Modoc tends to have droughts, similar to that of Arroyo (before they get the GECK), which makes it hard to actually farm from crops. Might be a nice place to live in after the trade deal is established with the Slags.
You bring up a good point. One gets the sense that the town is dying from agricultural problems and a lack of importance in trade.
However it is in the middle of a national forest which likely would have been untouched by the war, aside from fallout that has since dissipated. This means game and the potential for lakes, ponds, and streams. Worst case scenario they could leave and settle closer to the Truckee River. If the area is remote, then it is less likely they would be harassed by slavers and tribals.
Irrigation is an option if they had labor capital and books or outsiders with the knowledge to build aqueducts/pipelines. It is unlikely that they could get all these things; iirc the town is post-war and probably descends from survivors who wouldn’t have the knowledge, organization, or time for any long distance infrastructure projects.
Microfusion provides an easy power source if they designed a pipeline, and alternatively pre-war means can be repaired. Again, these are realistic projects for the ncr and vault city. What’s more, infrastructure is susceptible to being destroyed by raiders in a lawless Northern California. The area is a frontier in Fallout 2, and survival there doesn’t come from complex organization but self-sufficiency and adaptability. The development of infrastructure and burgeoning success means growth into a city, where life is less certain. It could become another Shady Sands or New Reno.
Arroyo is no picnic. It’s dying from drought like you said, and they are abducted by the Enclave. Arroyo isn’t worth the risk if you’re an outsider choosing to live there, and your kinsmen tell you they think nothing of outsiders. Modoc is probably also distrustful but easier to assimilate to.
Every settlement has its cons.
The Den sucks universally, while Klamath and Redding are a mix of good and bad aspects. VC, New Reno, and San Francisco vary based on your social position. Being a soldato in the Mordinos means being above water at the expense of keeping people addicted to jet. The viability of living in different locations depends on economic prospects and if you have a family.
Despite the ills of each location (especially slavery in VC and Racketeering in New Reno), their independence is preferable to the political consolidation of California we see in New Vegas. The loss of sovereignty from incorporation coupled with the appropriation of state power by powerful merchant houses is a net loss for Shady Sands and member states.