Thursday, March 26, 2009

Buy a car in Tracy, get $500 gift card from the City?

A new idea from Tracy's mayor. I think this auto gift card idea is pretty silly. (If he does this, how will neighboring mayors respond and what will that do for regional well-being?)

It's a sad statement about CA system of state and local public finance when auto dealerships are city's most precious, revenue generating asset.

"Once an auto dealership is gone, they don't come back," Ives said. "We've been told that over and over again. If any dealerships are going to be closing, I don't want them to be in Tracy."
City officials are exploring the possibility of "locking" the gift cards so they can only be spent in Tracy, but you don't have to be a resident of the city to earn one.

Wednesday, March 25, 2009

Hope amid California's slump

Dan Weintraub has a good piece in today's Sacramento Bee. His observation that job losses are about average in CA and have been worse in some other states is right. He is understating some issues unique to California, but I think that's ok. You only have 600 words in these columns.

The 1990s recession was pretty severe in California, and pretty mild around other areas. This recession is very serious everywhere, and will be more serious in CA than the 1990s. I've made these same points myself speaking to various groups, and although it's interesting, knowing that its even worse in Michigan and Florida doesn't do a whole lot to make people in CA feel better.

Tuesday, March 24, 2009

Geithner plan

I have been fielding a lot of questions about my opinion of the new (old?) Geithner (Paulson?) plan to remove toxic assets from bank through an auction and public-private partnerships. The big question is "Will it work?" It’s uncertain, and it can be evaluated on 2 main criteria, the impact on the banking sector and the cost to taxpayers.

First, will the process generate a high enough price for so-called toxic loans to repair banks balance sheets and get them healthy and lending again. We will find out in a few months when the auctions take place. The reaction of the market reflects optimism that it will, but that’s not a sure thing.

Assuming the plan makes it over the first hurdle of acquiring the assets and helping the banks, the next question is how do taxpayers fair? It will take longer to answer that question, because it depends on how these mortgages perform over the long-term. If they perform better than expected, taxpayers and private investors in these partnerships could profit. If they perform poorly, the program amounts to yet another bailout by taxpayers who overpaid for the loans.

As I have said to others (including this reporter from the local small town newspaper, who surprisingly got the basic idea of my rambling correct), I'm not sure that this plan means nationalization of some of the sicker banks is totally off the table. In fact, it could actually clear the way, if these auctions are still unable to generate the asset values needed for some of the weaker banks. I just came across this post from Noriel Roubini (aka Dr. Doom) who makes this point with more clarity and expertise than I.

Sunday, March 22, 2009

Will encouraging California population growth help global warming?

This provocative article by Ed Glaeser reminds me of my frustrations about Stockton's General Plan settlement.

Restricting development in your city may reduce your city's global warming contribution, but can increase greenhouse gases if it displaces development to other areas. Glaeser argues that global warming would be helped if more people lived in California, and less in Boston. Of course, CA has other resource/environmental constraints to population growth, namely water. But that would be helped if there were fewer cows in CA and more in Massachusetts.

Encouraging density within a city can help (and the Stockton plan settlement isn't all bad), but global warming can only be seriously addressed with large-scale regional plans - not city plans.

Friday, March 20, 2009

California Bond Debt

California's bond rating was downgraded today.
California now has the distinction of being the lowest rated state by all three
major ratings services.

Elsewhere in the Sac Bee, water exporters want the state to issue billions in new bonds to pay for a peripheral canal. They say they will pay for it, they just need the state to use bonds to borrow on their behalf, and they will repay the bonds. If government loans to automakers and others are a bailout, they should call these water bonds a bailout for the big water exporters too. Ultimately, it is the taxpayer who will be on the hook for a big portion of this, directly and indirectly.

Unemployment Friday

The CA EDD reports today that the state's unemployment rate has increased to 10.5%. The biggest news in the report is a 116,000 decline in non-farm payrolls. The story within the sectors is that construction continues to relentlessly lead the decline, down 31,000 (4.3%) in a single month, and down 156,000 (18.5%) in the past year. With the exception of flat employment in normally recession proof health, education, and government sectors; all sectors are declining.

Within Northern California metro areas, the most important development is that San Jose and San Francisco are now seriously in recession after missing it until this fall. Silicon Valley unemployment actually touched 10% this month. Both areas are now down 3% in jobs over the past year, and have almost caught up to the East Bay and Sacramento. Both the technology and banking sectors are leading the decline in these areas.

In the Valley, the employment picture is progressively worse as you go from south to north. This may change over the course of the year as drought impacts are felt in the agriculture sector, but so far the Fresno regions concentrations in farm and government jobs have kept it's job losses at half the pace of the state as a whole. Unemployment in Fresno is very high, but it exceeded its current level as recently as 1999 and through almost the entire decade of the 1990s. Most parts of the state and nation are dealing with unemployment rates not seen in a generation. In fact, farm jobs are positive year over year in Fresno, and continue to be the top performer of the 11 primary employment sectors. As I have posted elsewhere on this blog, you would never know that listening to water exporters or reading the papers about the state's water crisis.

Moving up the Valley, Stockton and Modesto continue to have unemployment in the 15-16% range, and are more impacted by construction and the real estate sector. Still, payroll declines here are still less than CA as a whole (2-3% year to year vs. 4% statewide), as their manufacturing and transportation sectors have not been hit as hard as tech and auto manufacturing in the bay area or the big coastal ports.

Finally, Sacramento continues to be a mess. Payroll jobs are down almost 5% over the past year, led by relentless losses in construction, but also a very battered retail sector. Leisure sectors (particularly recreation, accomodations, and full-service restaurants) are bad and probably reflect a weak ski season at Lake Tahoe. State employment is flat, but the state's budget problems are undoubtedly hurting local retail, restaurants and business service providers as state workers cut spending due to furloughs, and state agencies pull back non-wage spending too.

Not much good news in this report. Our next comprehensive state and metro forecast is running a little behind schedule, and should be out near the end of the month.

Wednesday, March 18, 2009

Are investors buying up all the Valley homes?

This article in today's Sac Bee talks about how small investors are buying up foreclosures. It notes that the investor share of home purchases in Sacramento County is now up to 28%, compared to 18% a year ago. The article notes the last time investor share exceeded 25% was in 2004-05.

I actually think it's a little surprising (and positive) that the investor share isn't even higher. Folks are worried about their neighborhoods converting into rentals, but the rate is no higher than during the boom. The difference is the fear vs. optimism about the market. I bet that a large share of the foreclosure properties currently selling were originally owned by investors too - so it may not be true that this indicates that the rental share is increasing a lot.

I suspect the current investor % would be much higher if financing were more available, and would be interested in seeing the change between cash investment buyers over time.

The hidden part of the story is that there are lots of renters out there who didn't buy with exotic loans when prices went extremely high. Those people are buying more homes now too (at affordable prices), not just investors. That is very good news.

I don't have the exact data - but the back of my envelope estimates the Sacramento County numbers as: Total Sales Increase by 826 between Jan 2008 and 2009. Of this increase, owner occupant sales increased by 487 (from 883 to 1370) and investors increased by 339 (from 194 to 533). So, in absolute terms the increase in owner-occupant buyers has been larger than investors, but in % terms the growth in invesment buyers is much larger and could be seen as a sign of prices near a bottom.

Tuesday, March 17, 2009

Stockton Plan wins Green Award from Local Government Commission

Stockton's revised general plan settlement forced by the Attorney General received an award from the Local Government Commission, a green local government professional association.

This award seems a bit premature to me. Perhaps we should see some of the results first.

I wonder if this award came from some local government officials who haven't allowed residential development in their Bay Area towns, with the result that much of their moderate income workforce drives over the pass for long commutes. A lot of the Valley's long commute times are caused by poor planning in the Bay area, not sprawl in places like Stockton.

It's also worth noting that a much larger share of our employment base (industrial, agriculture, transportation, construction) isn't compatible with residential, doesn't occur downtown, and doesn't lend itself as easily to mixed-use green development plans and mass transit.

This spin that Jerry Brown is helping Stockton's environment and the city learned from him strikes me as a bit odd. My understanding is that he has a long history of supporting the peripheral canal and Delta water exports which are far more destructive of the local environment than a Spanos development.

By the way, how green is it to have business meetings in Yosemite National Park? Shouldn't this have been done in some high density urban center served by public transit?

Sunday, March 8, 2009

Moving to California = Tax Cut?

Just finished completing my California state income taxes for the first time after moving here from Maryland in spring 2008. Although my marginal tax rate (on my last $ of income) is higher in California (9.3% vs. 7.6% in MD), my total tax bill is about $2000 less in California than I paid on comparable income in Maryland in 2007. (My wife and I had a combined AGI in both years of around $150,000).

This the result of California's very progressive income tax (low tax rates at lower income levels), whereas Maryland's income tax is nearly a flat rate. Interestingly, both state's just increased income taxes. California's tax increase was across the board, whereas Maryland just increased tax rates on the highest incomes, making their new tax code more like California.

My rough estimate of the break even point between the two states is between $200k and $250k(for married couple filing jointly). So, if you earn less than $200,000 per year, you will pay less income tax in California; but very high income people will pay more in California. Of course, this is a comparison of two high tax states. I doubt my taxes would have gone down if I were to move from most other states.

The most recent tax increases will boost my CA income tax bill by about $1000 (assuming the 0.5% increase and the loss of $420 in child tax credits). It reduces my California advantage, but my family is still paying less here than on the east coast.

Friday, March 6, 2009

Stockton Record Editorial

It's nice to get noticed in the paper, and this editorial in the Stockton Record almost gets it right.

Although household growth would suggest a need for over 5,000 units per year, the market will not supply them at current prices, and will not until a tight housing market and better and credit and labor markets push prices back up. That will take a few years. Confused? See the Powerpoints from our housing workshop, including those from the other speakers.

My forecast was compared to Leslie Appleton-Young with the California Association of Realtors, but I am not as optimistic as she is about the market. When, I told the reporter that "we've gone further through the cycle than other regions" I was referring to real estate prices, not foreclosures.

I disagree with Appleton-Young that declining subprime resets mean that foreclosures will be decreasing. That may be true in markets that have seen smaller price declines, but around here so many homeowners are underwater that foreclosures probably have further to increase on prime, alt-a, and other loans - and few will be eligible for refinancing under the Obama Plan.

Thursday, March 5, 2009

Fresno County Farm Jobs

Another month, and still no real evidence of the devastation of farm jobs the water contractors tell us is already happening. There will be significant job losses later this year, but what do things look like so far.

Over the past 12 months in Fresno County (location of Mendota, the farm community water contractors are always profiling) non-farm jobs are down by 5,300, whereas farm jobs actually increased by 1200 (3%). In fact, over the past year, farm jobs were the fastest growing of the 11 main economic sectors in Fresno County. That's right, farm jobs are growing faster than health care.

Sacramento Unemployment Hits Double Digits

The metro unemployment numbers are out today, which include significant revisions to the 2008 data. Unfortunately, all the revisions are down (as expected).

Nowhere are the changes more apparant than in the Sacramento Area. Unemployment in this region has gone over 10% for the first time in EDD metro records that go back to 1990. The area has lost 35,200 jobs (4%) in the last 12 months. Construction losses were bad in 2008 (and were revised down further to a devastating 8,000+ job loss in a single year, and down about 23,000 over the past 3 years. Other areas with huge losses include retail and leisure. This region includes Lake Tahoe ski resorts, and the recreation category (which includes ski resorts) is down about 2,000 jobs compared to last January (15,000 to 13,000). Despite the headlines, state government has been a relative bright spot - although these workers have seen lost wages through furloughs - and their depressed spending has contributed to other areas.

Valley metros to the south (Stockton and Modesto) have higher unemployment rates at 15% and 16% respectively. However, these levels are not record breakers as both regions saw higher winter unemployment rates through much of the 1990s. Not much consolation, as the Stockton and Modesto areas thought they had put those days behind them.

Tomorrow, we will probably learn that the U.S. lost another 600,000+ jobs in February which will translate into even more pain in next month's local reports.

Monday, March 2, 2009

Sacramento Bee owes Delta advocates a front page story

The Sacramento Bee puts the Crisis in Mendota on it's frontpage, but does not even cover the Restore the Delta event this weekend. That's a pretty sad record for a paper that is trying to be the neutral forum of the Delta issue.

Now, about the Mendota story. I wish I had time to write about it's numerous problems.

I will just mention one statistical issue. This is one of many news stories to discuss how unemployment in Mendota is approaching 40%. The source of this number is, click on the Fresno spreadsheet and be sure to read the footnote about how this number is calculated and should be used with caution at the bottom. (The reporter probably got the number from water exporters that have been peddling this shocking statistic to the media).

Unfortunately, it's a phony number. It is based on the unemployment rate in the 2000 Census for the town, then scaled to match the current county data. The only current employment data is at the county level. The only meaningful city level data is from the Census, last completed in 2000. So the shock to me in the current Mendota unemployment figure is how high unemployment must have been in 2000 to yield a current estimate in the mid-30's.

What would those reporters have found if they went to Mendota during 2000, a year of high water supply and strong agricultural employment in the area? Mendota's unemployment rate in 2000 was 31.8%!!