Tuesday, August 23, 2011

Every Issue to Be Consumed by the Pension Monster

If you only care about your one issue then you also care about the pension issue and just don't know it yet.

From the In Box:

Is the Mayor still listening to the Fed? Aging baby boomers may hold down U.S. stock values for the next two decades as they sell their investments to finance retirement, according to a paper from the Federal Reserve Bank of San Francisco.

    “U.S. equity values have been closely related to demographic trends in the past half century,” adviser Zheng Liu and researcher Mark Spiegel wrote in a paper released by the bank today. “In the context of the impending retirement of baby boomers over the next two decades, this correlation portends  poorly for equity values.”

   The equity-price-to-earnings ratio of U.S. stocks tripled from 1981 to 2000 as Americans born between 1946 and 1964 reached their peak working ages, Liu and Spiegel said. Overseas investors’ demand for U.S. stocks might help mitigate the effect of a baby-boomers’ sell-off, yet the impact would probably be limited, they said. “Foreign demand for U.S. equities is unlikely to offset price declines resulting from a sell-off by U.S. nationals,”they said.

On top of this from Chris Street:

The three largest California public retiree plans (CalPERS, CalSTRS, and UCRS) that administer pensions of approximately 2.6 million State and Local public current and retired employees have been under tremendous scrutiny since last year’s release of the Stanford University Institute for Public Policy report: “Going For Broke”. The study concluded that California retirement plans liability was under-funded by over $500 billion. The report blamed most of the shortfall on the pension plan’s expectation of future annual investment returns of 7.75%; versus a realistic expectation of a 4.14% annual return. The cabal of California politicians, bureaucrats, and crony consultants that justified granting lucrative benefits to employees while failing to contribute enough to support the true pension costs; solemnly dismissed the Stanford report as unsophisticated reflections by academics. But now that a swarm of local governments want to abandon the floundering retirement trusts; the State plans are only willing to credit a 3.8% expected return. If the California State pension plans adopted the same 3.8% rate they are only willing to credit when participants want to leave; their published $288 billion in pension shortfall would metastasize into an $884 billion California State insolvency.

Translation: The 7.75% ROR that the city allows CalPERS to use is not conservative.

It doesn’t take a Stanford MBA to realize producing consistently high investment returns since 2007 has been a difficult in the extreme. The California State pension plans that currently control $432 billion in assets, suffered a $109.7 billion in losses during the 2008 to 2009 recession. Pension plans normally require employers and their employees to mutually increase contributions to make up pension shortfalls. But public pension plans are notorious for not requiring employees to make significant contribution. California police, prison guards, firemen, and lifeguards can retire at age 50, but have never been required to contribute to fund pensions. With headlines that California plans are in big trouble; many government agencies applied to withdrawal from the State plans. But as calculated below; compounding investments at 7.75% grows to more than three times the amount of compounding investments at a 3.8% rate of return.

Play with the calculator at Chris's site here.
articleimg1 California Admits To Almost $1 Trillion Of Unfunded  Pensionsarticleimg2 California Admits To Almost $1 Trillion Of Unfunded  Pensions
When I was elected as Treasurer of Orange County, California in 2006, I was flabbergasted to discover that the County’s $8 billion of retirement investments was covertly leveraged up by $22 billion of derivatives. I quickly learned that many unions see pension benefits as contracted rights; and pension investing as a no risk crap-shoot for extraordinary returns. If the pension investment returns sky-rocket, the unions will bargain for increased benefits. If the pension investment returns crash; the public employees are protected by rock-solid contract law that prevents any reduction in benefits. In 2007, I was fortunate to gain the support of enough OC Pension Trustees to reduce speculative derivative use by 90%. At the time, Trustees for the California public pension plans solemnly dismissed Orange County as unsophisticated. Shortly thereafter the stock market crashed and the State Pension Trustees stopped making comments.

Once famous as the Golden State for leading the nation in high tech growth industries that provided excellent wages; California is now tarnished for having the second highest unemployment and worst state credit rating in the nation. Forbes recently quoted a top venture capitalist that compared the California business climate to France: “I try not to hire here, and I certainly would not launch a company here. But the wine is good.” Tripling of the burden for under-funded pension liability to almost $1 trillion will probably ruin the taste of California wine for most taxpayers.

42 comments:

  1. This comment has been removed by the author.

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  2. I have been saying this on the blog for years. but fools like Ryan and Loser love their freebies and say there’s nothing to worry about.

    Well obviously they are wrong.

    They really need to cut the existing pension over 100k which are outrageous. So many Government workers benefited from the fools like Jerome Stocks who voted in a 35% increase in 2005 to all pensions at City Hall including his own! Now the City and your children Pay. And Pay, And Pay. and there is no money for any maintenance of our City, police enforcement, or building new parks and infrastructure.

    You’re Taxes will all now go to the Pensions. That’s why the Hall Property sits vacant. That’s why that 2nd phase of the Encinitas Streetscape and the Leucadia Streetscape are not moving forward. Thanks to Jerome Stocks’ 2005 vote, the landscaping around town that the City is supposed to maintain, looks like crud and no projects will be built. And it’s going to get worse.

    Don't expect any positive action from Gus our City Manager. He has 25 years in and his clock is ticking for less than 4 years until his golden retirement plan kicks in. Expect the same exit as Cotton. He will receive a huge pay out forever equal to a multi-million dollar annuity.

    You voted for fools like Jerome Stocks and now you are paying the price. Bigger Yet, Your kids will pay for your mistakes- Big Time!

    Get the word out. Jerome Stocks sunk the future financial conditions for Encinitas.

    Some one needs to be elected to change this criminal behavior. For starters, the state needs to adopt a Law to tax all pensions over $100k - 50% minimum. They can develop a sliding scale for the increased taxes based on the pensions received. The government workers are taken huge amounts of our Tax Dollars, they should pay their fair share for our overly large government costs.

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  3. Jerome, Maggie, Dalager, and Christy voted for the lottery win. Jim, Teresa, and Gaspar have done nothing to fix the problem.

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  4. I don't remember ever having supported unions nor their absurd pensions. If they can't manage their money, they should lose it like everyone else. I wish I had a state guarentee behind my investments!

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  5. I hate defined benefit pensions. That structure is broken. No argument from me on that. However, it is not broken because of their rate of return assumption (~7%).

    I don't know what the future holds for buying stocks, no one knows. BUT to say that baby boomers retiring will kill stock returns, or to say that recent returns will dictate future returns, is just as silly as paying $50 million to repair our "good" roads.

    Stock investors survived world war 2, and various other worldwide calamities (listed by date below). The average is over 11%... so to use 7.75% for a long term pension fund invested heavily in stocks isn't too crazy.

    YEAR: EVENT: ANNUAL RETURN:
    1928 43.81%
    1929 Great Depression -8.30%
    1930 -25.12%
    1931 -43.84%
    1932 -8.64%
    1933 Adolf Hitler Becomes Chancellor of Germany, First Nazi Concentration Camp Established 49.98%
    1934 -1.19%
    1935 46.74%
    1936 Construction of the Del Mar Fairgrounds begins as a Work Progress Authority project 31.94%
    1937 Japan Invades China -35.34%
    1938 Germany invades Poland and war breaks out in Europe. 29.28%
    1939 World War 2 -1.10%
    1940 -10.67%
    1941 -12.77%
    1942 19.17%
    1943 25.06%
    1944 D-Day Invasion 19.03%
    1945 35.82%
    1946 -8.43%
    1947 5.20%
    1948 Ghandi Assasinated, Ozzy Osbourne born 5.70%
    1949 China Becomes Communist 18.30%
    1950 Korean War 30.81%
    1951 23.68%
    1952 18.15%
    1953 -1.21%
    1954 52.56%
    1955 Civil rights movement began, riots everywhere 32.60%
    1956 7.44%
    1957 -10.46%
    1958 43.72%
    1959 12.06%
    1960 San Diego County population is 1,033,011 0.34%
    1961 26.64%
    1962 Cuban Missile Crisis -8.81%
    1963 JFK assasination 22.61%
    1964 16.42%
    1965 Los Angeles Riots, New York City Great Blackout, Vietnam war 12.40%
    1966 Mass Draft Protests in U.S. -9.97%
    1967 23.80%
    1968 MLK jr. assasinated, riots, etc. 10.81%
    1969 -8.24%
    1970 PLO hijack 5 commercial airliners 3.56%
    1971 14.22%
    1972 Watergate 18.76%
    1973 -14.31%
    1974 U.S. President Nixon Resigns -25.90%
    1975 37.00%
    1976 Tangshan, China earthquake kills 240,000 people 23.83%
    1977 -6.98%
    1978 6.51%
    1979 Iran Takes American Hostages in Tehran 18.52%
    1980 Mount St. Helens Eruption 31.74%
    1981 New Plague Identified as AIDS -4.70%
    1982 20.42%
    1983 Soviets Shoot Down a Korean Airliner 22.34%
    1984 6.15%
    1985 Hole in Ozone discovered, famine in Ethiopia 31.24%
    1986 Space shuttle explodes, Chernobyl Nuclear Accident, Iran contra hearings, U.S. Bombs Libya 18.49%
    1987 New York Stock Exchange Suffers Huge Drop on "Black Monday" 5.81%
    1988 16.54%
    1989 Students Massacred in China's Tiananmen Square 31.48%
    1990 -3.06%
    1991 Operation Desert Storm 30.23%
    1992 LA/Rodney King riots 7.49%
    1993 9.97%
    1994 Rwandan Genocide Begins 1.33%
    1995 37.20%
    1996 Mad Cow Disease Hits Britain 23.82%
    1997 39 members of Heaven's Gate cult are discovered dead in Rancho Santa Fe 31.86%
    1998 28.34%
    1999 20.89%
    2000 Dot Com bubble pops -9.03%
    2001 9/11 attack, various expensive foreign wars entangle USA -11.85%
    2002 -21.97%
    2003 28.36%
    2004 10.74%
    2005 Hurricanes in Gulf 4.83%
    2006 15.61%
    2007 5.48%
    2008 Housing bubble pops -36.58%
    2009 Financial crisis peaks 26.20%
    2010 unemployment rises to 10% 14.10%
    2011 ytd -6.08%



    ******* Average Historical Return Despite all that BAD BAD stuff 11.10% ******

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  7. HH,

    Your long-term stock return estimate comes from the American century, a time of American economic dominance, plentiful resources, a rapidly increasing middle class, high dividend yields, and expanding profit margins and P/E multiples. Think we're going to have all that again in this century?

    The U.S. was an extreme outlier among world stock markets. If you had invested in other stock markets around the world, returns would have been much, much lower, and in many countries your investments would have been wiped out completely by war or nationalization.

    So you're arguing that because the U.S. was an extreme outlier the last 100 years, it will be an extreme outlier again the next 50+ years that we are guaranteeing 7.75% returns for our employees.

    Check out the 1999 paper by Goetzmann and Jorion. There's a blurb about it here:

    Business Week

    "It's important to note that the U.S. is an outlier when it comes to equity market performance [...] the GDP-weighted index of 44 non-U.S. equity markets had a real return of 3.84 percent vs. 5.48 percent in the U.S. The U.S. economy and government survived two World Wars and the kind of global unrest that caused other stock markets to fail."

    Not to mention that a good chunk of CalPERS money is invested in low-yielding bonds, so they have to make far more than 7.75% on the stocks to get that overall portfolio return.

    Finally, it looks like you are using an arithmetic mean to get your 11.1%, which is incorrect. You don't get 11.1% as an investor because compound returns are hurt by the volatility. The actual compounded return is 9.6% nominal, and just 6.3% real (adjusted for inflation). A handy calculator is here.

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  8. Good Stuff WC.

    Summary, we are screwed and broke thanks to the pensions.

    Who at City Hall has the integrity to call out Jerome Stocks for selling out our City in 2005? Anyone?!

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  9. WC, I'm not guaranteeing anything. I'm only saying a lot of bad stuff happened in the U.S. and we still eeked out 11% per year. But, fine, use 9%, mix it with bonds and you still get closer to 7.75% than you do 4% And, that rate of return assumption is my only issue with this blog post. I think the structure of defined benefit pension plans are very stupid and hurt all involved (even the employees!)... 7.75% is not the problem, though, that's not a crazy assumption to make.

    I looked at that article link. I have some old playboys from the 1970s that have articles written by economists and scholars. They all said it was over for America. Who knows. You take your chances. There are no free lunches. Don't save money if you think there is no tomorrow. Maybe the USA was just lucky last century. We didn't have the largest military at the beginning, and now we do. We didn't have Al Gore inventing internets and saving the globe... now we do. Who knows!

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  10. HH,

    What part of pensions don't you like? The part that guarantees the returns of the investment? If 7.75 is conservative then the guarantee is not a problem, no? Which bone do you pick?

    Oh, and can you point me in the direction of an annuity that I can buy that will give above 7.75, which you say is conservative?

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  11. The end of American prosperity did start back then. We've been living on momentum and debt since then. The momentum has left for Asia.

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  12. Lee,

    I don't like 1 giant institution investing 1 way for a zillion people with a zillion different liabilities and risk profiles. I don't like that employees do crazy things to manipulate their pension benefits, at the expense of other employees and taxpayers. The structure is broken in more ways than that... i'm only getting started. That's why there has been a movement to defined contribution type pensions and it's picking up momentum everywhere except where government unions are involved. This is where the scandal is. It is not the 7.75% return.

    FWIW, I'm not saying 7.75% is conservative. It's just not crazy. . Of course it's not a guarantee. I tried to justify by showing that historically stocks have returned 9-11% depending on how you chose to look at it, and bonds return 4%. Mix the two together and you get pretty close to 7%.

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  13. What is with these people who are calling for the end of American prosperity? It's as if you want the worst to happen simply to justify your extreme political positions...

    The American economy is driven by our innovative spirit, which is as much cultural as it is educational. I keep hearing that China is going to overtake us, but what do they really have? Cheap manufacturing jobs that in many ways are enabled by the fact that they artificially keep their currency depressed? I know that China is investing heavily to modernize their economy, but they are a long way to matching what we have currently.

    We certainly have to take steps to curtail our deficit spending, but to constantly cry that the sky is falling is embarrassing...

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  14. HH,

    No, "stocks" do not return 9% a year. Stocks in ONE country returned 9% a year during the last century. Stocks in the rest of the world did considerably worse.

    Will the U.S. be the #1 performing stock market in the world for the next several decades too? Maybe, but not likely. And Calpers isn't investing solely in the U.S. anyway. So you can't cherry-pick the best performing country from the last century and then say Calpers whole stock portfolio will match that country's returns.

    Further, there is plenty of historical data to show that the biggest drivers of long-term stock returns (even in your U.S. sample) are P/E ratio and dividend yield. We are currently at high Shiller P/E ratios and low dividend yields, which would imply low forward returns. For more on that see here.

    So you have lots of well-respected and unrebutted research on the one side, including Shiller, Jorion, and the SF Fed paper.

    On the other side, you have Calpers saying, "Well, we did 7.75% over the last 30 years so I guess we'll do the same the next 30 years." Calpers own chief actuary recommended reducing the assumption, but Calpers overruled him for political reasons so cities wouldn't see the real cost!

    I didn't say 7.75% was crazy, just that it's not likely. And yes, you are guaranteeing it as an Encinitas taxpayer. Any shortfall, and it is likely to be in the tens of millions, is guaranteed to be paid to the retirees by the city, no matter how many services they have to cut or how much they have to raise taxes.

    Ryan,

    More normal equity returns do not mean the "end of American prosperity." Lots of countries do just fine with 6% - 7% nominal returns. That's not saying "the sky is falling"; nor is it an "extreme political position."

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  15. This is a pretty funny thread... I commented on how the author was using the wrong return by using only the last few years as an input. I said use the last century, or just a longer time frame. Along comes W.C. who says the last century was not good model, and that was all just luck. Maybe we should use the worldwide returns for the last 5000 years? What would Jesus say?

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  16. No, not luck. Favorable conditions including valuation and demographics.

    You now have three sound arguments in front of you, one on valuation, one on demographics, and one on the U.S. 20th century being an extreme outlier for equity returns.

    But you just say, "To hell with the facts, past performance is perfectly indicative of future returns."

    Housing prices never go down nationally either. Remember that one?

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  17. WC,

    I was not specifically referring to your comments, but the general spirit of conversation of the tea partiers who frequent this blog. The economy sucks. It will get better. The US isn't going anywhere.

    Have to agree with HH re: the stock market. 12% returns are the accepted market rate.

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  18. 4:45, "Request and it shall be given you. Seek and you shall find"
    Matt. 7:7 (Concordant Version)

    "Then, being gone, the Pharisees held a consultation, so that they should be trapping Him by a word. And they are dipatching to Him their diciples, with the Herodians, saying, "Teacher, we are aware that you are true, and are teaching the way of God in truth, and you are not caring concerning anyone, for you are not looking at the face of men. Tell us, then, what you are supposing. Is it allowed to give poll tax to Caesar, or not?"
    "Now Jesus, knowing their wickedness, said, "Why are you trying Me, hypocrites? Exhibit to Me the poll tax currency" Now they bring to Him a denarius. And He is saying to them, "Whose is this image and the inscription?"
    They are sayihng, "Caesar's." Then He is saying to them, "Be paying then, Caesar's to Caesar, and God's to God."

    Matt. 22:15-22 (Concordant Version)

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  19. Ryan,

    That's simply not true. No one I'm aware of, from financial practitioners to researchers to government statisticians, would use 12% as a reasonable estimate of stock market returns. That is WAY off base.

    If you have a stockbroker who's telling you that's a reasonable number, it's time to find a new stockbroker.

    Call up 10 CFP's out of the phone book and I would be shocked if one gave you a number that high.

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  20. Finally, for anyone who doesn't believe the Fed researchers or academics, please read this from well-known and highly-respected fund manager John Hussman.

    This guy is a stock market mutual fund manager who gets paid by getting people to invest with him in the stock market, so he has absolutely no incentive to be negative and every incentive to be positive.

    Here's what he said in June 1998.

    One of the interesting aspects of the recent bull market is that the historical return earned from holding stocks has increased from the former average of about 10%, to a higher level near 11.5%. The financial community has not missed a beat. If you ask a typical analyst "how much can I expect to earn if I buy stocks and hold them over the long run", the answer of choice is now 11.5%. We'll tell you flatly. The correct answer is something less than 7.4%. Probably much less.

    As it turns out, Hussman was all too right. The S&P has returned less than 3% annualized since he wrote that 13 years ago.

    Hussman's explanation is accessible to the layman. Read it before you go assuming 11% or 12% returns!

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  21. HH,
    You make good arguments but don't always go back and help resolve differences. Have you provided evidence that cost of streets repair grows linearly?

    I support you on the issue of the massive CalPERS system.

    What about the point that calpers doesn't think they can pull 7.75% or that they they want to credit cities so much lower than that?

    Ryan,
    There is a good point to be made that an investment without risk should not be expected to pay out the same to the retiree. I think it is pretty compelling that most government employees are stoked on the current system and they do not think they can get a better value investing in a mixture of bonds and stocks.

    "the economy sucks". That is pretty negative. What do you think is keeping the USA from being more productive (on a per capita basis), and what do you think needs to change for that to get fixed?

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  22. I made my point about roads. I have nothing more to say. Admit it, the politicians made a good call, or at least one that is justifiable. You guys are trying to get your panties all up in a bunch over something that is just silly. You can't deny these facts: We spent $900k per year for as long as Bonds has been in office (since Jesus pee'd on Caesar), some years we skipped and didn't spend any money. Despite that, our roads are the best in N. County! Who knows what the future holds? I make no predictions. I applaud our morons on the city council for not spending $50 million to make our roads go from "barely good" to "solidly good", ie. 73/100 to 85/100. That was a good call in my opinion and EASILY justifiable by even the most bitter haters of the incumbents.

    WC, I'm going to go down in the basement and find some old playboy articles by a bunch of ivy league smarties that say the best days are behind the good ole USA. Then I'm going type them in, letter by letter. No pictures. Just the facts. The articles sound exactly like Hussman & the other sex-starved smartypants that you posted.

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  23. HH,

    Lee hit the nail on the head. You are way off base IMO.

    lee said...

    "The end of American prosperity did start back then. We've been living on momentum and debt since then. The momentum has left for Asia."

    You sound like an Englishmen in 1960 commenting about the UK Empire. 50 years later, They are barely a shell of a country and joke of Europe. when you have the french and German's laughing at you, you know your empire has fallen.

    All the evidence is in front of us and the trends are currently heading in an obvious direction. You can continue to keep your ol head in the sand and it wont matter anyway, your almost dead.

    I will act accordingly and be in a much better position for the future. One ignorant societies loss is anothers gain.

    Ryan- Quite being so negative. I plan to make a lot of money from people like you :)

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  24. You and Lee should travel more. I've been to England and I've been all over Asia (even lived there recently!). I would take England any day of the week. And it will be many decades at best before China catches up with England. Who cares if China is growing faster? Their stock market is a fraud. Their economy is a fraud. They are ethically and intellectually bankrupt! God save the Queen!

    The Beatles ROCK!

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  25. Beatles have always sucked and our stock market is a fraud and so is our economy.

    Your almost dead, so live in the past. You were lucky, it was good to be an Limey or a Yankee in the 20th Century.

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  26. excusemebut

    http://thecoastnews.com/view/full_story/15176521/article-Who-would-you-choose-?instance=coast_lead_story_left_column

    state of our city stuff

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  27. Their stock market is a fraud. Their economy is a fraud. They are ethically and intellectually bankrupt!

    Good thing we don't have anything like that happening here!

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  29. HH,

    You have not made your point about the roads.

    Your whole argument rests on the premise that it doesn't cost more if you don't do preventative maintenance before conditions deteriorate. Show that you actually have evidence that the city is wrong on this.

    You imply we've been unfair and wrong about the benefit of preventive maintenance. Back up yourself up and we will run an add in the paper saying were wrong about that. That would help give them some credit you say they deserve.

    Your point about the condition of the roads is irrelevant to the issue of cost to taxpayers. The city says it has 10million in deferred maintenance. If you think the city has done well, they apparently didn't mean to do it that way.

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  30. No, you're not listening. You hate the incumbents so much that your thinking has gotten messed up.

    My only point is that we've been spending $900k per year and our roads are the best in the county. Why spend $50 million to make them a little better? Why fix what ain't broken? That's my point. I could care less about future road prices. That is anyone's guess.

    What was the deferred maintenance number 20 years ago? Probably something outrageous. We will always have deferred maintenance. Roads are constantly deteriorating.

    We're not putting off some huge liability. Look at the 3 choices offered to them. The net cash outlay + deferred maintenance increase isn't that much different for all 3. That would imply we lose nothing by keeping our cash and not spending $50 million. Look at the fact that we've spend only $900k per year and our roads are good. Look at what spending $50 million would have gotten us... 73 to 85?!? Ridiculous. They made a decent decision. I applaud them!

    Take out an ad!

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  31. 1. I don't have strong animosity toward ANY of the incumbents. I don't have much respect for the job a few of them are doing, but I'll be happy if they step up. I don't care who is in office if they are attending to public policy that matters.

    Can you provide evidence that I "hate" any of the council members or is it you that is so biased, that anyone questing you must be blinded?


    2. I have been very clear. We should not spend the money to make the roads smooth. Spend the money now so you don't have spend more later. Again, its not about the roads condition. It is about the financial planning, which the city itself says it is pushing off EXTRA costs to the future.

    It is not an uneducated or backed up guess that the cost of repair goes up. I have asked you several time to provide counter evidence to the city's position on this. Why not address this point to which you hold so strongly.

    Reread the city's report. Option three eliminates the maintenance.

    We live in a new city. 20 years ago much of our streets were relatively new and there wasn't as much heavy traffic on them.

    BTW, If the city made a good decision, they did not do so on purpose or because of your reasoning.

    Let's applaud them in a newspaper ad. Bring on some good evidence that preventative maintenance does not pay off.

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  32. Scenario 1 resulted in the lowest taxpayer liability. Right now, we have a $17.8 million backlog (total taxpayer liability).

    Scenario 1: Net outlay for 5 years is $5.8 million, add to that the deferred maintenance backlog (liability) and that gets you a total taxpayer liability of $40.6 million.

    Scenario 2: Net outlay for 5 years is $14 million, add to that the deferred maintenance backlog, it doesn't increase as much but it's still 29.8 million (again, a liability) , and that gets you a total taxpayer liability of $43.8 million.

    Scenario 3: Net outlay $47 million, zero deferred maintenance to add back. Total taxpayer liability is just what you shell out, $47 million.

    Scenario 1: our roads go down in quality ~4%
    Scenario 2: our roads stay where they are
    Scenario 3: our roads increase in quality by ~12%

    Is it worth it to spend $7 million to increase our road quality by ~12% given our roads are already the best in San Diego County? I think Scenario 1 was a fair call.

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  33. I don't know how I was branded such a pessimist. I'm pretty optimistic about the future of our country, however, the economy is in pretty bad shape right now. It sounds as if it will be a long haul out, but I have no doubt that the US will continue to be the leading economy in the world for the foreseeable future.

    I do think that debt issues need to be dealt with, but my bigger concern is the amount of investment being made in basic research. I think programs in space exploration and the Large Hadron Collider produce tremendous technological advancements that fuel innovation. Cutting into these programs, in my opinion, would fundamentally hinder our economy in the furture. It certainly won't produce any immediate effects, but may be as important.

    And you may or may not make money off of me. My investments are for the long-run, and I hold a very diversified portofolio of both stocks and bonds. No panic selling here.

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  34. "Roger and Me" was an entertaining documentary about the death of commerce / jobs in Flynt Michigan when the car industry left town and how that greatly increased crime there. One thing he forgot to mention was what I believe to be a cause of the departure, if not the main reason for it. The same thing is happening on a larger scale today. In Flynt's case I think it was the result of Unions that wanted too much and NAFTA that far underbid them. A happy medium where salaries and pensions are not outrageous might have kept more of our money at home. When I see some of my friends making $40+ an hour for doing next to nothing, only to be laid off for months in between jobs collecting tons of unemployment, I have to wonder how much of that our economic system can take.

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  35. HH,

    That's sound logic (on the roads, obviously not on the pensions).

    Which raises the question, why were Council and staff trying so hard to hide this seemingly innocuous report?

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  36. They likely hid it because they knew the road-building unions would twist it around and incite the blog writers to some sort of panic driven frenzy and the public outcry would demand smooth as glass parkways for their SUVs. Excuse the run on sentence. I didn't want to interupt that train of thought with pesky grammar limitaions.

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  37. HH,

    So predictive modeling is okay?

    What you bring up is one of the problems that could have been addressed if the report had been released or staff had been willing to answer questions after the report was finally released. There are plenty more.

    It does not change YOUR argument which rests on repair costs not accelerating with waiting till the road are already bumpy.

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  39. I don't know what predictive modeling is. People who allocate capital (our city council) have to make guesses about the future but it's not an unreasonable call to spend only $1.15 million on our roads given that it is 20% more than we've spent in the past.

    According to the engineers that wrote that report (no opinion from me), we will save $3.2 million if we let our roads deteriorate 4%. That is predictive modeling done by engineers. They predict our total liability as taxpayers will be $40.6 million in 5 years. Who's to argue with that? If we upgrade our roads it will cost us $7 million (1/3 of a new, oceanview library - bum population on the rise).

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  40. HH,

    As was seen in the city wide traffic study the city is willing to b.s. their reports. Kipp Hefner a city engineer has stated to the court that they had their hand deep into the process that created that report. They then proceeded to take a professional staff a year to to figure it all out and then gave the citizens and council a very short time to vet the report (that did not include all that is needed to evaluate or understand the model, which is really called for given several observations, such as the one you make about the results.) Then when it was finally released refused to answer any questions about, and in response Mayor Dalager promised in writing to agendize a special meeting to review all those issues in the report.

    Dalager did not do what he said he would do.

    As I've brought up several times over the last year the city stops abruptly 5 years out in the report that was released to the public. Does it not makes sense to look at what happens over an full maintenance cycle? You wouldn't necessaryly expect the benefits to come in the short-term.

    We don't know why they did this. They wouldn't answer questions and have hidden all their communications regarding this project.


    There are several things to be resolved. What does the city's models say is the most optimal use of money?

    Are the city's models valid and reasonable?

    Another is related to the last, is there an increasing cost to waiting until the roads are bumpy. If there isn't the other questions probably become moot. You've implied that and many of your conclusions have been based on that assumption.

    You've now jumped back to dealing with the city's report and you bring up good points, but that only brings up the importance of having the city's process and approach made transparent.

    Do not forget that after we reviewed the city-wide traffic study they tossed it in the trash (but gave their consultant a new contract???)

    Do you not have empirical evidence that the cost of repair doesn't accelerate as roads deteriorate?

    Let's resolve that first because if you do have good evidence then everything I have concluded is wrong and it begs lots of questions about what the city has been doing.

    If no evidence, then the next step is to bother looking at the report.

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  41. How about someone, Anyone with integrity, stand up and address the pension issue. Return the city to 2% at 60 like San Clemente and a whole lot of other Cities in CA.

    Lets correct this huge pay off mistake by Jerome Stocks and Maggie in 2005.

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