How unelected agencies hide the ball on their costly plans

OPINION – Southern California has never been less affordable, with housing and electric bills climbing endlessly. Data shows the Los Angeles-Orange County MSA is the country’s second most costly urban area.

The culprit often lies in bureaucratic decisions made by obscure government agencies like the South Coast Air Quality Management District (SCAQMD), which is pushing new rules that will worsen Southern California’s affordability crisis.

SCAQMD, a regional agency of political appointees from Los Angeles, Orange, Riverside, and San Bernardino counties, proposes two rules to shift homes from affordable natural gas furnaces and water heaters to more costly all-electric alternatives.

Their proposal, formally known as Proposed Amended Rules 1111 and 1121, is a textbook example of how government agencies quietly make life more expensive. Even worse, the SCAQMD is attempting to hide the rules’ negative impacts on residents by purposely underestimating their real costs.

After conducting a comprehensive economic analysis using real-world data on what it costs to buy and install new all-electric heating appliances, we found that these rules will cost consumers $7.7 billion in new fees over 25 years.

As part of their proposal, SCAQMD released a Socioeconomic Impact Assessment intended to provide an objective analysis. Rather than offering a true accounting of the costs, SCAQMD deliberately overlooked the full expenses to mislead the public. Make no mistake, Rules 1111 and 1121 are not a market solution to NOx emissions. They are an attempt to raise government revenues.

For example, their assessment claims consumers and businesses can get a 1% to 4% loan to finance the purchase of new heating appliances. Anyone who recently took out a mortgage or car loan knows low rates are a fantasy. When called out by one of their board members, SCAQMD staff publicly admitted their interest rate calculation was “probably” outdated and cited federal regulators using a figure as high as 7 percent. Ironically, SCAQMD staff criticized my report for using a similar rate. This matters because using a lower interest rate lets SCAQMD downplay the economic toll these rules will impose.

They also use other evasions in their assessment, like saying higher costs for heating appliances paid by consumers and businesses imposed under their rules are actually a net benefit to jobs and the broader economy. They disregard long-standing practices economists use and ignore the fact that households will have to reduce other spending to pay for these “benefits.”

Consider the significant impact on a family replacing both a furnace and a water heater. They’ll pay an average of $1,510 in fees imposed by SCAQMD, while those who choose to install electric appliances will face thousands of dollars to purchase and install the equipment. This “fee” is essentially a new tax equivalent to an additional month’s housing expense for homeowners. For renters, these costs could lead to further rent increases as landlords pass on compliance expenses, which will affect low-income and disadvantaged renters in older buildings.

It is extremely expensive to switch to electric furnaces and water heaters. There will be cases where the costs may pencil out, but because most of the region’s housing is older, with 84% built before 2000, replacing a furnace and water heater by converting to zero-emission electric units would cost $47,000 for a homeowner and $40,100 for a multi-family unit,

The agency touts energy savings when consumers convert to electric appliances, but without substantial subsidies to offset the higher costs, most households will stick with gas. This means SCAQMD will achieve negligible energy savings despite the massive cost of complying with these rules. Pushing homeowners and businesses to electrify their appliances could lead to higher energy costs in the long term, as electric bills might easily double or triple in the next 30 years.

When SCAQMD staff had a chance to respond to my findings at a meeting of the Southern California Association of Governments and defend theirs, they decided not to show up and face of over 40 cities, the Orange County, Riverside, and San Bernardino Councils of Government, and over 70 organizations that oppose their proposed rules.

SCAQMD should be honest about the costs. These rules are a death-by-a-thousand-cuts approach to policy, joining costly regulations on gasoline, electricity, and vehicles that drive up prices for everyone.

Southern Californians are fighting to keep their homes and dreams alive in a region where costs never stop climbing. Rules like these are why they’re losing that fight.

Michael Kahoe is a policy consultant for the California Center for Jobs and the Economy.