In The Headlines
Old Laws Create a California Water Divide
Last summer, in the second year of California’s latest dry spell, a farmer in the state’s Central Valley, paid $250 an acre-foot for water to irrigate his almonds, cherries, tomatoes, and cotton. (An acre-foot is enough to cover an acre with a foot of water.) This year, with the drought hitting crisis levels, he got sticker shock. Water is now going for as much as $2,200 an acre-foot, an increase of more than 800%.
But it is a boon for the farmers on the other end of the deal who have water to sell. They are among the lucky owners of so-called senior water rights, which date back to the Gold Rush era, when settlers staked their claims along California’s rivers. Today, those claims still determine who gets the water that flows from the Cascades and the Sierra Nevada into the Central Valley, one of the world’s most productive agricultural regions. In times of drought, the system creates winners—the heirs of the miners and ranchers who built the state—and losers, including farmers without rights, who find their place in the state’s $44.7 billion agricultural industry threatened by deals cut more than 100 years ago for natural resources.
The California Department of Water Resources, which manages water in the state’s rivers, says it expects to deliver only 5% of the almost 4 million acre-feet requested this year by public water agencies. The federal Bureau of Reclamation, citing critically dry reservoirs, announced that senior rights holders would still get 65- 75% of the water they requested. Everyone else got nothing, for the first time in decades. That has left them with three options. Let their fields lay fallow, drill for increasingly scarce groundwater, or buy what they need from senior rights holders, who are entitled to sell as much as 20% of their annual water allocations for whatever they want to charge.
The system has its roots in the 1850s, when claims to water were recognized by California’s new government according to a principle known as “First in time, first in right.” Landowners, municipal water authorities, and hydroelectric utilities such as Pacific Gas & Electric all acquired rights as the state grew. In 1914, when California established its first statewide water commission, these rights were enshrined in law resulting in today’s statistics showing that 2,049 corporations, local water districts, and other entities hold “senior water rights” because they predate the 1914 law, according to state records, having come in under the “First in time, first in right” principle from the 1850s.
California’s water market did not take off until the early 1990s, when a five-year drought prompted regulatory changes that made it easier to sell water. In 2009, at the peak of the last drought, senior water rights holders sold $95 million worth of water. The value of water sold this year is projected to be as much as $208 million, a record, according to WestWater Research, a water marketing and consulting firm in Boise, Idaho. “It clearly is a seller’s market,” says Gayle Holman, a spokeswoman for the Fresno-based Westlands Water District.
Prices spiked this winter. Among the first to benefit were about 300 landowners in the Buena Vista Water Storage District, which was created in 1924 to manage Kern River water rights originally claimed in the 1870s by Miller & Lux, a Central Valley ranching empire. In February it sold 12,000 acre-feet of stored water for $1,140 an acre-foot in a sealed-bid auction. In March, the Madera Irrigation District, a public agency that holds senior water rights on the Fresno River and other smaller waterways, fetched record bids of $2,000 to $2,200 per acre-foot, netting a total of $6.69 million for the district. The money will be used to pay for capital projects, operations, and maintenance, says Thomas Greci, the district’s General Manager. Federal and state authorities have the right to review proposed water sales for environmental reasons. Only 19 deals were completed in 2013. So far this year the authorities have received notices of more than 30 planned sales by senior water rights holders to farmers and municipalities that need water.
That includes the May sale of as much as 15,225 acre-feet by about 25 rice farmers in the Biggs-West Gridley Water District, north of Sacramento, to farmers without water rights in the Westlands district, at an average of $500 per acre-foot—more than three times the price last year. Individual farmers say they see the windfall as a way to make up for their own losses, rather than a path to riches. Fritz Durst, a farmer in Woodland, northwest of Sacramento, got 75% of his usual water allocation and sold some at $425 an acre-foot to the San Luis & Delta-Mendota Water Authority. “I’m using that money to backfill the money that I’ve lost through this drought,” says Durst, who grows rice, oats, barley, corn, asparagus, and wine grapes. Some rights holders say they have no plans to part with their water. Hearst, the media company, holds senior water rights attached to Wyntoon, a forest retreat built by founder William Randolph Hearst on the McCloud River in the far northern part of the state. “We don’t sell our water to other users,” wrote Hearst spokesman Paul Luthringer. “We use it for ourselves.”
A Party of One: More Diners Eat Solo
As lifestyles and demographics shift, Americans are emerging as a nation of diners who eat alone. About 57% of eating and beverage occasions now occur when people are by themselves, according to a recent report from The NPD Group, a market research firm. The portion is highest for non-meal occasions (industry speak for snacking) followed by breakfast, lunch and then dinner.
Time constraints, active lifestyles and a record percentage of one-person households are fueling the trend. “In the past, there really has been a stigma around eating alone, and it’s started to change over the years,” says Aaron Allen, founder of a restaurant consulting firm. These diners have driven a dramatic increase in home delivery and takeout, Allen noted. Chipotle, in particular, has seen an uptick in takeout orders, growing to about two-thirds of orders, up from half eight years ago, according to its latest earnings call.
Still, Allen thinks grocery stores have been faster to adapt with more single-serve options. “Restaurant chains absolutely need to pay more attention to this as a segment, and the smart ones are and have already made changes to their menus’ and restaurants’ designs and training,” he said. Industry watchers say they are seeing a bigger emphasis on restaurants’ bar sections, more two-person tables and communal tables, faster wait times and smaller menu items.
“On the menu development side, it is a trend toward faster,” explains John Gordon, principal at Pacific Management Consulting Group. “Single diners aren’t going to generally spend two hours. The turnover will be faster. Because the turnover is faster, the actual entree or food itself is either smaller, lower priced or more individualized.” According to Gordon, these party-of-one diners could help explain the drop in casual dining traffic.
Warren Solochek, NPD’s vice president of client development for its food service practice, said he thinks the report could explain some of the surge in fast-casual space. He suspects some of these eaters have traded down to fast-casual restaurants, which sell premium items at fast-food speeds, after realizing they offer quality food at a lower price without a long wait. To make them feel at ease, restaurants are shifting their typical service for people eating alone.
An extreme example is a restaurant launched in Amsterdam touted as the first one-person restaurant in the world. Another in Japan proposed a solution—dining with a stuffed animal if eating alone proves to be too lonely.
At New York City-based Union Square Hospitality Group, servers learn how to interact with diners who swing by the group’s fine-dining restaurants while on business alone. These customers get a couple of table location choices along with reading materials if they want. Sabato Sagaria, the group’s chief restaurant officer, sees an increase in these solitary patrons. “I think it’s a growing trend in general,” he observed. “I think people are more comfortable dining by themselves. We always try to set up our restaurants so they can be campfires of conversation.”
Sources:
1. http://buswk.co/1soDhxA – BusinessWeek
2. http://cnb.cx/1olU7vk – CNBC
The Good News Is . . .
• Productivity at U.S. nonfarm businesses rebounded strongly in the second quarter. The Labor Department said productivity increased at a 2.5% annual rate after contracting at a revised 4.5% pace in the first quarter. The bounce back kept labor-related production costs in check. Unit labor costs, the price of labor for any given unit of production, rose at a 0.6% rate, braking sharply from an upwardly revised 11.8% pace in the first quarter. Economists speculated that the data, which signal a lessening of pressure on wages, give the Federal Reserve room to keep interest rates low for a while longer.
• Time-Warner, Inc., a leading media and entertainment company, reported earnings of $0.98 per share, an increase of 28.9% over year-ago earnings of $0.76. The firm’s earnings topped the consensus estimate of analysts by $0.14. The company reported revenues of $6.8 billion, an increase of 2.7%. Management attributed the company’s results to continued strength in its film and cable businesses. The firm’s board authorized an additional $5 billion of share repurchases.
• Dollar Tree agreed to buy Family Dollar Stores for about $8.5 billion in cash and stock, uniting two of North America’s biggest deep-discount retailers. Under the terms of the deal, Dollar Tree will pay $74.50 for each share of Family Dollar. The bid is made up of $59.60 a share in cash and Dollar Tree stock worth about $14.90. Together, the two companies will have more than 13,000 stores in 48 states and in Canada, and more than $18 billion in revenue.
Sources:
1. http://reut.rs/1uzZA1r – Reuters
2. http://www.cnbc.com/id/18080780/ – CNBC
3. http://bit.ly/1yhxs3n – Time Warner, Inc.
4. http://nyti.ms/X9outW – NY Times Dealbook
Planning Tips
Tips for Leasing a Car
If you are considering a new car, you have the choice to buy or lease. The decision to lease or buy a car will always depend on your personal circumstances. If your objective is one day to be rid of car payments and you actually want to take ownership, buying a car may be the best option. If, however, your goal is to drive a new car every few years and minimize your monthly costs, leasing a car may be a good alternative. Below are some tips to help you evaluate whether a lease is right for you.
Consider the benefits of leasing – Perhaps the greatest benefit of leasing a car is the lower out-of-pocket costs when acquiring and maintaining the car. Leases require little or no down payment, and there are no upfront sales tax payments. Additionally, monthly payments are usually lower, and you get the pleasure of owning a new car every few years. With a lease, you are essentially renting the car for a fixed number of months (typically 36 to 48 months). Therefore, you pay only for the use (depreciation) of the car for that period, and you are not forced to absorb the full depreciation cost of the vehicle. Leasing also provides an alternative when buying a car is not an option. Most banks will not lend more than $30,000 for a car loan. If you are planning to acquire a car worth more than that, leasing may be your only option. Finally, for business owners, leasing a car may offer tax advantages if the vehicle is used for business purposes.
Leasing can mean simpler maintenance – Most leased cars are under warranty for the duration of the lease, so repair costs are minimized, which is nice perk. Some auto brands also offer free maintenance programs during all or part of their lease agreement, which means that all you need to worry about is putting gas in the car. Keep in mind that manufacturer warranties differ in length and coverage.
Be aware of the drawbacks of leasing – By leasing a car, you always have a car payment, and if you do not like that prospect, then leasing is probably not right for you. Most leases restrict your mile usage to 15,000 miles per year (sometimes even lower at 12,000 per year). If you go over your allotted miles, you pay extra. The going rate is about 15 cents for every mile over your limit, and 20 to 25 cents for luxury cars. So, if you go over your limit by 4,000 miles, you can expect to pay about $800 at the end of the lease. Finally, insurers usually charge higher coverage costs for leased vehicles. However, depending on your age, driving record and place of residence, that additional cost may be nominal.
Lease a car that retains its value – A downside to leasing is that you essentially pay for the most expensive years of a vehicle’s life instead of the dealer. The amount for which you lease is the difference between the purchase price and the salvage, or residual, value, which is the predetermined value of the car at the end of the lease period. The amount of the residual value that the dealer includes in your contract, directly impacts your monthly payment. Therefore, when leasing, it is important to consider a vehicle that best retains its value and rethink cars with a high depreciation rate. Some dealers may try to shift more of the depreciation cost onto you by embedding an unreasonably low residual value. Also, when entering a lease agreement, be aware of any clauses in the contract regarding additional charges for “excess wear and tear” or above-average costs for additional mileage.
Understand the different types of auto leasing options – There are two types of car leases: closed-end and open-end. Closed-end leases allow you to walk away from the car at the end of the lease term. If you owe for any mileage coverage or unusual wear and tear, this is when you would have to pay for it. With an open-end lease (also known as an equity lease), you must purchase the car at the end of the lease period for a predetermined amount. This is often the type of lease used by businesses or individuals who drive a lot. Most consumer groups suggest that the closed-end lease is the best option, because it poses less risk upon the expiration of the lease term.
Sources:
1. http://bit.ly/VbbjXB – Bankrate.com
2. http://bit.ly/1pIfpl5 – Wall Street Journal
3. http://bit.ly/1q2IODK – Investopedia
4. http://on-msn.com/1syq4Pt – MSN Money
5. http://bit.ly/1vr6me2 – TrueCar.com
6. http://bit.ly/1pIfvcq – Cars.com
