May 19, 2009 Special Election

I am voting NO on all of the propositions in the May 19, 2009 special election. The legislature needs to do the job it was elected to do. If not, then every one of them not willing to compromise in good faith should resign.

What will it take for the California legislature to do its job? Instead of passing a budget, it delayed the hardest decisions and deferred to voters. At what cost? The propositions do not even balance the budget or structurally change how budgets are made or how money is spent. The propositions only move money from one set of pots to to another in a apparently symbolic move. It is like moving deck chairs on the Titantic as cold Atlantic waters stream into a big gash in the side of the boat. Hello, there are structural problems causing California’s budget woes! Worse, these are temporary measures that delay or exacerbate the problems faced by the state government. Really, what do passing these initiatives get us?

via California Legislature: Where cost-cutting plans go to die – Los Angeles Times.

“Republicans pitched most of the plans to help deal with the deficit — which is expected to hit $8 billion by summer — but even some from moderate Democrats were rejected.

State officials have projected the midyear budget shortfall as a result of the recession. And if voters reject the budget-related ballot measures in the May 19 special election, the deficit could top $14 billion.”

via State will need to borrow more than $20 billion S.F. Chronicle.

“California will have to borrow more than $20 billion unless state leaders close another multibillion-dollar deficit that will deepen if voters reject budget-related ballot measures on May 19, according to a report Thursday by the nonpartisan Legislative Analyst’s Office.

In addition, California may have to pay hundreds of millions of dollars in additional borrowing costs as a result of the banking crisis. In previous years, the state was able to secure lower interest rates by purchasing loan guarantees from commercial banks.

But banks have told state finance officials that they can at best back about $1 billion in loans, far short of the state’s borrowing needs, said Tom Dresslar, a spokesman for state Treasurer Bill Lockyer.”

The articles say so much more than what I flash here. Really, they are worth reading to educate yourself. Really, these propositions do little to help the situation.

via Californiaâ??s Cash Flow Crisis: May 2009 Update.

Without significant budget-balancing and cash management actions by the Legislature or unprecedented borrowing from the short-term credit markets, the state will not be able to pay many of its bills on time for much of 2009-10.

  • $23 billion: Amount in loans from private investors needed in the fiscal year beginning July 1 if voters reject the May 19 ballot measures and the Legislature does not act;
  • $17 billion: Amount in loans from private investors needed if voters approve the ballot measures
  • $14 billion: Budget shortfall if voters reject Propositions 1C, 1D and 1E (i.e. the measures bring in $6 billion to budget).
  • $8 billion: Budget shortfall if voters approve Props. 1C, 1D and 1E

And here are highlights from the Official Voter Information Guide distributed by the Secretary of State followed by my commentary, labeled [DFB]. Highlights are mine.

Proposition 1A:

  • “Possible greater state spending on repaying budgetary borrowing and debt, infrastructure projects, and temporary tax relief. In some cases, this would mean less money available for ongoing spending.”
  • [DFB] In other words, we will borrow money now but we will be required to pay more for debt servicing and paying interest on that debt in future budgets. Moreover, we will need to cut spending in future years to pay for our budget woes now. Where will that money come from?

Proposition 1B: Fiscal Impact:

  • “Potential state savings of up to several billion dollars in 2009â??10 and 2010â??11.””Potential state costs of billions of dollars annually thereafter. “
  • [DFB] There are no estimates attached to this future cost. The voter guide says “it is difficult to know how this measure would change the state’s finances.” Voter Guide, page 21.

Proposition 1C:

  • “Impact on 2009â??10 State Budget: Allows $5 billion of borrowing from future lottery profits to help balance the 2009â??10 state budget.”
  • “Impact on Future State Budgets: Debt-service payments on the lottery borrowing and higher payments to education would likely make it more difficult to balance future state budgets. This impact would be lessened by potentially higher lottery profits. Additional lottery borrowing would be allowed. “
  • [DFB] Get this part: “would likely make it more difficult to balance future state budgets”? Yes, the authors of this measure are trying to address a difficult to pass budget by hamstringing future legislators by making it difficult to balance/pass future budgets. Isn’t that how we got into this mess? It infuriates me to no end to see this level of misfeasance. [bleeped out so I do not make a statement against my penal interests – sorry, I had a Criminal Procedure exam earlier this evening ;)]

Proposition 1D:

  • “Redirects existing tobacco tax money to protect health and human services for children, including services for at-risk families, services for children with disabilities, and services for foster children. “
  • [DFB]: This is an example of moving money from one pot to another. It is temporary and lasts five years. What happens in five years? This whole mess begins anew.

Proposition 1E:

  • “Amends Mental Health Services Act (Proposition 63 of 2004) to transfer funds, for a two-year period, from mental health programs under that act to pay for mental health services for children and young adults provided through the Early and Periodic Screening, Diagnosis, and Treatment Program.”
  • “The proposed temporary redirection in Proposition 63 funding would make less money available for mental health programs. To the extent that such programs are reduced, state and local governments could incur added costs for homeless shelters, social services programs, medical care, law enforcement, and county jail and state prison operations. The extent of these potential costs is unknown and would depend upon the specific programmatic changes that resulted from the redirection of Proposition 63 funding.”
  • [DFB] This is another temporary measure lasting two years that moves money from one pot to another. As the analysis shows, there is a big budget gap that will be left for cities and counties to make up, perhaps from thin air.

Proposition 1F:

  • “Encourages balanced state budgets by preventing elected Members of the Legislature and statewide constitutional officers, including the Governor, from receiving pay raises in years when the state is running a deficit.”
  • Minor state savings related to elected state officialsâ?? salaries in some cases when the state is expected to end the year with a budget deficit.”
  • [DFB] This is like being bitten by a minnow. A Delta smelt, perhaps? It lacks teeth big enough to pierce the skin. Worse, it will have a negligible effect on the budget. I’d rather see a sliding scale that forces the legislature to deliver a structurally balanced budget by July 1. Every week after would see a 10% reduction in pay for that period. If a legislator was paid $100,000 per year they would be paid based on $90,000/year the following week and $81,000/year the following week. At week 29, they would be paid based on $5,233/year salary. See the chart below. Now that ought to get their attention in contrast to the slap with the pinkie finger the legislature has given itself.


Of course I only cherry picked the items that caught my eye or that I should call attention to. Read the propositions yourself.

To be fair, voters are part of the problem. We have tied the hands of the legislature with proposition after proposition to support our pet projects, idealogical views, and pocket books. What we have collectively done is force legislators to do the equivalent of cloud seeding. Fortunately, we’ve had a prosperous enough time where money came easily in coincidental alignment with those revenue seeding experiments. Now, the magic is gone and we need to fess up to reality. Money does not grow on trees or fall from the sky. Debt is not cheap. And California’s budget is a briar patch that needs to be dethorned.

There should be no “third rail” to this debate. That overused political colloquism should go out the window in this conversation. There is nothing that should be held too sacred in conversations about how to fix – how to truly fix – the state budget. Prop 13, Prop 98, Prop XX, all need to be considered without reservations. It may take a vote of the people to undo some of the mess we created but at least put something valuable and constructive for us to debate and vote on instead of something from a sewage plant, spit-shined and treated like Cinderella’s glass slipper. At the end of the day, the conversation must be about the balance sheet: revenue versus expenditures; and how to make each more stable and controlled.

California Debt Payments

I personally do not mind paying taxes. After all, I prefer not to live in anarchy, like to drink clean water, drive the roads, ride the rail, etc. All those are paid by my tax dollars. That doesn’t mean don’t care where those tax dollars go. One place I do care about is how much we pay for interest payments and loan servicing. In Sacramento, they call it Debt-Servicing.

As of November 2008, debt-servicing is expected to cost us about $6 billion this fiscal year, or about 5.8% of the state’s revenues. Since the early 1990’s debt-servicing generally cost between 3 and 5% of revenues. It is now expected to reach 9% or more in the next 5 years. And since the last set of projections made in November 2008, the special election was set and we are now urged to increase that debt service ratio further. Proposition 1C will cost us $350 to $450 million more each year for debt-servicing. The governor and Department of Water Resources are also drumming up support for $20 billion in upgrades to our water infrastructure (Peripheral Canal, part II). That would potentially cost $1.3 billion per year more in debt servicing. Those are not figured into the numbers, either.

More costs are expected. Worse yet, CALPERS “has been reporting an expected rate of return of 7.75 percent for the past eight years, and 8 percent before that…. Its annual return during the decade from Dec. 31, 1998, to Dec. 31, 2008, has been 3.32 percent, and last year, when markets tanked, it lost 27 percent.” (via Bloomberg). We’ll need to borrow to bail it out as well since the pension fund is guaranteed by the state treasury.

via  California’s Fiscal Outlook: LAO Projections 2008-09 Through 2013-14 (issued Nov. 2008)

“The Spending Forecast. General Fund spending for debt service on bonds used to fund infrastructure is estimated to be $4.3 billion in 2007â??08, $5 billion in 2008â??09, and $5.9 billion in 2009â??10. In total, debt service is projected to grow at an annual pace of 9.9 percent annually over the forecast period.

Debtâ??Service Ratio (DSR). [T]he ratio of annual General Fund debt-service costs to annual General Fund revenues and transfers [abbreviated DSR] — is often used as one indicator of the stateâ??s debt burden…. We estimate that:

Projected Debt-Service Ratio

  • The DSR for infrastructure bonds will rise to 7.8 percent in 2011â??12 before falling to 7.5 percent by 2013â??14. Thereafter, it will steadily decline as outstanding bonds are paid off.
  • If the stateâ??s deficitâ??financing bonds (known as Economic Recovery Bonds) are included in DSR, it would peak at 9.4 percent in 2011â??12. It is anticipated that these bonds will be paid off following our forecast period, at which time the DSR will drop down to reflect only infrastructure bonds.

As noted in the figure, the DSR we are projecting is considerably higher than in past years. In part, this reflects the sharp fallâ??off in General Fund revenues we are projecting, which has the effect of driving the ratio up for a given level of debt service. It also is important to note that to the extent additional bonds are authorized and sold in future years beyond those already approved, the stateâ??s debtâ??service costs and DSR would be higher than projected above. For example, each additional $1 billion of bonds authorized would add roughly $65 million annually to debtâ??service costs once they are sold.”

Debt is not evil. It is not the work of the devil or some other unearthly creature.

Debt is a useful tool to people and governments to build infrastructure that costs a lot of money up front but lasts for many years and, more importantly, provide the tools necessary to build an economy. Using it to pay down past debts and for operating costs is a misallocation of resources. It puts a the state into a precarious perch and positioned for a spiral downward that is hard to recover from. We should all be mindful that, instead of paying for necessities such as teachers, police, and repaving, we will end up cutting services to pay for the extra debt payments. I think returning to the historical norm should be the goal and will allow us to build and restore infrastructure without putting on too much debt servicing burden.

Treasury Notice 2008-83 also nixed in Senate

The Senate passed its version of the stimulus package today (HR 1.AS2). As is often the case, it seems there is something for everyone. For example, the Senate generously left intact Wells Fargo’s gift from Hank Paulson and crew, Treasury Notice 2008-83, although the notice has been restricted from further use. The gift is likely to make it into the final bill because the text came from the House version of the bill and was left untouched by the Senate.


In other words, Congress is letting stand any bank mergers before Jan. 17 which might have relied on Treasury Notice 2008-83 which gave banks (and only banks) a pass on section 382(h) of the tax code. I provide a basic summary in an earlier post: Revenue Code Section 382: in the face of a financial crisis

Update: This made it through conference and was signed into law by President Obama.

Treasury Notice 2008-83 nixed in House economic recovery bill

The House passed an economic stimulus bill today. It includes the slap-down of Treasury Notice 2008-83 that the House Ways and Means Committee had previously included. I hope the conference with the Senate disallows all reliance on the notice.


American Recovery and Reinvestment Act of 2009 (Introduced in House)



    (a) Findings- Congress finds as follows:
    • (1) The delegation of authority to the Secretary of the Treasury under section 382(m) of the Internal Revenue Code of 1986 does not authorize the Secretary to provide exemptions or special rules that are restricted to particular industries or classes of taxpayers.
    • (2) Internal Revenue Service Notice 2008-83 is inconsistent with the congressional intent in enacting such section 382(m).
    • (3) The legal authority to prescribe Internal Revenue Service Notice 2008-83 is doubtful.
    • (4) However, as taxpayers should generally be able to rely on guidance issued by the Secretary of the Treasury legislation is necessary to clarify the force and effect of Internal Revenue Service Notice 2008-83 and restore the proper application under the Internal Revenue Code of 1986 of the limitation on built-in losses following an ownership change of a bank.
    (b) Determination of Force and Effect of Internal Revenue Service Notice 2008-83 Exempting Banks From Limitation on Certain Built-in Losses Following Ownership Change-
    • (1) IN GENERAL- Internal Revenue Service Notice 2008-83–
      • (A) shall be deemed to have the force and effect of law with respect to any ownership change (as defined in section 382(g) of the Internal Revenue Code of 1986) occurring on or before January 16, 2009, and
      • (B) shall have no force or effect with respect to any ownership change after such date.
    • (2) BINDING CONTRACTS- Notwithstanding paragraph (1), Internal Revenue Service Notice 2008-83 shall have the force and effect of law with respect to any ownership change (as so defined) which occurs after January 16, 2009 if such change–
      • (A) is pursuant to a written binding contract entered into on or before such date, or
      • (B) is pursuant to a written agreement entered into on or before such date and such agreement was described on or before such date in a public announcement or in a filing with the Securities and Exchange Commission required by reason of such ownership change.

Update: This made it through the Senate and conference session, and was signed into law by President Obama.

Inauguration of a Metaphor

Joseph Campbell once said that if you want to change the world you must change the metaphor. Campbell spoke of religion but that wisdom seems to transfer to politics as well.

Barack Obama, 44th President of the United States, is above all a metaphor. He is a metaphor for everything and anything you or I want him to be. He is a metaphor for, among other things, hope, dreams no longer deferred, a melting pot, America, the unknown, and the anti-christ. As a metaphor, like Santa Claus, he has huge expectations placed on him, a nation who believes in him, and the world watching. Regardless of who Obama really is, through the power of metaphor we have projected upon him what we want and need him to be.

Good luck Mr. Obama. We have changed the metaphor; here’s to changing the world for the better as the result.

Federal stimulus plan would repeal big tax break for banks given by Notice 2008-83

It looks like Congress is about to squelch Treasury Notice 2008-83 but will provide a gift to banks that already relied on it. I think of it as much a parting gift to outgoing Treasury Secretary Paulson.

The draft economic recovery/stimulus package that is starting to wind its way through Congress essentially says that the Treasury Department went beyond its powers by issuing Notice 2008-83 but that banks that already relied on the tax guidance provided by the notice may still take advantage of the huge tax breaks it provides them.

Relevant text from the bill:


(a) FINDINGS.â??Congress finds as follows:
(1) The delegation of authority to the Secretary of the Treasury under section 382(m) of the Internal Revenue Code of 1986 does not authorize the Secretary to provide exemptions or special rules that are restricted to particular industries or classes of taxpayers.
(2) Internal Revenue Service Notice 2008â??83 is inconsistent with the congressional intent in enacting such section 382(m).
(3) The legal authority to prescribe Internal Revenue Service Notice 2008â??83 is doubtful.
(4) However, as taxpayers should generally be able to rely on guidance issued by the Secretary of the Treasury legislation is necessary to clarify the force and effect of Internal Revenue Service Notice 2008â??83 and restore the proper application under the Internal Revenue Code of 1986 of the limitation on built-in losses following an ownership change of a bank.
(1) IN GENERAL.â??Internal Revenue Service Notice 2008â??83â??
(A) shall be deemed to have the force and effect of law with respect to any ownership change (as defined in section 382(g) of the Internal Revenue Code of 1986) occurring on or before January 16, 2009, and
(B) shall have no force or effect with respect to any ownership change after such date.
(2) BINDING CONTRACTS.â??Notwithstanding paragraph (1), Internal Revenue Service Notice 2008â??83 shall have the force and effect of law with respect to any ownership change (as so defined) which occurs after January 16, 2009 if such changeâ??
(A) is pursuant to a written binding contract entered into on or before such date, or
(B) was described on or before such date in a public announcement or in a filing with the Securities and Exchange Commision required by reason of such ownership change.

Full Text of The American Economic Recovery and Reinvestment Plan

The bill was posted today and will be officially introduced by Rep. Rangel to the House Ways and Means Committee over the coming days. Apparently, this is hot off the presses. A Committee press release about the bill is dated Saturday, Jan. 17, 2009 although it does mention the bill blocking Notice 2008-83.

The AP provides more commentary on the stimulus package and the repeal of Notice 2008-83.

via Stimulus plan repeals big tax break for banks –

House leaders moved this week to repeal the tax break for banks even as the Senate voted to help many of those same institutions by releasing the second $350 billion of the widely unpopular Wall Street bailout. Many lawmakers are unhappy with the results after the Bush administration spent the first $350 billion, making them wary of helping banks in the stimulus package.

Repealing the tax break would negate those savings in future bank mergers. It would not, however, affect mergers already under way, according to a summary of the stimulus package released by the tax-writing House Ways and Means Committee.

I personally think Congress should prevent any party from taking advantage of the guidance from Notice 2008-83. The banks that did knew or should have known that it was likely not legal, outside the powers of the Treasury Department, and would be slapped down by Congress. I wrote more about that in my last post about Notice 2008-83.

Related posts:

Revenue Code Section 382: in the face of a financial crisis (pt. 2)

This follows up my earlier post regarding a presentation I gave to my tax policy class. I have since completed a final draft of my paper (PDF). I turned it in last night. There is much more that can be said about the subject but I realized part way through semester that it would be helpful to have had a background in economics. I checked out several books about economics and even sequestered myself in the libraries more than once but barely skim the top of the subject in the paper. I wish I’d studied economics in college, even if just a class or two. Fascinating stuff.

Since I gave the presentation, Senator Chuck Grassley sent a letter on November 14, 2008 to Inspector General Eric M. Thompson of the United States Treasury requesting a formal investigation into the origins of Notice 2008-83 and conflicts of interest in the Treasury leadership and their relations with bankers who will benefit from the guidance. The investigation is ongoing.

In addition, Senator Bernie Sanders introduced a bill to rescind Notice 2008-83. His web site has more information about the bill – Closing Corporate Loopholes news release, November 18 2008.

I agree with Sen. Sanders that it should be rescinded. It does not make sense, Treasury clearly lacks authority (in my view at least) to waive application of Section 382(h), and the banks should know better than to rely on it. This maxim comes to mind: “If it sounds too good to be true, it is.” If Treasury had wanted to really waive the rule, I think a better choice would have been to apply the waiver temporarily to all corporations that can show the purpose was not to traffic in NOLs and require the ownership change to involve an operating business and a substantial level of business continuity. Such a change in the program will accomplish a few things. It will limit macroeconomic distortions by encouraging investment and recapitalization of all business types. It will ensure that the original intent of Congress, to prevent or limit trafficking in NOLs, is met. And it will be more administrable than ad hoc regulation directed to correct market failures in one industry or group of corporations However, it might not be politically acceptable because it will limit Federal revenues and will increase an already large tab for the bailout of the financial system.

As for fixing the financial system (not my paper topic), the bailout is a failure. It is not targeted to the root causes of the chaos: trust. Or, I should say lack of trust. The Madoff ponzi scheme is just one more nail in the coffin of the bubble that the market is. The real issue is that nobody knows the true value of the assets held by banks, companies, or individuals. Those fancy securities with acronymns for names (CDO, MBS, etc.) are not transparent and escape any real valuation until everyone knows what they contain (not just dud grenades or sour grapes). In addition, the bailouts have come without two necessary components – revenge and accountability. Revenge is not just necessary from the tax payers vantage point but to lessen the moral hazard and prevent this from ever happening again.  If I were in Treasury, and I came very close to applying on, I would set up a separate unit/corporation of government that would take all of the bundled securities from banks and other entities that needed bailouts, enter bankruptcy protection, etc. and have that government entity sort out all the securities, insert transparency and then sell them off. The government would keep a share (say 50%) and give the rest back to the original holder. Such a plan would: 1) allow everyone to trust those securities again; 2) enact some modicum of revenge that lessens the moral hazard and makes it more acceptable to tax payers; and 3) through the first two create some accountability.

Return of the Salmon (?)

I’m saddened by what we’ve done to our environment. There must be a way for us to live well without completely destroying the ecosystem in the process. I read the following while researching for a water law paper.

From: Natural Resources Defense Council v. Patterson, 333 F.Supp.2d 906 (E.D. Cal 2004)

I. Undisputed Facts


The San Joaquin River is the main artery of California’s second largest river system. The river originates high in the Sierra Nevada mountains, on mountain peaks southeast of Yosemite National Park, and then tumbles westward out of the mountains and into the trough of the Central Valley. Near the city of Mendota, the River turns abruptly north for the final stretch of its several hundred mile journey, picking up the Merced, Tuolumne, Stanislaus, Mokelumne, Calaveras, and Cosumnes Rivers as major tributaries on the way. It finally merges with the Sacramento River to form the San Francisco Bay-Delta estuary.
Historically, the San Joaquin River supported substantial populations of Chinook salmon, including both a fall and a spring run (Decl. of Peter Moyle, Exh. F, at 16). Chinook are distinguishable from other species of Pacific salmon by their large size and unique markings. They are an anadromous species, which means that they emerge and rear in freshwater tributaries, migrate to the ocean as juveniles, and return to their natal waters to spawn two to four years later. The San Joaquin River’s adult spring-run Chinook historically returned to the River mostly during the months of March through June, and spent the summer holding in deep pools above and below the existing location of Friant Dam. Spring-run would then spawn in the early fall, and their offspring would migrate out to the sea the following year, generally from January to March. Historically, the adult fall-run Chinook returned to the river mostly between September and December, and spawned soon thereafter. Fall-run juveniles would emerge in late winter and migrate out to the sea primarily in the months of March through May.
Salmon on the San Joaquin River were abundant prior to the closure of Friant Dam (Moyle Decl., ¶ 1; Decl. of Amy Macaux, Exh. F, at 16). The river’s spring run was one of the largest Chinook runs anywhere on the Pacific Coast and has been estimated at several hundred thousand fish (Moyle Decl., ¶ 20; Macaux Decl., Exh. G, at 9; Macaux Decl., Exh. F, at 8). The historical fall run is conservatively estimated to have numbered 50,000 to 100,000 fish. So many salmon migrated up the San Joaquin River during the spawning season that some people who lived near the present site of Friant Dam compared the noise to a waterfall. Some residents even said that they were kept awake nights by the myriad salmon heard nightly splashing over the sand bars in the River. One observer reported that salmon were so plentiful that ranchers trapped the fish and fed them to hogs. A fisherman who lived downstream recalls that, in the 1940s, the salmon were still â??so thick that we could have pitch-forked them. One almost could have walked across the River on the backs of the salmon when they were running.â? (Decl. of John Banks, ¶ 5).
The upper San Joaquin River contained Chinook habitat both above and below the location of Friant Dam, including some of the best spring-run habitat anywhere in California. This included a mixture of deep pools for holding and gravelly riffles for spawning, over which cold water ran. (Moyle Decl., ¶ 19). Much of that habitat still survives in the River below Friant Dam. ( Id.) Other anadromous fish, including Pacific lamprey and steelhead, once lived on the San Joaquin River below Friant Dam as well. (Moyle Decl., ¶ 22; Macaux Decl., Exh. G, at 1,9; Wall Decl., Exh. B., at 29-32). Collections of fish made in the vicinity of Friant in 1898 and 1934 indicate that the River supported diverse native fish that included rainbow trout, splittail, hitch, hardhead, and Kern brook lamprey, all species of conservation interest today. The river’s flow into the Delta also helped support that important ecosystem’s water quality and habitat. In 1999, the National Marine Fisheries Service designated the San Joaquin River between Friant Dam and the Merced as â??essential fish habitatâ? for Chinook salmon, pursuant to the Magnuson-Stevens Fishery Conservation and Management Act, 16 U.S.C. §§ 1801-83 (Decl. of Michael E. Wall, Exh. A; RJN, Exh. A).


The Bureau built Friant Dam across the upper San Joaquin River, northwest of Fresno, in the early 1940s as part of the Central Valley Project. Construction began in 1939 and was largely completed by the mid-1940’s. The Dam stores the river’s flow in Millerton Lake, the reservoir behind the Dam, and diverts water for irrigation and other purposes into two canals. The first of these, the Madera Canal, was completed in 1945. The second, the Friant-Kern Canal, began delivering water by 1949. Since that time, the Bureau has operated Friant Dam to maximize the quantity of water diverted to its Friant Division contractors, including the non-federal defendants.
Friant Dam blocked upstream access to a portion of the San Joaquin River’s spawning habitat for salmon and steelhead; however, it was not the construction of the Dam that terminated the salmon runs. For several years after Friant Dam was in place, the Bureau released sufficient water to sustain the salmon fishery. Chinook salmon are a remarkably resilient species, and although Friant Dam blocked passage to upstream habitat, during the first years after the Dam was built, spring-run Chinook successfully held in pools below Friant Dam during the summer months, adults successfully spawned in habitat below the Dam, and juveniles continued to migrate downstream. In one of these years, 1945, an estimated 56,000 spring-run returned to spawn below Friant Dam. While the upper San Joaquin’s salmon runs were not as strong as they once were, Professor G.H. Clark, of Stanford University, reported that the fish themselves were â??in excellent shapeâ? in 1942 (Decl. of Adam Wolf, Exh. F).
By the late 1940s, however, the Bureau’s operation of Friant Dam had caused long stretches of the River to dry up. (Macaux Decl., Exh. F, at 18). In the spring of 1948, the California Division of Fish and Game responded with a dramatic fish rescue in an attempt to save the River’s spring-run Chinook salmon. About 2,000 up-migrating Chinook were trapped in the lower portion of the River, hauled by truck around the dewatered stretch of the River, and released at a point from which they could migrate upstream to deep pools just below Friant Dam. These salmon were able to hold over the summer in these pools, and to spawn successfully below Friant Dam in the fall, but their offspring perished in early 1949 when they attempted to out-migrate through the dried-up River bed.
With the completion of the Friant-Kern Canal, the Bureau in 1949 further increased diversions, leaving even less water for the San Joaquin River. (Moyle Decl., ¶ 31; Macaux Decl., Exh. J, at 6). The last of the upper San Joaquin River’s fall-run Chinook salmon were reported in a pool below Mendota Dam in 1949. (Loudermilk Decl., Exh. K). Spring-run Chinook salmon disappeared from the San Joaquin River after unsuccessful salmon rescue attempts in 1949 and 1950. (Moyle Decl., ¶ 39; Macaux Decl., Exh. F., at 18; Macaux Decl., Exh. G, at 9). For most of the last 50 years, the Bureau has diverted virtually all of the River’s flows. (Macaux Decl., Exh. J, at 6; Macaux Decl., Exh. K, at 3; Moyle Decl., ¶¶ 22-28, 31; Loudermilk Decl., ¶ 2). While salmon continued to return and spawn until 1949, after that, â??the San Joaquin chinook was extirpated in its southernmost range.â? (Macaux Decl., Ex F, at 18).
Some sixty miles of the River upstream of its confluence with the Merced now lie continuously dry, except during rare flood events. (Macaux Decl., Exh. E, at 7; Macaux Decl., Exh. K, at 3; Wall Decl., Exh. B, at 43; Loudermilk Decl., ¶ 2). The spring-run Chinook-once the most abundant race of salmon in the Central Valley-appear to have been extirpated from the length of the River. (Wall Decl., Exh. B, at 36, 42, 48; Macaux Decl., Exh. H, at 9). Small populations survive only in the Sacramento River system. (Moyle Decl., ¶ ¶ 26, 29). The fall-run Chinook, too, were eliminated from the upper San Joaquin River, although reduced populations of fall-run Chinook survive on downstream tributaries, principally the Merced, Tuolumne, and Stanislaus Rivers. (Moyle Decl., ¶ 27; Wall Decl., Exh. B, at 36, 42, 48; Macaux Decl., Exh J at 6). In the words of the Department of the Interior, Friant Dam’s operations have been a â??disasterâ? for Chinook salmon. United States Dep’t of the Interior, The Relationship Between Instream Flow, Adult Immigration, and Spawning Habitat Availability for Fall-Run Chinook Salmon in the Upper San Joaquin River, California at 6 (Sept.1994) (Macaux Decl., Exh. J).
Despite the upper San Joaquin River’s degraded habitat and long stretches of normally dry river bed, salmon and Pacific lamprey have returned to the upper San Joaquin River in wet years, even after Friant Dam began full storage and diversion operations. Part of Chinook salmon’s natural behavior includes establishing or re-establishing themselves in new streams and rivers by â??strayingâ? from their natal waters. (Moyle Decl., ¶ 33). In some years, salmon have made it to the base of Friant Dam. (Moyle Decl., ¶ 33; Macaux Decl., Exh. G, at 10). Adequate flows of water have not been released from Friant Dam for these up-migrating salmon to spawn, however, or for their offspring to migrate back to the sea. (Moyle Decl., ¶ 33; Loudermilk Decl., ¶ 2; Wall Decl., Exh. B, at 29, 35-36).
The Bureau’s operation of Friant Dam has also contributed significantly to declines in other native fish throughout the San Joaquin River system. (Moyle Decl., ¶ 22, 31; Macaux Decl., Exh. G, at 1-2; Wall Decl., Exh. B, at 42-43). Following the construction of Friant Dam, ten of the sixteen species of native fish disappeared from the area. (Moyle Decl., ¶ 22; Macaux Decl., Exh. G, at 1-2). They were replaced, in the reaches where enough water for any fish still exists, primarily by a variety of non-native fishes. (Moyle Decl., ¶ 22; Macaux Decl., Exh. E, at 6-7).
Waters from the upper San Joaquin had been critical to providing habitat for fish species many miles below the Dam. (Moyle Decl., ¶ 31; Macaux Decl., Exh. G, at 1). San Joaquin River flows are needed to help attract adult salmon to their spawning grounds, to provide habitat for young and juvenile salmon, to move juvenile salmon downstream in the spring through the lower San Joaquin River, and to provide sufficient dilution of toxic and saline drainage to maintain a minimum level of water quality. (Moyle Decl., ¶ 31; Macaux Decl., Exh. E, at 10). Failure to release water from Friant Dam has rendered many miles of fish habitat unusable, especially in the stretch between the Dam and the river’s confluence with the Merced, and has also adversely affected water quality along the whole course of the river. (Moyle Decl., ¶ 31; Macaux Decl., Exh. G, at 1, 2; Wall Decl., Exh. B, at 44, 46). Today, the first several miles of the San Joaquin River deep water ship channel, near Stockton, experience dissolved oxygen levels that are so low during summer and fall months that they do not meet the state water quality objective. (Wall Decl., Exh. C, at 1). Low dissolved oxygen in these reaches poses a danger to fish generally, and a migration barrier to anadromous fish, including salmon in particular. Id.
Reduced flows in the San Joaquin below Friant Dam have diminished the area available for fish, increased the temperature of the water that is available, reduced the ability of the river to assimilate agricultural runoff and other pollutants, and substantially degraded riparian vegetation. (Moyle Decl., ¶ 31; Wall Decl., Exh. B, at 46; Macaux Decl., Exh. G, at 6). Native fishes such as hitch, splittail, tule perch, and pikeminnow, have largely disappeared from the River and have been replaced by exotic fishes tolerant of warm polluted water. PSUF 66. The present warm-water fishery that exists on portions of the San Joaquin River between Mendota Pool and the San Joaquin’s confluence with the Merced River is small and erratic. (Moyle Decl., ¶ 32). Many of the fish in this reach are contaminated with pesticides and other agricultural contaminants. (Moyle Decl., ¶ 31; Wall Decl., Exh. B., at 35). From Mendota Pool to Sack Dam, the river is basically used to convey irrigation water, and from Sack Dam to the river’s confluence with the Merced River, the river is dewatered for forty miles until agricultural drain water provides a small flow that is a *912 highly degraded environment for fish. (Moyle Decl., ¶ 31; Macaux Decl., Exh. G, at 6). Surveys by the U.S. Geological Survey indicate that the fish in this polluted section of the river are almost entirely pollution-tolerant non-native fishes, such as common carp, red shiners, bluegill, and mosquito fish (Macaux Decl., ¶ 32). The native fish have largely disappeared.

Perhaps we can see the salmon return one day. Congress may help that happen during the next session when it votes on whether to support a court settlement that would return some flows to the river (see: Senate puts [San Joaquin] river restoration plan on hold, Modesto Bee, November 18, 2008). If not, I’d like to see the public trust doctrine invoked by the State of California to require the Bureau of Reclamation to restore some river flows as part of its license to appropriate water. In addition, we should use our ingenuity to look to find alternative solutions to our water needs, whether it be water recycling like Singapore, desalination, or a mix of those and other solutions not yet created.

FDA sets melamine standard for baby formula – Yahoo! News

FDA sets melamine standard for baby formula – Yahoo! News.

WASHINGTON â?? Less than two months after federal food regulators said they were unable to set a safety threshold for the industrial chemical melamine in baby formula, they announced a standard that allows for higher levels than those found in U.S.-made batches of the product.

Food and Drug Administration officials on Friday set a threshold of 1 part per million of melamine in formula, provided a related chemical isn’t present. They insisted the formulas are safe.

The setting of the standard comes days after The Associated Press reported that FDA tests found traces of melamine in the infant formula of one major U.S. manufacturer and cyanuric acid, a chemical relative, in the formula of a second major maker. The contaminated samples, which both measured at levels below the new standard, were analyzed several weeks ago.

The FDA had stated in early October that it was unable to set a safety contamination level for melamine in infant formula.

If I were a betting guy, I’d put good money down to say courts strike this as “arbitrary and capricious,” which is a standard used by courts when considering adminstrative action taken by a government agency. It means that there is no reasonable basis for making an administrative rule or that the agency did not give the rule proper consideration.

How exactly is it that the FDA refused to issue a rule less than two months ago based on lack of information but, based on the same information, can come out with a rule a couple days after news reports of melamine in U.S. formula? It smells like milk gone bad.