Wednesday, November 30, 2011

Should we raise income taxes for schools?

I am generally not a proponent of further increasing California income taxes, but this article in the Sacramento Bee about a potential new initiative that would raise income taxes for education and a little research I did over the holiday on school funding has made me more sympathetic to the idea.

I have told many people that I like everything about our move to California almost 4 years ago except the schools and its impact on my children's education.  Some of it has to do with standards, expectations and educational philosophies (schools do so much less to challenge stronger students here than I would like, even before the budget cuts), but I am increasingly convinced that most of it has to do with funding. 

I depressed myself over the weekend by researching per pupil spending at schools in the area and comparing them to the district we moved from in Maryland and the one's where my wife and I grew up in Maine and Ohio respectively.  It is embarrasing when relatives visit over Thanksgiving and your kids are trying to help with fundraisers that are trying to keep a school library open part time, while your nieces and nephews are engaged in all sorts of extra-curriculars and enrichment opportunities that your children's school doesn't even offer.

I found that typical per student spending in the region averages around $7,500 per student.  For the district we moved from in Maryland, the comparable spending was $13,000 per student and for the school districts my wife and I attended it is currently around $10,500 per student.  The educational offerrings and environment in the Maryland and the Ohio/Maine schools we experienced were pretty comparable, teacher salaries were the main reason for the difference between the $13k and $10.5k spending.  California teacher salaries, taxes and cost of living are more compariable to Maryland, but are those schools in Maryland really 73% better than California for spending 73% more per student?

California schools still teach the fundamentals, and I am sure that my kids would not be anywhere near 73% better educated if we had stayed in Maryland.  A lot of the differences are in the non-essentials, but that doesn't mean they don't have value.  I have found California schools to be comparatively joyless places, shockingly devoid of foreign language, music, art, and GT programs at middle and elementary levels.  School lunches are worse, transportation scarcely exists, typical facilities are worse, class sizes are larger, the school day is even 30 minutes shorter than we are accustomed to, and the school year is probably going to get shorter, again.  PE and football is noticably better here, and my kids are less stressed out about school which is nice sometimes (too much homework or stress over a 3rd grader failing a quiz has never been a problem here).

Although teacher salaries are higher than the national average, the data shows education salaries are among the only public employee salaries in California that are not extremely out of line with national norms.  (For example, we have fewer police per capita primarily because we pay police so much more, whereas we have fewer teachers per student primarily because we fund education so poorly).

Enough complaining.  It is a beautiful, sunny California day outside.  UOP music ensembles are playing holiday music out on the quad.  Time to go out and smell some roses.

Negative Equity Improving

The real estate market won't normalize until virtually all of the negative equity mortgages are resolved in one way or another; foreclosure, short sale, mortgage modification, or more gradually by paying down balances, possible home price appreciation, inflation, etc.  I think the negative equity and delinquency rate data available from financial firms like CoreLogic is more interesting and informative than foreclosure filings. 

Today, the Stockton Record reports CoreLogic estimate of Negative Equity for the Stockton MSA in 2011Q3 is 51.1% down from 53.3% in 2011Q2.  Going back into our archives, I see that this has come down 14 percentage points from 2010Q1 when it was reported at 65%.  That's quite a lot of progress.

For the 50 largest metro areas, you can download more detailed data directly from CoreLogic and there are some interesting comparisons in the region.  Stockton looks similar to Las Vegas, negative equity is dropping slower in Sacramento, the East Bay and Phoenix. 

Sacramento was 44.8% negative equity in 2010Q1, and dropped to 40.1% in 2011 Q3.
East Bay dropped from 34% to 29% over the same 6 quarters.
Phoenix dropped  57.5% to 51.9%, Riverside decreased from 53.5% to 43.7%.
Las Vegas dropped from an incredible 74.7% in 2010Q1 to 61% in 2011Q3, similar to Stockton but higher overall.

Here is the depressing part.  At the current pace of decline in negative equity mortages, it would take 10 years to eliminate them in Sacramento and Phoenix, and about 5 years for places like Stockton and Las Vegas that seem to be reducing negative equity mortgages at a faster rate.  It shouldn't take that long to have a more normal market since not all mortgages are severely underwater and at high-risk for default in the short-term and will resolve over time. 

Progress is good, but the road to recovery remains very long.

Monday, November 28, 2011

Cost-Benefit Analysis and the Co-Equal Goals

Cost-benefit analysis is the scientifically accepted approach to weighing the merits of complex public works projects like a $12+ billion isolated water conveyance facility in the Delta or several billion dollars invested in creating tidal marsh and other habitat in the Delta. 

The Delta Reform Act creates a very different framework for evaluating Delta plans, the co-equal goals of water supply reliability and protecting, restoring and enhancing the Delta ecosystem.  Cost-benefit analysis is inconsistent with the co-equal goals, because the co-equal goals single out two of the many types of societal benefits produced by the Delta and requires they be placed ahead of others, whereas cost-benefit analysis measures and considers all potential benefits in a consistent way.  The economic considerations that are left out of the co-equal goals are considerable, and in total greatly exceed the value of water supply reliability (as demonstrated by DWR's own DRMS risk analysis for those who read beyond the executive summary). 

I have been calling for a cost-benefit analysis of these projects since I first got involved in Delta water issues over 3 years ago, and have been encouraged to see it promoted recently from some seemingly unlikely sources, the 5 Delta Counties Coalition as well as a large group of mostly local environmental groups.  I say "unlikely sources" because one might intuitively think that a cost-benefit analysis would show the overwhelming economic value of Delta conveyance to the larger southern California economy, and therefore it would be a tool to show why the local opposition should lose to further the greater economic good. 

If a good cost-benefit analysis were to show that were truly the case and not just a political campaign, I would switch my position of opposition to large, isolated conveyance facility  in the face of the overwhelming statewide economic interest.  The fact that such an analysis does not exist (even one sponsored by water exporters) despite the enormous spending on research and planning for the Delta is pretty interesting.  Even more interesting is that the California Resources Agency has apparantly responded to the Delta Counties' request for formal cost-benefit analysis by stating they aren't going to do it because it is not required by law.  That's a pretty weak excuse in my opinion, since they are supposed to act in the best interests of the State and say they are committed to a science-driven process. It seems to me those guiding principles would compel one to conduct the scientifically accepted analysis that determines whether a project is in the best interest of the state.  Even if the law does not require you to follow the result (for good reasons in some cases such as impacts on disadvantaged communities), the analysis would still be incredibly informative.

I have quieted down on this point this year as I have come to accept the co-equal goals as law and have been working on the Delta Protection Commission's Economic Sustainability Plan.  I think the co-equal goal framework could lead to a good outcome if the constraint on the pursuit of the co-equal goals is taken seriously. ("The coequal goals shall be achieved in a manner that protects and enhances the unique cultural, recreational, natural resource, and agricultural values of the Delta as an evolving place.")  The intent of the Economic Sustainability Plan is to be consistent with the co-equal goal framework, not cost-benefit analysis.  (Although I think there is plenty of evidence to suggest it the ESP would prove superior to BDCP type plan on benefit-cost criteria, that was not the focus.)

Since the BDCP and Stewardship Council have been avoiding the question of cost-benefit analysis for a long time, I was really surprised that the Stewardship Council newsletter summary of the Delta Science Program's independent review of the ESP focused on the following quote from the review panel chair, “This report provides a good starting point to conduct a comprehensive cost-benefit analysis, but its recommendations are not well supported because the report is not itself a cost-benefit analysis.” 

I agree with the criticism, but it is not a valid reason for the Stewardship Council to reject the recommendations in the ESP.  The ESP is guided by the co-equal goals, not a cost-benefit framework.  As discussed above, those two analytical frameworks are incompatible.  The Science Program review panel stated that we addressed the co-equal goals later in the review in response to the direct question. 

Overall, the independent review of the ESP was positive.  More on that later.

[Update:  I originally misused the term ISB (Independent Science Board) in the above paragraphs and confusing the Delta Science Program with the ISB.  The Delta Science Program convened a panel of independent experts to review the ESP.  Those experts are not the ISB which is a standing board of academic scientists.  I have edited the post to fix it, and my apology for the original mix up.]

Sunday, November 27, 2011

Indalex Aluminum Plant in Modesto Stripped by "Recyclers"

Time to wake up the blog.  Tales of foreclosure homes being stripped of appliances, fixtures, anything of value have been commonplace in the Valley for years.  However, the story of the bankrupt Indalex Aluminum Plant brings a whole new dimension to the Valley "recycling" industry. 

Here are some snips from articles and commentary in the Modesto Bee, and a photo of the plant after the roof collapsed due to scavengers removing steel support beams.

Jeff Jardine Commentary (Nov. 19)
I don't think the demolition of the former Indalex building in north Modesto is what anyone envisioned when coining the slogan "Recycle — It's Good for the Environment."

Really, who thought you could tear apart a structure and turn it in for California Redemption Value, like an empty Pepsi bottle?

Under any circumstances, it's embarrassing to the community. The blatant theft continues, with women taking lunches to their husbands or boyfriends at noon.

The images of Indalex exude a post-apocalyptic ambience like you'd see in "Mad Max" or any other doomsday flick. At the very least, it reminds me of an episode of M*A*S*H in which Radar O'Reilly mailed home a Jeep piece by piece.

Except these folk are stealing an entire building in broad daylight, and without fear of arrest, retribution or lawsuit. They aren't even sneaky about it. No need to work nights.

They've stolen so much metal that a large part of the roof caved in last week. The place is extremely hazardous both structurally and environmentally.

Yes, the economy is dreadful, unemployment is sky high and they have families to feed. But theft is theft, and it doesn't matter whether they're stripping an abandoned building, pilfering the copper wiring from the heating/AC units atop the United Way, which happened last year, or stealing it from taxpayer-owned parks, which happened last month.
But is it stealing if no one owns the property?  Victimless crime? Sheriff's hands tied as scavengers strip abandoned plant (October 11)

A dozen or so scrap metal scavengers "go to work" every day at an abandoned north Modesto industrial building, ripping the place apart to harvest the tin, iron, steel and other recyclables for quick cash. No one stops them.

Because nobody admits owning the 9-acre property, law enforcement officials say there is no victim, so no one can be prosecuted...

"I started scrapping here maybe eight months ago," said Michael Bennett, who uses a blow torch to melt metal pieces off the walls and roof. "I do it to feed my family. I've got two kids."

Bennett said the first guys who ripped into the building got rich removing perhaps $100,000 worth of copper.
Far less profitable metalsremain, but plenty of folks willingly help themselves to what's left.

"We have an average of 10 to 15 guys a day coming out here," said Rueben Zuiderduin, an articulate young man who said he is a trained chef. "The only reason I'm doing this is because I'm out of work."

Zuiderduin labored with a torch much of Monday to dismantle an iron grate, which he reportedly sold for a disappointing $69. During the last month, he said he hasn't made more than $1,000 off Indalex scrap.

None of the dismantlers were hiding their activities when The Bee visited the site.

Some reported earning an OK living off the building, and they don't think they're doing anything wrong.

"I'm scrapping it out for my Uncle Sam," said one shirtless man who wouldn't reveal his name. "If Uncle Sam sent people here to demolish this place, they'd be in full hazmat suits and it would cost a fortune."

After spending the day ripping apart the building's siding or other metal pieces, the man said he trucks his cargo to "any number of scrap metal places" that pay him $100 to $150 for his haul.

"I treat it like a job. I come in during the morning, work all day, haul off, cash in and go home," the man said. "Nothing here is free. It takes a lot of work to do this."

Zuiderduin also sees his efforts as noble.

"It's a hazardous eyesore, and nobody's doing anything about it but us," Zuiderduin said. "Everybody is happy we're doing this. The companies across the way, the police and the sheriff are fine with this."

He's wrong about that.

Stanislaus County Sheriff Adam Christianson said he has met with angry owners of neighboring properties about the demolition at Indalex, but there's little he can do.  "They're taking property that doesn't belong to them. That's a crime, but without a victim, I cannot arrest them and the district attorney cannot prosecute them," Christianson explained

Roof Collapses (November 16)
Metal scavengers hauled off steel support beams, causing the roof to collapse at an abandoned industrial building in north Modesto. But that hasn't stopped the unauthorized dismantling of the 125,000-square-foot Indalex aluminum manufacturing plant.

While the toxic chemicals, contaminated air and treacherous footing hasn't deterred looters, firefighters and ambulance crews are being ordered to stay outside...

The scavengers are unrepentant about helping themselves to anything of value there.

"It feeds the family," said HectorBonilla, 24, of Modesto, who has been a "recycler" for about four years.

Bonilla said he has been cutting up and collecting tin at Indalex for a week. The two loads he sold Tuesday to scrap metal dealers earned him $400. He anticipated making $200 on Wednesday.

Indalex Plant Catches Fire Again (November 23) 
Modesto fire crews responded to a blaze at the large, debris-filled shell of the old aluminum manufacturing plant at about 3:45 p.m. Wednesday. When they arrived, a 20-foot by 20-foot former paint booth inside what used to be the building was ablaze.

Modesto Regional Fire Authority Division Chief Sean Slamon said when crews arrived some 30 unauthorized metal scavengers were still working at the site, despite the nearby flames. Stanislaus County sheriff's officers had to disperse the people dismantling the plant.