L.A. Union Station (1 hour). Then, take Bus 707 towards Silver Streak-Los Angeles (19 min). Next, from 5th/Grand, take Bus 720 towards 720-Metro Rapid-Santa Monica (1h 6 min).

Finally, walk from Wilshire/Westwood to UCLA. Despite its prominent role in our daily lives, commuting remains under-studied from an economic perspective. Who are these commuters, where are they going, and can they tell us anything about the state of the economy in the Inland Empire? Residents of the Inland Empire differ noticeably from their counterparts in neighboring regions to the west. Table 1 presents several summary statistics of household characteristics for the Inland Empire and the coastal areas. Households in the Inland Empire are generally somewhat larger, less educated, earn less money, and are slightly younger than those in Los Angeles County, Orange County and San Diego County.

Table 1: Average Houshold Size, Mean Income, Education, Age, Inland Empire &

Coastal regions, 2014

County

Average Household Size

Mean Household Income

% with Bachelor’s Degree or Higher

Median Age

San Bernardino

3.4

$65,000

18.5

32.2

Riverside

3.3

$69,000

20.5

34.0

Los Angeles

3.0

$77,000

30.1

35.0

Orange County

3.1

$98,000

37.3

36.7

San Diego

2.9

$81,000

343.8

34.9

Source: American Community Survey

Why do people choose to commute far from their homes? Table 2 takes a closer look at the share of various industries within each county. At first glance, these numbers may not indicate a drastically different industrial composition. However, the analysis is more revealing if we dig a little deeper. In the Inland Empire, higher paying industries, such as Technical Services, Information, and Finance, comprise slightly more than 7% of the job total. The equivalent numbers for the coastal areas are consistently more than twice as high: 16.2 % (Los Angeles County), 15.6% (Orange County), and 16.5% (San Diego County). This observation likely explains a significant portion of the differences in mean household income between the inland and coastal counties.

These background statistics alone tell us very little about the nature of commuting.

There is, however, an amazing array of data provided by the U.S. Census Bureau, primarily the Longitudinal Employer Household Dynamics (LEHD) analysis. The most relevant data come from the LEHD Origin�Destination Employment Statistics (LODES), which allow us to compute the destination of commuters and the significance of commuting for a given location.

According to 2010 LODES data, more than 40% of Inland Empire workers crossed county lines on their way to work.

Specifically, there were approximately 555,000 commuters among the 1.33 million people for which commuting data is available (note: there are roughly 2 million people in the Inland Empire labor force, meaning the analysis misses a significant chunk). Of those captured by the statistics, about 20% commuted into Los Angeles County, 11.7%

Inflow

319,164

Outflow

554,919

Source: LEHD Origin-Destination Employment Statistics (LODES)

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Table 2: Industrial Composition by County, Inland Empire, Coastal Counties,

January 2014

San Bernardino County

Riverside County

Los Angeles County

Orange County

San Diego County

7.8%

10.9%

7.4%

8.9%

9.6%

7.5%

5.5%

5.9%

8%

6.1%

Education Services

10.4%

12.6%

9.6%

7.7%

11%

Finance

2.5%

2.2%

4.1%

5.5%

3.5%

Health Care & Social Assistance

12.9%

12.4%

11.1%

9.8%

11.4%

Information

1.0%

1.3%

5.2%

2.0%

2.4%

Manufacturing

8.1%

6.9%

10.1%

11.7%

8.3%

Professional, Scientific & Technical Services

3.6%

3.8%

6.9%

8.1%

10.6%

Retail Trade

12.8%

13.5%

10.3%

10.4%

10%

Transportation & Warehousing

7.1%

3.3%

4.0%

1.8%

1.8%

Industry Accomodation & Food Services Administration & Support, Waste Management & Remediation

Source: American Community Survey

into Orange County, and another 5.2% into San Diego County. The remaining commuters travelled to more distant destinations such as Ventura County (0.6%) and Kern County (0.4%).

Table 3 displays the percent of commuters in each county. For the two Inland Empire counties, this number excludes commuters from San Bernardino County to Riverside County, and vice versa. Regardless, those two counties clearly have a proportionally higher number of commuters than their neighbors. By contrast, Los Angeles County and San Diego County have a relatively low share of commuters (18.8% and 19.8% respectively). Interestingly, if we excluded commuters to Orange County, then these percentages drop to 11.1% for Los Angeles County and 15.1% for San Diego County.

Figure 1 shows the flow of commuters in the Inland Empire. The arrow pointing towards the Inland Empire represents all workers who live outside the Inland Empire, but commute into the region for work. The arrow pointing away indicates commuters from the Inland Empire traveling for work elsewhere. Clearly, there is an outward net flow.

In summary, these numbers strongly suggest that, despite the sprawl of Southern California,

Table 3: % of Commuters by County, 2010

County

% of labor force commuting to work in another county

Los Angeles

18.8%

Orange

35.6%

San Diego

19.8%

San Bernardino

43.5%

Riverside

40.3% Source: American Community Survey

higher paying jobs are concentrated predominantly in the urban centers of Greater Los Angeles and San Diego County.

The disparate statistics of the counties, where the Inland Empire ranks lower in terms of both mean income and educational attainment, gives rise to many potential explanations for the nature of commuting in the Inland Empire. It seems that Los Angeles, Orange, and San Diego County are sufficiently densely populated that lower paid workers in these locations cannot find housing within those counties and are therefore forced to live further away from work. Alternatively, commuters may prefer the relatively cheaper housing in the Inland Empire as an opportunity cost to traveling to work. Or perhaps it is a combination of both scenarios.

Given the magnitude of the numbers, it is clear that commuting deserves further analysis.

Predicting commuting flows is of significant importance for the counties comprising the Inland Empire. Ultimately, and in the long run, the area can only flourish if it can generate jobs within the two counties. Having seen the devastating effect of a recession on this region, it becomes clear that economic policies should

be directed to avoid another meltdown as experienced from 2006-2010. As it currently stands, there is an enormous amount of resources wasted by daily commutes. Just to get a sense of the magnitude, let’s prepare a conservative estimate of the cost of commuting. A common commute from the Inland Empire into the city of Los Angeles can take an hour on a good day.

If we value a worker’s time at a minimum wage of $10, the region loses $20 of productivity per worker, each day. For the workers whom we have data, in 2010, over 40% commute out of the Inland Empire (550,000 commuters). In 2014, we can only imagine that number has grown. If each commuter spends only 2 hours in transit, the Inland Empire would lose productivity conservatively valued at $11 million each day.

Costs for transportation and associated with worker fatigue are in addition to that.

There is another intriguing aspect to commuters. One possibility is to think of commuters as more marginal workers. If that is the case, they will be laid off first in an economic downturn. The Inland Empire therefore becomes a leading indicator of economic activity in the more coastal regions in the period leading up to a recession. To confirm this statement, note that employment in the Inland Empire peaked in the summer of 2007 (2006 for the construction industry), and housing prices went south a full year before they turned down in Los Angeles County. The predictive power of commuting is significant as a result. In reverse, the area becomes a lagging indicator during recoveries. In other words, the Inland Empire is the first to get hit in a downturn and the last to recover. Commuters in particular may play an important role in that explanation. In that sense, understanding the determinants of commuting can help us understand leading economic indicators for the Inland Empire, which in turn acts as a leading indicator for the U.S. economy. IEO

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Water in the Inland Empire Randall Benton | MCT

Water management has historically been a source of contention and conflict in California.

California’s water governance complexities have developed over the course of the state’s history to control water supply, water quality, and flood control. The two state agencies at the forefront of water management are the California Department of Water Resources (DWR) and the State Water Resources Control Board (SWRCB). Both agencies hold tremendous clout with each occupying a separate niche. The DWR focuses on water delivery, water supply planning, as well as infrastructure development.

It was created in 1956 by the state legislature in order to develop and manage the State Water Project, which delivers water to 25 million Californians and helps sustain 750,000 acres of farmland. It organizes the state into ten water regions. The SWRCB serves a more regulatory

function. Created by the state legislature in 1967, it handles water rights issues and manages water quality permitting. Nine regional water boards throughout the state enforce water quality objectives set forth by the SWRCB.

Four federal agencies also play critical roles in California water management. The Bureau of Reclamation, the Army Corps of Engineers, and the Geological Survey all focus on water supply. The Environmental Protection Agency and the Geological Survey handle water quality oversight, and The Army Corp of Engineers and the Bureau of Reclamation manage flood control. Federal, state and local entities such as cities, counties, tribal governments, special districts, and private water companies tend to take on multiple roles in managing water supply and quality control.

There are more than 1,200 water districts in

Table 1: State Agencies Involved in Water Management

Responsibilities Water Supply

Agency

Water Quality

Flood Control

Department of Water Resources State Water Resources Control Board CALFED Bay-Delta Authority California Public Utilities Commission Colorado River Board Department of Pesticide Regulation Department of Public Health Department of Toxic Substances Control Office of Environmental Health Hazard Assessment Source: California Legislative Analyst’s Office

Table 2: Federal Agencies and Local Entities Inolved in Water Management

Responsibilities

Entity

Water Supply

Water Quality

Flood Control

Federal Agencies Bureau of Reclamation Army Corps of Engineers Environmental Protection Agency Geological Survey Other Entities Tribal Governments Cities and Counties Special Districts Private Water Companies Source: California Legislative Analyst’s Office

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California, performing a wide range of services. Many of them provide more than one of the three designated water services: water delivery, sanitation, and flood control.

Water comes into the state from three sources: precipitation, imports, and inflow to the state. Weather, including precipitation, is the most important factor in determining the total amount of water available in any given year.

Precipitation varies widely year to year.

In drier years, overall water supply available to dedicated uses declines because less water is coming into the system from rain and snow. During such dry years, local groundwater use increases. During wet years, more water is available from surface water supplies. This allows groundwater systems to refill and this water is then more plentiful during dry years when surface water is in lower supply.

Statewide, precipitation produces about 200 million acre-feet of water each year, mostly in the northern part of California. More than half of that water will evaporate, percolate into the ground, or otherwise be used by nature. The remaining amount, slightly less than half, will flow into rivers and streams. Some portion of this is collected for urban or agricultural use, to put into reservoirs or groundwater storage, or to leave in the environment. In an average year, such as 2000, urban use was 11%, agricultural use was 34%, and 48% was left in streams and rivers. In a dry year like 2001, urban use was 13%, agricultural use was 52%, and only 35% was left for the environment.

The California Department of Water Resources designed, built, and operates the State Water Project to convey water from Northern

Source: The Metropolitan Water District of Southern California

California to its many users in the south of the state. It begins at Lake Davis in Northern California and runs 600 miles south to Southern California. The system includes 34 storage facilities, 20 pumping plants, four pumpgenerating plants, five hydroelectric power plants, and about 700 miles of canals, tunnels, and pipelines. There are 29 water agencies that act as wholesale buyers of water from the State Water Project. Six SWP contractors supply water to retail distributers in the Inland Empire.

Depending largely on snowpack for the year, the Department of Water Resources establishes the amount of water each contractor may pull from the SWP. This number is reported as a Table A allocation for each contractor. It is rare for the State Water Project to be able to deliver the full entitlement. The amount of water available

Table 3: State Water Project Contractors Supplying to Inland Empire Users

Contracting Agency Coachella Valley Water District Crestline-Lake Arrowhead Water Agency Desert Water Agency Mojave Water Agency San Bernardino Valley Municipal Water District San Gorgonio Pass Water Agency The Metropolitan Water District of Southern California Total State Water Project

(for all 29 Contractors)

Table A Maximum Allocation (acrefeet)

2014 Allocation

Carryover from 2013 (acre-feet)

138,350

0%

0

5,800

0%

1,882

55,750 82,800

0% 0%

0 3,839

102,600

0%

10,207

17,300

0%

5,264

1,911,500

0%

214,400

4,172,536

0%

463,277

Source: Notice to State Water Project Contractors, Department of Water Resources, January 2014

is determined primarily by weather, including precipitation (both amount and location).

Other system constraints like storage capacity, availability of groundwater, and environmental factors (which can vary tremendously year to year depending on the current health of a given ecosystem) are also important. In the past Table A approved allocations have ranged from 100% in wet years, to much lower, even 30% in dry years. Until now, the lowest amount of water ever delivered was 0.55 million acre-feet, about one-eighth of the current statewide allocation, during the drought of 1991. California, however, is now in the midst of a three year dry spell -- 2013 was the driest year on record.

In January 2014 the Department of Water Resources announced it would approve 0% of the Table A Allocation for 2014. It is allowing SWP contractors to use any carryover that they may have from 2013. Statewide, the total

carryover amount for all 29 SWP contractors is 463,277 acre-feet, only 11% of the Table A maximum allocation for 2014. The drop to zero percent of the amount requested by SWP contractors, though stark, is a continuation of the steady decline in the last three years. DWR approved 80% in 2011, 65% in 2012, and 40% in 2013. The department may, however, revise the allocation, based on changing conditions.

This year, thousands of acres will go unplanted and farmers will have to rely on available groundwater to get through the drought. During wetter years, groundwater can be stored throughout the state. This provides a dependable water source for drier years. Groundwater is a crucial part of the state’s water supply, providing approximately 30-40% of the state’s water every year. About 75% of Californians obtain some portion of their drinking water from groundwater sources.

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Storage is another indispensable part of water management. The federal government owns over 17 million acre-feet of water storage space in the state while the state of California owns a little over 3 million acre-feet. The California Department of Water Resources has reservoirs in both San Bernardino and Riverside counties, including Lake Mathews (capacity 182,000 acre-feet), Lake Perris (currently undergoing seismic remediation), Lake Skinner (capacity 44,000 acre-feet), and Diamond Valley Lake (capacity 810,000 acre-feet). The Metropolitan Water District uses these water reserves in San Bernardino and Riverside counties. The reservoirs are carefully managed for water quality.

basic apportionment is 4.4 million acre-feet, plus surplus water if available. Of this, 3.8 million acre-feet or 86% is used for agriculture, mostly to the Imperial Irrigation District, and to a much lesser extent, the Palo Verde Irrigation District, the Yuma Project, and the Coachella Valley Water District. The Metropolitan Water District holds a fourth priority to 550,000 million acre-feet and a fifth priority to another 662,000 acre-feet. Historically, California has been able to use even more water from the Colorado River, in addition to its allocation. This was due to surplus conditions and/or getting Arizona’s unused apportionments.

However, persistent drought conditions in the Colorado River basin and Arizona’s growing water use make it unlikely that California will The drop to a 0% continue this practice.

In addition to the State Water Project and groundwater supplies, the third source of water SWP allocation is for the Inland Empire There are some the continuation of a is the Colorado River. new sources of water The Metropolitan planned for the decline that started in Water District manages future. A desalination the Colorado River plant is slated to 2012.

Aqueduct, which runs open in 2016 in San from Parker Dam at Lake Diego County in order Havasu, to Lake Mathews, to bridge the growing gap near Riverside. It has an annual between available surface and capacity of 1.3 million acre-feet. The groundwater resources and the water travels through 63 miles of canals, 92 statewide need. According to the DWR’s miles of tunnels, 55 miles of conduit, and 144 2009 Water Plan Update, by 2025 the state underground siphons. The system includes nine will require at least 275,000 acre-feet per year reservoirs, with a total capacity of 1,972,000 of desalinated water. The plant in Carlsbad will acre-feet of water storage. Seven states and parts produce 56,000 acre-feet per year. In addition of Mexico lay claim to water from the Colorado the MWD’s Integrated Water Plan hopes to have River. Water use is governed by a complex set 150,000 acre-feet per year of desalinated water by of agreements, international treaties, judicial the year 2020. The Carlsbad plant in San Diego decrees, federal and state laws, and water is not the only desalination project in the state. contracts, among other things. It includes the Orange County also has a desalination plant in 1922 Colorado River Compact, apportioning the works at Huntington Beach. The Orange water use among the seven states and outlining a County project is has Coastal Development, priority system for use of the water. California’s Discharge, and Drinking Water permits and

Photo Credit: Matthew Field

will be comparable in size and output to the San Diego plant upon its completion. Although both of these plants pull water from the Pacific Ocean, desalination technology is also being used further inland. Chino Basin Desalter Authority has a groundwater remediation program that makes available water in the area potable. It distributes treated water to member agencies which include Jurupa Community Services District, the Santa Ana River Water Company, the Cities of Chino, Chino Hills, Norco and Ontario, Western Municipal Water District and the Inland Empire Utilities Agency.

Western Municipal Water district in the Inland Empire will be entitled to 3,534 acre-feet per year of water once phase three of the operation is complete, projected for 2015.

Any discussion of water in California needs to include the Bay Delta Conservation Project.

Nearly two-thirds of the state’s population and millions of acres of farmland get their water from the Sacramento-San Joaquin Delta area, known as the Bay Delta. Its pumps provide drinking water to more than 25 million people and water agencies in central and Southern California are dependent on it. Massive pumps at the marsh’s south pull some 4.7 million acre-feet of water each year to supply both the Central Valley Project and the State Water Project. The Bay Delta is 940 square miles and home to over 750

different species of plants and animals. It is also home to many species of fish, including salmon, steelhead, and the Delta smelt.

Nearly two-thirds of the state’s population and millions of acres of farmland get their water from the Sacramento-San Joaquin Delta area, known as the Bay Delta. It provides water to more than 25 million people and a number of water agencies in central and Southern California are dependent on it. Massive pumps at the marsh’s south pull some 4.7 million acre-feet of water each year to supply both the Central Valley Project and the State Water Project. The Bay Delta is 940 square miles and home to over 750 different species of plants and animals. It is also home to many species of fish, including salmon, steelhead, and the Delta smelt. The effect of pumping water from the Bay Delta on these fish has been the subject of long-running litigation, with environmentalists pushing for tighter limits on the volume of water pumped, while farmers and other users arguing that millions of Californians are dependent on water from the Delta. A full discussion of this contentious issue and the Bay Delta Conservation Plan will be the subject of an article in a subsequent issue. IEO

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EDITORI A L BOAR D Andrew Busch,

PhD

DIRECTOR, ROSE INSTITUTE

Marc D. Weidenmier,

PhD

DIRECTOR, LOWE INSTITUTE

David Huntoon, Manfred Keil,

MBA

PhD

Kenneth P. Miller, Bipasa Nadon,

JD, PhD JD

STUDEN T S TA F F Ryan Driscoll ‘16 Francesca Hidalgo ‘17 Jessica Jin ‘16 Manav Kohli ‘16 Hye Won Chung ‘14 Philip Liao ‘14 Martin Sartorius ‘15

THE INLAND EMPIRE CENTER The Inland Empire Center for Economics and Public Policy is based at Claremont McKenna College. It was founded as a joint venture between the Rose Institute of State and Local Government and the Lowe Institute of Political Economy to provide business and government leaders with timely and sophisticated analysis of political and economic developments in the Inland Empire.

The IEC brings together experts from both founding institutes. Marc Weidenmier, Ph.D., director of the Lowe Institute, is a Research Associate of the National Bureau of Economic Research and a member of the Editorial Board of the Journal of Economic History. Andrew Busch, Ph.D., director of the Rose Institute, has authored or co-authored eleven books on American politics and currently teaches courses on American government and politics. Manfred Keil, Ph.D., an expert in comparative economics, has extensive knowledge of economic conditions in the Inland Empire. Kenneth P. Miller, J.D., Ph.D., is an expert in California politics and policy who studies political developments in the Inland Empire. Bipasa Nadon, J.D., has worked in municipal government and specializes in local government policy. David Huntoon, MBA, specializes in economic development, survey research, and tribal governments issues.

To receive issues of the IEO electronically and news from the IEC, please e-mail us at contact@inlandempireoutlook.org