Monday, August 15, 2011

Bond's Best Friend Ben

The Mayor relies on the government's chief cheerleader for setting budgetary assumptions. Well...


There are many who think the structural problem with our economy is just consumer psychology.

Qatar is the worlds most optimistic country and that is why they are super rich!

Ben Bernanke's job description includes using jedi mind tricks aimed at getting consumers to use their credit cards as much as possible. I was totally wrong. I didn't think anyone actually fell for it.

Here is the Mayor talking about the most delicate part of the budget process.









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I've not had time to write this up, but I should leave some tracks behind for others to follow.

1. If they had fully vetted (as a serious effort) the assumptions, that stuff, and the stuff the Mayor says they are relying on should be documented. At least it should be referenced. If its there, well I suck. I didn't see it this year and I have exhaustfully searched in previous years.

2. The city projected a relatively snappy sales tax increase for this year. How was that conservative?

3. The city has not always got the projections right (At least our CFO Gaspar should have known that).

4. Just before the peak of housing, the city's assumptions were based on the stated position that home prices would not fall, even though it was a raging bubble, but listening to cheerleaders is easier than doing asset valuation analysis.



5. SANDAG modeling should not be swallowed whole. As a member of ITOC it was within our mandate to review some of their models. I did. SANDAG relied heavily on autoregressive forecast models that were seriously overfit (R2>95%). Those familiar with developing forecast models will not be surprised that the predictions didn't work as well as expected, especially in a time of mechanistic flux.

The city should rely on good mechanistic forecasts, not on the unquestioned authority of others.

6. The city does not use the best guess. They should be. When they do,  they should not be basing their budgets on what is expected, but rather what can be counted on with high certainty. The difference is huge. They should also do sensitivity analysis with horizons out to as far as they are carrying current liabilities.

7. The most important projection has ALWAYS been the elephant in the room. It is not sales tax. It is not property tax. It is rate of return that the highly mismanaged CALPERS is providing the city on its pension fund. Get that wrong and it WILL results in layoffs and park closures IN THE FUTURE. It is not something that will be fixable.

I mentioned this and the general response is, well we don't calculate that number. Uhm, but we are the ones on the hook for that liability. It is not a conservative estimate. You can't find an annuity for anything close to CALPERS' "conservative" estimate. It now turns out that even CALPERS thinks their assumptions are too optimistic, but they don't want to change it because of political reasons.

8. As for the roads report. Nobody got in contact with me. Deferred maintenance of streets ends up costing future taxpayers more to repair. The city is underfunding roads maintenance and have done all they can to push that issue off as long as possible. It is not an issue of "perfection" of our streets. It is an issue of the ethical treatment of future residents. If the roads get bumpy... it is already too late.

It was insane that Bond and Maggie would spin the fact of the accumulation of deferred maintenance.

more later...











34 comments:

  1. Prop. 13 may have been the biggest "snow" job ever pulled on the taxpayers of the State of Calif. It was 1978, and I was renting an apt. in Newport Beach. I remember seeing ads saying little old ladies (like me now) were being forced out of their lifetime homes because of the increasing property taxes. Yes, they even showed a little old lady putting all of her things in a shopping cart and leaving her small beach cottage because she was on a fixed income, and even though she and her late husband had only paid $10,000 for their home in Newport in the 1920's, and it was paid off, the area had become a developers dream and a property taxpayers nightmare. So people had to go. Enter Howard Jarvis and company. Lots of money went into getting Proposition 13 passed. And, as we all know, it did. A lot of the property taxes were used for schools back then, and Calif. had amazing public schools. We also had a budget surplus. Sounds like a perfect fix. People don't get taxed out of their homes, and there is plenty of money, right? Well, not quite. Always read the small print, as the saying goes. Along with property taxes on your individual home only being able to be raised a little each year, was that damned Elephant that keeps popping up. It is true that people living in there homes could stay, HOWEVER what people were not told, unless they read the entire bill, most other parts of this bill helped the rich. For example if you owned an entire apartment complex, your taxes didn't go up each year. You could keep raising the rents, but your taxes stayed the same or could be raised about 2%. If you were a corporation and had lots of properties, your taxes didn't go up; if you owned a rental you could keep charging higher rents and your taxes didn't go up. I think you all get the drift. So here we are in 2011 and Prop. 13 has become a "sacred cow". No politician dares to touch it. It would be fine if it applied to the house you are living in and that was all. When I moved to Cardiff in 1982, I was single and bought a home, west of Interstate 5. Today, my husband and I together could not afford it, let alone the property taxes that would go with it. He had a house in Pacific Beach when I met him, that we still own. We keep the rent low because of the unjust tax system, and we don't feel it is right to charge the enormous rent we could get in that area.. However, most people are not like us. and rents keep getting higher and owners richer. Encinitas, like P.B., have become the new Newport Beach. So, if all of the people decided that they wanted this changed, we would have to change Prop. 13. Not likely to happen as I see it. And that's the rest of the story, as Paul Harvey would have said.

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  2. Dr. Lorri - Think carefully about California's population, demographics, changes in manufacturing, economy, etc. Because Prop 13 is not responsible for your situation.

    Regarding those videos...
    Bond makes sense in those videos... our roads aren't perfect but they're not bad at all. I'd rather we have better schools than perfect roads! Even the controversial road report said are roads aren't that bad. Kevin et al's complaints about the roads just don't smell right. It's like they're trying to find some mud to throw at the incumbents and the roads are the best they can do? Why not keep throwing pension mud. We're not tired of pension mud so long as you can put up real facts (with links, something I haven't seen yet!).

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  3. HH is clueless just like Mr. Smith.

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  4. HH-Certainly Prop 13 is not entirely responsible for the national situation. But in California, can you tell me a bigger boondoggle than Prop.13? I would really love to hear hear it. I went to Calif. public schools and a Calif. State University before Prop. 13. The schools then had plenty of money. Now they are almost broke. What has changed, except Prop. 13?

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  5. (1) Hi Wendy, Maybe I am clueless. Do me a favor and clue me in. I read the road report. Did you? Our roads were rated 80 out of 100. That's nothing to whine about. A politician who chooses to not spend money on something that ain't broke is nothing to whine about, either. All I'm saying is their position makes sense. Don't make a mountain out of a mole hill.

    (2) Dr. Lorri, much has changed. All houses eventually change hands and get marked up to current prices. The rate of the tax doesn't need to go up. Restaurant waiters think tips should be more than 15% since the 15% rate hasn't gone up in a long time (it used to be 12%)... but the food prices went up by more than the cost of inflation, so the net tip received went up as well. Houses prices have gone up more than inflation and they will reset, your husband will likely not live forever and somebody else will own that house at a higher tax base. Plus, Californians pay plenty of income taxes. So our school problem is multifaceted... not a revenue source problem... dig a little deeper. Look at immigration, look at the economy...

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  6. HH,

    Do you not understand it is not an issue of the CURRENT conditions?

    Its just like the pension, YES we can currently make the pension payments so why bother talking about that either, at this time?

    It is about not getting behind the curve, which we are on pensions and roads.

    What rating is good enough for you?

    At the current rate at which the city is spending money what will the average rating be in 10years (or better yet, the length of the maintenance cycle)? Will it be good enough for you?

    Is the city currently spending money on streets in the most efficient (cheapest) manner?

    The issue is not about the CURRENT status of the streets. It is about deferred maintenance. If it was not past due, it wouldn't be called "deferred" maintenance, no?

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  7. I read the report and I drive on the roads... I think things are fine. Call me an idiot, I don't mind. I don't know how the roads will be 10 years from now. Nobody knows how the roads will be.

    Think of it like this: $900k per year is what they've been spending on the roads according to Bonds... not only that, some years they don't spend it. They've budgeted $1.2 million plus inflation going forward. Despite that tiny budget, and despite the low historical spending on roads, our roads are still currently rated an 80 out of 100 according to the experts in the report. That ain't bad... definitely not a scandalous political issue.

    Lastly, post links for pension debacle. That's your best chance of getting the incumbents tossed. This road stuff is just silly. Go drive around La Jolla. Their roads suck beans.

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  8. Please send links you'd like discussed.

    The blog is steering away from electioneering. Others can conceive and execute electioneering. Heading toward the issues.


    You didn't answer the questions. Maybe you think they are unanswerable, but good forecasts can be applied.

    Please, at least state that you realize the issue is not about current conditions.

    Forecasting can be done and done good enough for the general purposes. Roads will deteriorate without maintenance. Do you disagree?

    Because I cornered the city about lies about, the city conducted a status report and set up a forecasting system, that even helps figure out the most efficient level of effort.

    If you wait for your cavities to require a root canal you are wasting money and taking on uneeded pain. Same thing applies to street maintenance.

    According to the city, the city is not efficiently repairing roads.

    You realize that its relatively cheaper to do an overlay than it is to tear up the street and start over (which is what happens if you wait too long)?

    Are you disagreeing with that or are saying the city should waste money in the long run?

    Now, we don't want to waste our time or others time on this dud issue, so help us understand.

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  9. What links? My numbers are from the video on your own post from Bond's quotes.

    $900k per year => 80/100 roads.

    I'll take it. End of story.


    The city has historically spent $900k per year on roads (according to Bonds). Some years they skip and don't spend anything at all (again, according to Bonds). Despite the low historical spending, the roads currently rate an 80 out of 100 (according to road report). That is an acceptable return on investment. Spend $900k/year in the past has left us with roads that are... "average" rating an 80 out of 100. So, let's keep spending $900k, maybe adjust it up to $1.2m plus inflation (from Bonds). That worked in the past.

    If you think we should spend $17 million when we've been getting the job done for $900k then we are on completely different pages.

    Roads are silly. Roads as we know it may turn out to be buggy whips. Some time in the next ten years, the fed will likely push down a pork barrel roads project of half a zilllion dollars. With the way oil is going, in twenty years we won't even be driving cars or they'll be a heckuva lot smaller and lighter.

    Anyway, I like this blog cuz there are some intelligent and oppinionated people so please don't stop electioneering just don't do it over "average" roads. There's so much other stuff...

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  10. Huntington--

    Saying "This road stuff is just silly" is just silly. You say "our roads were rated 80 out of 100." While the correct number is 73, it does, indeed, put the AVERAGE road condition in the Good to Excellent categories (good starts at 70). However, whether you drive on them or not, 35.1% of the roads in the city are Fair or worse, and this is the condition where the deterioration graph takes a steep drop.

    The city's Pavement Management Program, which is what was purchased from Nichols Engineering, is very useful for developing budget scenarios. Here's what the report said about how the city might approach the road maintenance and repair budgeting:

    Scenario 1. Existing Budget ($1.15M/Year, increasing by $50K a year)--In this scenario the City existing funding level is $1.15M per year with an annual increase of $50,000 a year. As a consequence the City’s network condition will drop from the current PCI of 73 to 69 by 2014 Also the maintenance backlog will continue to increase from $17.8M to $34.8M by 2014.

    Scenario 2. Maintain Current PCI at 73 ($2.8M/year) -- In order to maintain the current condition of the network at PCI of 73, $2.8M/year will be needed. In the meantime, the maintenance backlog will continue to increase from $17.8M to $29.8M.

    Scenario 3. Eliminate Backlog ($9.4M/year)--At a funding level of $9.4M/year, this scenario will allow the City to improve the condition of the network to a PCI of 85 at the end of the five year analysis period and eliminate the maintenance backlog.

    The city council voted for scenario 1. The resources of the city are stretched pretty thin right now, so the maintenance of roads gets short shrift. That will add to the costs of repairs in the years ahead.

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  11. It's pretty amazing that are roads are rated "good" on average, and we only spent $900k per year (and some years nothing at all!). It's hard to stomach spending so much to make them only a little better given that historical fact.

    Maybe they voted for scenario 1 because they think over the next decade the state/feds will send us some pork. Afterall, grants for building roads (to no where!) is a fed favorite. Maybe they think rough roads will slow people down... who needs speed bumps.

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  12. Tony, has anyone asked the city to fix that place on your block where the road has crumbled away beyond the white line into the lane? The steep drop-off there seems like a startling hazard to me. I'm surprised it hasn't caused any accidents yet.

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  13. I think you still have not directly addressed my earlier questions.

    You know write:
    It's pretty amazing that are roads are rated "good" on average, and we only spent $900k per year

    It is not amazing at all. It takes TIME for that to catch up with us.

    You then write.
    It's hard to stomach spending so much to make them only a little better given that historical fact.

    Are you forecasting based on past performance? This is the exact type of thinking that gets city's in trouble on things like pensions (and roads).

    then,Maybe they voted for scenario 1 because they think over the next decade the state/feds will send us some pork.

    They did not say this and had ample opportunity to do so. This is also the same type of thinking that has gotten the city, state and country in trouble. Don't worry something good WILL happen and fix the problem so we won't have to do the work.

    They voted for 1 because they've run through their borrowed money and don't have enough to do adequate maintenance.

    La Jolla/San Diego is a great example. For many decades San Diego underfunded maintenance. There was little complaints, because it takes a long time for it to catch up. Now, the costs are too much and San Diego can not catch up, even if were still in a bubble economy.

    It takes time for the maintenance backlog to become apparent, and if it does, it is too late and will cost even more to fix.

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  14. James Bond was elected to the council in 1992. When he talks about $900,000 for yearly road maintenance, or in some years nothing, he's talking about a long time ago. Inflation alone would make these amounts out of date. In the big area of the city around the El Camino Real corridor, streets were still relatively new. No longer.

    Think of street maintenance as the same as car maintenance. If there is not enough money for it, at some point failing to do it will get very expensive. Not a good way to run a city. I wonder if James Bonds changes his oil and check his radiator.

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  15. You are off your rocker big doc.

    How many times have you gone berserk and then ran away from your own comments?

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  16. You guys are analyzing it wrong.

    Scenario #1, the road quality will go down 4 points (out of 100) in the next 4 years, and our backlog will increase by $17 million. Will it ruin your day if the roads are 4% less good, if that means saving $1.7 million per year?

    Scenario # 2... spend over twice as much now (243% more) and STILL our backlog increases by $12 million and our road quality stays at 73.

    The third option is just crazy... spend nearly $50 million over 5 years to get our road quality up to 85, then what? spend $2+ million a year to keep it there? That is insane. I'd rather have 2 more $20 million ocean-view libraries and really crappy roads!

    So, yes, I see scenario #1 as a decent option, especially given how little we've spent in the past to keep our roads in the shape they are in now (which again, is "good" according to experts!).

    GIve the money to libraries, schools..heck give the money to any boondoggle but spending on roads is silly. Amen.

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  17. Rob--

    The lines were painted in an effort to "calm" traffic on Hygeia. At that stretch of the road, they turned the paint machine off, since, as you've noted, there is no asphalt to paint. In fact, there was an accident a couple years ago where a car heading south ran off the road in that narrow spot and took out the hedge at the Ames house.

    There are several streets in my neighborhood that are in terrible shape. I've not looked up what grade the engineers assigned to them, but I know they dragged down the average. Huntington would no doubt call them good enough since he doesn't want to spend much on fixing the roads in town.

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  19. HH,

    Your analysis is correct if you stop at 5 years. There will be a year 10. What happens at year 10? year 20?

    What happens is the taxpayers will have to fork out way more, leaving even less money for libraries than if we had done the preventive maintenance.

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  20. I'm old and I have lived in many places, some nicer than Encinitas, some not so nice, and the roads here , even on Hygia where they're building that Japanese temple house, ain't so bad.

    At least I took the time to look up my street, analyze it, and compare the actual to the report. I read the report. I'm not just going to sling mud on politicians just because it feels good. Read the report, read the pension report, etc. Then sling mud. Don't sling mud just because you want to get elected or because everybody else is slinging mud.

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  21. Huntington--

    I'm sorry if you take my comments on this post to be mudslinging. To me, this is good old fashioned public policy debate. And aside from the narrowing at the Ames' house, my road is not in bad shape, so I didn't bother to look it up.

    So here's how I'm reading your take on the Roads Report and maintenance of the roads: The citywide average PCI is 73, one of the best in the county. Therefore, the 35% of Encinitas roads that aren't in Good shape or better (according to the engineers) will get fixed when we can afford to fix them. And if they get worse and cost more to fix when we get to it, so be it.

    I don't consider that to be a good policy.

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  22. No, the overall road rating of 73 is inclusive of all the good and bad roads, and repairs & maintenance on them. I hope they will allocate that $1.15 million per year to fixing what needs to be fixed, such that the average of all roads drops 4%. They're not going to ignore bad roads and only maintain good ones.

    Did you say we have the best roads in the county!?! We spent $900k per year on roads (skipping some years altogether) and we still have some of the best roads in the county!?! That is friggin' amazing. If I were a long-time politician like Bonds I'd use that as a campaign slogan. That ain't no baloney.

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  23. "Give the money to libraries, schools..heck give the money to any boondoggle but spending on roads is silly. Amen."

    HH: I'm not understanding you here. The library went over budget. The city had to borrow money to complete it. The Mossy public works yard cost more than $3 million more than anticipated. The city has already committed more than $46 million for the Hall property park, yet the park itself will cost another $18 million to build. Schools are not funded through the city budget, so maintaining roads has no impact on schools. Add up all the money spent, and a lot of roads could have been maintained. It would seem silly to spend money on boondoggles.

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  24. Huntington--

    How about the deferred maintenance that goes from $17.8M to $34.8M by 2014 in Scenario 1? You're old, so that's for someone else to worry about?

    You're serving up a fat baloney sandwich, no matter how you slice it.

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  25. even on Hygia where they're building that Japanese temple house, ain't so bad.

    Good grief, do you really think that?

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  26. HH

    You make a pretty good argument in defense of our city council’s management of our road issue, and putting an accurate price tag and time frame on practical and effective road maintenance is anybody’s guess.

    The bigger issue here is why the information concerning the roads has been so difficult. The very people who’s job it is to oversee and make their observation public and transparent are not doing so. I do not understand your defense of these people.

    Take note of all the effort it has taken so you could actually read this report.

    Do you not think it is incumbent of us to question the accuracy and reliability of their current actions, and question the information they are giving us, considering their current behavior?

    We have had to pull teeth just to get the information so far.

    Why are they making this information so difficult for the public to see?

    The money spent on road maintenance is significant, and it is quite obvious that our city management dose not want us public aware of how that money is collected, spent and accounted for.

    I applaud the efforts of Kevin and Tony in bringing light to this issue.

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  27. David, I agree plus some. A policy discussion is useless if those in power play games with information and analysis, which it appears they did with this report.

    Forecasts can be useful. Somethings are easier to forecast other things not so good. Streets can be done good enough to be useful.

    We all know the roads will deteriorate over time (objections to that HH?). The problem with letting roads deteriorate, it is is more costly to repair.

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  28. I agree the roads will deteriorate... but from a high starting point (73/100). Everything around us is deteriorating, myself included, but I don't think the roads are the most pressing issue, neither does the council.

    I do not agree that they will be more costly to repair in the future. Even if they do cost more, there is a good chance that the municipality will not have to pay for the repairs. Why not wait and see?

    I think most policiticians don't deliberately hate the people they represent. Every once in a while they're corrupt (Dalager and his $100 kitchen) but they're not usually Sith Lords.

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  29. The issue of pushing off liabilities to the future is a central problem. It is the same problem as the pensions.

    You do not agree that it costs more to tear up the road base and then overlay rather than just putting on an overlay before the base is impacted? Isn't that the proposed mechanism to explain why waiting costs more in the end?

    This is important because if you are correct then most of your points actually makes sense and much of we have written AND what is in the city's analysis is incorrect. Keep in mind that those guys who are on the city council DID NOT make the argument you made.Also if you are correct the city should never have wasted $100k on the roads maintenance schedule.

    Everything you've stated all appears to rest on your belief that the cost of repair increases linear each year. Do you have any evidence that this is true?

    If what I've seen on is wrong and you are right I will happily come to a different conclusion.

    What is your point about sith lords? I have a feeling you are seriously off base. Can explain why you would write that? Do you think than anyone who disagrees must have animus?

    Why not wait and see if CALPERS pulls 15% annual returns, rather than address the pension issue? Or wait to see if the feds bailout the public pension systems?

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  30. K.C. the roads are just a non-issue and I don't see it as a liability being pushed into the future. I'm not obsessed with them. It was a fair decision to spend $1.15k per year on the roads given that they're the best in the county, AND they've been spending $900k per year, and that $900k got us the best roads in the county. Why improve when you're the best? Because some road report says we can spend $50 million to get our quality from 73 to 85! Silliness.

    MY point about Sith Lords, is that the constant battering of the politicians on this blog would make one think that we are under the control of some evil empire. Yes, Dalager is a crook for taking appliances, and Stocks is an idiot for taking the surfing madonna down, but they're not out to get us (like a Sith Lord, or like this blog makes them out to be... empty accusations of hiding reports on firemen who make $20/hour? Hiding a road report that is a non-issue when the very report says we have the best roads in the county? Maybe they just think it is all silly, too)

    Speaking of which, if you really got a beef, then put up the real numbers of the pension. Maybe someone can explain why they did what they did? What motivation (other than stupidity) to they have for over-paying managers & staff?

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  31. Union pressure to Stocks. Thats what did it. Wake up!

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  32. HH,

    DEFERRED LIABILITY
    You are only making sense if you are not wrong about the the increasing cost of delayed maintenance. Please back up your claim that preventative road maintenance does not pay off. If you are correct, then it is silliness. Back it up and I'll personally take out an ad in the coast news that includes a very clear affirmation that the city's roads analysis should not be used to make conclusion about liability or the city's funding level.

    You've not addressed many questions. This one is central.

    HUMANITY
    I'm sorry that the reporting of what goes on in the city has made you conclude that those guys at city hall must be evil. People make mistakes and my expectations for these guys is actually pretty low. You've given only one example and you have not backed up your conclusion.

    PENSION
    Its not a "beef", its poor long-term financial planning. Promoting a better approach is part kinda part of what's left of the democratic idea.

    It is classic that you mention pensions and the real numbers. The city refuses to release or calculate the most basic of numbers regarding pensions, so stop asking me. Ask your council member for fiscal transparency.

    The Question
    Please address your underlying assumption that makes the city's analysis qualitatively incorrect. Show evidence that waiting for streets to deteriorate does not cost the city more in the long run (a street maintenance cycle)?

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  34. I realized it is too bad the city didn't let the public review the draft document. If HH is right he could have helped the city produce an $80,000 analysis that was not useless (if he is correct).

    Here is the basics of the current school of thought that the city is relying on:

    Money is best spent on maintaining pavements before the need is apparent: the right time to reseal is before deterioration is obvious to a nonexpert. As bitumen oxidizes, pavements become brittle and start to crack. At the early stage of cracking, a reseal will rejuvenate the surface and restore its elasticity. Once cracks are obvious, a reseal will no longer work: the cracks are too big and will come through the new seal, reappearing on the surface. Cracks let in water. Water softens the road base and causes the road to break up. Clearly, it is best to reseal early. But it is difficult to secure funding to repair pavements that do not (yet) look broken. The need to rebuild the road base greatly increases the cost of road work.

    I'm hoping HH will be able to provide evidence that the city's school of thought is incorrect. If so, this be another example of the city making mistakes and wasting money?

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