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  • Younger Crowds are Right in the Middle

    When looking for a place to settle down, one might consider cities with active cultural scenes or intellectual communities. However, young people today are looking beyond those factors and moving to where the jobs are. Portland, for example, has a thriving social scene and is one of the nation’s leaders in attracting college graduates, but it ranks 40 as the best place for young adults. A high cost of living, stagnant job growth, and a 9.6 percent jobless rate among 18 to 34 year-olds have tarnished Portland’s reputation as the dream city for life after graduation.

    You can see the economic shift in this country by looking at the best cities for young people. The Southwest is now the haven for those in their 20s and 30s looking to establish their lives and careers. Austin, which ranks number one on the list, has the highest annual employment-growth rate in America at 2.8 percent. This has increased the concentration of 18 to 34 year-olds in its metro area to 28 percent, the most of all cities in the study and well above the average of 23.1 percent. Washington, D.C., Raleigh, Boston, Houston, Oklahoma City, Dallas-Fort Worth and Tulsa round out the top eight.

    However, economics do not dictate everything. North Dakota, which has one of the lowest unemployment rates in the country, is still not a major draw for those right out of college. The cities that have attracted young people in droves not only offer employment and lower costs of living, but also provide some sort of cultural scene. However, if the recession continues to limit job growth on the coasts, North Dakota may build its metro areas to cater to younger crowds, and thus provide them with more than just a steady, good-paying job. Fargo has seen positive net migration every year since 2003, and the state of North Dakota was positive for the first time this decade in 2009. The middle of the country is slowly becoming hot place to be.

  • Building the Train to Nowhere

    The California High Speed Rail Authority has approved building its first 54 miles in the San Joaquin Valley. A somewhat longer route, 65 miles, has been indicated in a number of press reports, but Authority documents indicate that only 54 miles of high speed rail track will be built. The route would start in Corcoran, and go through Fresno to Borden, a small, unincorporated community south of Madera. All of this would cost $4.15 billion. The route would include two stations, in Fresno and Hanford/Visalia.

    The segment was adopted under pressure by the United States Department of Transportation, which was interested in ensuring that the line would be usable (have “independent utility”) by Amtrak should the high speed rail project be cancelled due to lack of funds. The first section of the California high speed rail line would instead be a somewhat incongruously high-tech Corcoran to Borden spur, or perhaps more accurately stub to the region’s rather sparse conventional rail services.

    There are appear to have been concerns that growing opposition movements in the San Francisco and Los Angeles areas could have delayed construction, which could have put the federal money at risk. The Sacramento Bee’s Dan Walters, perhaps the leading political columnist in the state implied an ulterior motive:

    “You’d have to be terminally naive not to believe that the splashy announcement, made personally by an Obama administration official in Fresno, was to help an embattled local congressman, Democrat Jim Costa, stave off a very stiff Republican challenge.”

    Officials representing communities – many of them with high levels of unemployment – on the segment itself were elated, as any would be at the prospect of a rush of new construction jobs, regardless of what was being built. But, most everywhere else the reaction to the selection largely has been negative. Walters labeled it the “train to nowhere” in a November 29 commentary. State Senator Alan Lowenthal, who chairs the legislative committee overseeing the high speed rail project said that the Authority “could be creating an ‘orphan’ stretch of track, that will never be used by high-speed trains.”

    Richard Tolmach, president of the California Rail Foundation, an intercity rail advocacy organization, told Authority members ” It’s a crazy idea. He went on to say that “You guys are gonna be a laughingstock in Congress.”

    Already, problems are building in the now more decidedly more conservative Congress. California Republican Congressman Jerry Lewis and 27 colleagues have introduced the “American Recovery and Reinvestment Rescission Act,” which would apply unspent stimulus money to the deficit, including $2 billion that has been promised to the California high speed rail line.

    Batteries (and Trains) Not Included: Even after the $4.15 billion has been spent, the Corcoran to Borden rail stub will be incomplete. The Authority’s plan includes only the building of the rail bed and the necessary viaducts. There is no money for trains. There is no money for the electrical infrastructure necessary to power the trains. Trains and electricity infrastructure would add at least 15 percent to the bill, based upon previous California High Speed Rail reports. Thus, when and if completed, the trains and electrification would lift the cost of the Corcoran to Borden high speed rail stub to at least $4.8 billion.

    Bare Bones Stations: The plan calls for building only “basic” stations, with two tracks (one in each direction). That is fine if the line is serving Amtrak and there are only a few trains per day. But the high speed rail plan assumes frequent trains, including some that stop at all stations, some express trains that skip some stations and some express trains running non-stop from the Transbay Terminal in San Francisco to Union Station in Los Angeles. The only place that an express train can pass a slower train is at a station. That means that passing tracks must be built at virtually all stations. The passing tracks (two interior tracks in addition to the two tracks for stopped trains) required in stations are illustrated in this California High Speed Rail illustration (also above).

    The full system, or (perhaps the more likely outcome) a truncated San Jose to Palmdale line (with slower running lines over the commuter rail tracks into San Francisco and Los Angeles), would require passing tracks at the Fresno and Hanford/Visalia stations. Rebuilding these stations would increase the cost above the $4.8 billion, and that’s before the seemingly inevitable cost escalation.

    Indeed, the Corcoran to Borden stub entails a potentially large cost increase compared to previous California High Speed Rail Authority documents. After making all of the necessary adjustments to update the last available segment costs to the cost accounting method (“year of expenditure” dollars), the cost of the Corcoran to Borden stub could be at least 30 percent higher than would have been expected in the present $43 billion San Francisco to Anaheim cost.

    Applied to the entire line, a 30 percent cost escalation could take the price of the San Francisco to Anaheim line to more than $55 billion. Based upon cost ratios released by the Authority in 2008, the later extensions to Sacramento and San Diego would lift the bill to more than staggering $80 billion. Even that does not pay the entire bill, because promises have been made in state legislation for improvements across Altamont pass from Stockton to the East Bay and Oakland.

    Not that coming up with any of this money will be easy, particularly with a more deficit conscious Congress. Congressman John Mica of Florida, who will likely lead the House of Representatives Transportation and Infrastructure Committee has promised a review of all federal high speed rail grants. The Authority expects to obtain funding from local governments in California, a number of which are teetering toward financial insolvency.

    The Authority expects between $10 and $12 billion from private investors. These potential investors will all be aware of the fact that virtually every dollar of private investment in new high-speed rail lines has been lost or required a government bailout. They will not participate without subsidies, which are prohibited by California law. Finally, all these elements of the financing plan will be made even more problematic if the first phase of the project continues to rise from $43 billion to $55 billion.

    Washington analyst C. Kenneth Orski noted that the Corcoran to Borden stub could “become a huge embarrassment for the Administration” and that by its train to nowhere ”casts doubt on the soundness of the entire federal high-speed rail program and its decision-making process.”

    Then, even if California gets to keep the federal money, there are still formidable financial barriers. A likely result is high speed rail in Amtrak mode which probably won’t make much difference to passengers riding the infrequent San Joaquin service. After the Authority action, Bill Bronte, who heads the rail division of the California Department of Transportation said that “The improvements in performance might be less than one would expect.” But that might not bother contractors and consultants who can feast on what might prove to be the most expensive conventional intercity train project in history.

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life”

  • Catching up to the Fed

    It’s hard to believe that it’s been nearly two years since we first wrote about the game of “hide the ball” that Junkmeister Ben Bernanke is playing. Finally, Congress is getting some admissions out of the Federal Reserve about the gusher of cash that was opened up when the insides fell out of Wall Street’s Ponzi scheme. Remember, you read it here first! Trillions of dollars were funneled to private, non-regulated companies. According to the New York Times article, the release of documents on 21,000 transactions came about as a result of a provision inserted by Senator Bernard Sanders (I-VT) into the Restoring American Financial Stability Act of 2010. I covered the hearing in March 2009 when Bernanke told Senator Sanders he would not reveal who got the money – but I wrote three months earlier about the deal brokered between the Treasury and the Federal Reserve to circumvent a Congressional prohibition on lending to non-regulated companies. Sanders called it a Jaw Dropper by the time he saw the actual documents.

    Lest you think that all is hunky-dory because the money is being paid back, don’t forget the old adage: “It takes money to make money.” Everyone that borrowed had the opportunity to make money on the money they got at (virtually) no cost. In the interim, small businesses, homeowners, student borrowers, etc. are paying enormously high interest rates for the little credit they can get. The profits go to Brother Banker.

    The Federal Reserve released papers on $12 trillion, about half of the $23 trillion distribution estimated by Special Inspector General Neil Barofsky. Despite admitting to pumping an amount equal to about the entire annual national output into the economy in the form of cash – belying the real decline in the output of goods and services – Ben Bernanke told 60 Minutes recently that he was “100% certain” that inflation is not going to be a problem. Makes you wonder what else they’re hiding.

    Inform Yourself:
    Click here for the Federal Reserve Press release.

    Click here for Regulatory Reform Transaction Data from the Federal Reserve website.

    Click here for an internet article with additional links to original sources and media coverage (thanks to Dennis Smith for providing the original article).

  • Cities That Prosper, Cool or Not

    Over the past few years, the raging debate in economic development has been over whether cities should be cool or uncool. Should cities pursue “the creative economy” by going after arts, culture, creative research & development, and innovation? Or should they focus on the bread-and-butter economy: hard infrastructure, traditional industries like manufacturing, and blue-collar jobs?

    Usually a raging debate is an indication that the wrong question is being asked, and that’s the case here. The question is not whether cities must be cool or uncool in order to prosper. Clearly, there are some cities in each camp that prosper, and some cities in each camp that do not. The question is deeper: In both cool and uncool cities, what is the underlying nature of the economy? Does the city simply import money from other places, or does it export goods and services to other places? Because it is this distinction – not cool or uncool – that serves as the dividing line between prosperity that is real and prosperity that is illusory.

    Not long ago, I was interviewing a retired politician in a fast-growing Southern metropolis. Even though he was a good ol’ boy who had never left home, he bore no resentment for the retired Yankees who flooded his town. In fact, he attributed the whole area’s prosperity to them. A retirement community, he said, “is like a high-wage factory. You build 1,000 houses, you have 1,000 households making $90,000 a year. A high-wage factory without the factory.”

    I grew up in a factory town, and this got me thinking about a factory’s huge and multi-faceted contribution to a region’s economy. But is a retirement community really similar?

    In some ways the answer is yes — and that’s a good thing. The most obvious similarity, as my politician friend pointed out, is that the residents live in town, get steady paychecks to spend locally, and become involved in local life. Like factory workers, retirees can support a whole service economy with their local spending.

    But there’s more to a factory-town economy than simply Saturday grocery shopping by the workers. Factories are in the export business, while retirement communities are in the import business. An export economy spins off all kinds of economic benefits that you don’t get from an import economy. A big factory requires lots of suppliers, and tends to stimulate the creation of an economic cluster — a group of businesses that feed off each other and, in time, find new customers outside the region.

    A retirement community creates a cluster of suppliers, too. But this cluster tends to be composed of local service-sector businesses that create low-wage jobs and aren’t interested in repackaging their services for export outside the region — retailers, contractors, landscapers and pool-maintenance companies.

    There’s also a psychological difference. Factory workers are connected to the local economy in a way that retirees are not. If orders fall off, they might get laid off for a while, switch jobs and go to work over at a supplier, sometimes for more money, sometimes for less. But the point is that they have a stake in the regional economy. Factory workers don’t like traffic jams anymore than the rest of us, but they see the value of an expanding economy. They see how growth can be good as well as bad.

    Retirees see no such thing. They are tied to the global economic system in which their investments are based, or else to the economic fortunes of, say, a government pension system in another part of the country. They might want tax revenue to flow into public coffers in New York or Ohio to protect their public pensions, or they might want interest rates to go up so that their incomes rise.

    But they see no benefit in an expanding local economy. If a bunch of factory workers get laid off, the retirees don’t need to worry, in fact, they might actually benefit because local prices might fall. If business is booming and people are employed and labor rates are going up, they don’t have to worry about that, either. They might even be harmed by it, because their incomes are fixed — not tied to the local economy — and prices will go up.

    A retirement community is not the only type of place that operates this way. Tourist towns and bedroom suburbs function pretty much the same way. All are in the business of importing money from somewhere else, rather than exporting goods and services. And the recession has shown, once again, how fragile import-based economies are. A few years ago, Las Vegas was the biggest boomtown in America. Today, it’s become crash city, largely because the two-tier economy tied to tourism — a few wealthy casino owners and managers, a vast number of low-paid hotel service workers — couldn’t sustain the huge increase in home prices that occurred during the housing bubble.

    There’s nothing new in this distinction between import and export economies. Jane Jacobs laid out the thesis magnificently, almost 30 years ago, in Cities and the Wealth of Nations. But it’s become more relevant in the last couple of years, as the cool v. uncool cities debate has heated up.

    The argument that cool cities are involved in fluff, and therefore aren’t creating real economic growth, is based on the perception that cool cities are in the import business. If you build arts centers and sports stadiums and convention centers and subsidize lofts for artists, you’re not really creating any wealth… or so the argument goes. All you’re really doing is drawing people to your city so you can empty their pockets while they are having a good time; the classic import economy.

    That’s true sometimes, but not always. At its best, a creative economy is generating innovations that turn into products that get exported elsewhere, whether those innovations are fashion trends or software applications or biotech breakthroughs. And in many cases, a more plodding blue-collar economy requires fluffy arts stuff to create the quality of life that will attract top people. My grandfather left the Cornell faculty to run the research lab of a rope manufacturing company in my hometown in upstate New York, but I’m pretty sure one of the attractions was a symphony orchestra that my grandmother, a concert pianist, could perform with now and then.

    Similarly, just because a city is a lunch-bucket town doesn’t mean it’s sending goods and services out into the world and truly creating a lot of wealth. Here again, Las Vegas is a great example. Despite the glitz, Vegas is basically a blue-collar town. It’s job-rich, and workers traditionally didn’t need a lot of education or a high skill level to succeed, they just needed drive. Yet, by and large, the jobs created in Vegas aren’t very good. They’re relatively low-wage service jobs, and they come and go depending on the economy. Vegas’ business leaders are accumulating wealth quickly, and maybe eventually it will become an export economy. But for now, like the retirement community in the South that I mentioned, it depends entirely on importing money.

    It’s time to stop talking about whether towns should be cool or uncool. What really matters is what they are producing. If all they’re producing is some kind of experience that induces people to come to town and spend money, it doesn’t matter how cool the town is; it’s probably not sustainable economically. If, on the other hand, the city is creating and exporting something the world needs – whether that product is cool or uncool – it’s a good bet that both the city and its people will do pretty well for a long time.

    Photo by Stuck in Customs/Trey Ratcliff. Prosperity, or just an illusion? Building 43 at Google.

    William Fulton is a principal at Design, Community & Environment (dceplanning.com) and mayor of Ventura, California. This article is adapted from his new book, Romancing the Smokestack: How Cities and States Pursue Prosperity.

  • State GDP Performance

    Gross Domestic Product is the basic measure of economic output. The government released 2009 GDP data for US states recently, so it’s worth taking a look. Here’s a map of percent change in total real GDP from 2000 to 2009, with increases in blue, decreases in red:

    As you can see, Michigan actually experienced a decline in its total real output over the last decade. Given the restructuring of the auto industry, that’s not surprising.

    Here’s another view, this one a similar percent change view of real per capita GDP:

    Here you can see that Michigan is not alone. Some of the fast growing Sun Belt states added people at a faster rate than they grew economic output. Georgia in particular is worth noting, because even metro Atlanta has been showing declining real per capita GDP. In fact, Georgia actually declined by more than Michigan did on this metric, so obviously all is not well down there. Texas, despite its vaunted jobs engine, is expanding almost totally horizontally. It is 9th lowest in the US on real per capita GDP growth, with a nearly flat 2% performance over the last decade.

    North Dakota is also interesting. They are leading the charts, I presume driven by energy and high tech. (Thanks to Great Plains software, I believe Fargo is now Microsoft’s biggest software development center in the US outside Redmond).

    This post originally appeared at The Ubanophile.

  • Education Wars: The New Battle For Brains

    The end of stimulus — as well as the power shift in Congress — will have a profound effect on which regions and states can position themselves for the longer-term recovery. Nowhere will this be more critical than in the battle for brains.

    In the past, and the present, places have competed for smart, high-skilled newcomers by building impressive physical infrastructure and offering incentives and inducements for companies or individuals. But the battle for the brains — and for long-term growth — is increasingly tied to whether a state can maintain or expand its state-supported higher education. This is particularly critical given the growing student debt crisis, which may make public institutions even more attractive to top students.

    The great role model for higher-education-driven growth has been California. The Golden State’s master plan for education — developed under Pat Brown in 1960 — created an elaborate multi-tiered public system that offered students a low-cost and generally high-quality alternative education. Over the next half century, California became, in historian Kevin Starr’s phrase, a “utopia for higher education,” as well as a model for other states and much of the world.

    Today many of the states that copied California’s model — notably North Carolina, Texas and Virginia- — threaten to upend the Golden State’s dominance of public higher education. These states now all spend far more than traditional leader California when you look at percentage of state expenditures; Virginia, for example, spends twice as much of its state budget on higher ed than California does. New York and Illinois spend an even a smaller percentage.

    The combination of fiscal woes and misplaced priorities has engendered spending cuts in California. Tuitions for higher public education have soared: In 2009 they were raised 30%, and they have been raised over 100% over the past decade.

    To be sure, the University of California (disclaimer: I attended the Berkeley campus) retains a huge reservoir of talent, with courses taught by 111 Nobel Laureates. It still dominates lists of top public universities;  six of the top 14 schools in the US News and World Report 2010 rankings are UC schools.  But the signs of relative decline are clear. In 2004, for example, the London-based Times Higher Education ranked UC Berkeley the second leading research university in the world, just behind Harvard; in 2009, that ranking, due largely to an expanding student-to-faculty ratio, had tumbled to 39th place.

    Other states are now looking to knock California further off its perch. In 2009 alone the University of Texas lured three senior faculty members from UC. As departments shrink at places like Berkeley, those in schools such as the University of Texas at Austin, Texas A&M and Texas Tech have expanded rapidly, adding students and buildings.

    Of course, these schools also have budget problems, and they have increased tuition too–albeit at a significantly lower rate. But for the most part, these up-and-coming state systems are more focused on expansion than on retrenching and survival. While some in California question the viability of some of the newer UC campuses, Texas is busily expanding its roster of tier-one, public research universities, seeking to add the University of Houston as well as UT campuses in north Texas, Arlington, Dallas, El Paso and San Antonio to the ranks of UT Austin, Texas A&M and Rice, a private school in Houston.

    Texas Tech,  best known for its engineering and agriculture-oriented programs, for example, is thriving. Located on the windy Great Plains on the western side of the state, it is far from the state’s major metropolitan areas, and its home town of Lubbock (population: 225,000) is likely not high on anyone’s list of hip and cool college towns. Yet the school, which enjoys strong alumni and business support, is in the midst of a major building boom and a $1 billion capital campaign. When I visited there earlier this month, the campus was full of construction crews; Texas Tech has added over 3000 students in the past two years and now has over 31,000 students.

    Other unlikely upstarts include the University of North Dakota, which has boosted spending by 18.5% in 2009, a luxury afforded by the state’s booming energy, agriculture and increasingly high-tech economy. North Dakota, which historically has suffered significant loss of young talent, has set a goal to rank No. 1 in the average education of its population. Today it already ranks No. 3 in terms of college-educated residents between the ages of 25 and 34.

    These shifts could presage — and to some degree enhance — what is already a powerful trend toward states that, in the past, have been educational also-rans. Although Texas also faces budgetary constraints, its annualized $9 billion deficit is dwarfed by those of California, Illinois and New York. And those bluish states already have much higher tax rates, which leave less room for revenue increases. Texas also has the luxury of an $8.2 billion “rainy day” fund, as well as a more vibrant economy.

    More important still, states like North Carolina, Virginia and Texas continue to grow more rapidly than the older brain-center states. This is particularly true in terms of the high-tech jobs many graduates would likely seek.  Indeed since 2002 these states have all enjoyed far greater growth rates in high-tech employment than California, Illinois, Michigan or New York. They also have added more new tech jobs in actual numbers than California–despite their significantly smaller size.

    Migration patterns are also changing among college-educated workers. Between 2005 and 2007, Texas, Virginia and North Carolina already enjoy higher rates per capita of net migration of educated workers between the ages of 22 and 39 than California, New York or Massachusetts.

    This advantage could expand as the upcoming states increase their educational offerings along with employment opportunities. Students may end up tempted to attend schools closer to where there is job growth. Unlike Austin and Raleigh-Durham, which have rapidly expanded tech employment, Silicon Valley has produced virtually no new net tech jobs for the past decade.

    The second impact may  be more subtle, as declining revenues from businesses and individuals reduces the opportunity to boost education spending. As the country stumbles into this recovery, the greatest advantage will fall not only to states with the most natural resources, but those with the best-educated human resources. For a half century this is a game that states like California have played to perfection, but it is one in which other places are likely to catch up, and perhaps even pass. The long-term implications for the nation’s economic geography could prove profound.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    Photo by Luca Zappa

  • The Financial Crisis Continues to be an Inside Job

    Over the weekend I saw the documentary movie Inside Job with a friend who is not a financial markets expert. After the show, I told her I was relieved to see that the movie covered the majority of the causes of the collapse of the financial markets in 2008. Part of my relief was from thinking that everything would be better now that “everyone” knows the facts. Then my friend pointed out that there were only six people in the audience – obviously “everyone” wasn’t seeing this movie!

    The movie did a good job of covering virtually everything I’ve been writing about at NewGeography since 2008. They did leave out the part where Goldman Sachs and other Wall Street banks were issuing mortgage-backed bond without writing mortgages. This is totally understandable. It’s very difficult to show what doesn’t exist in video. It’s easy enough to show homes in foreclosure — but what pictures and video can you use to show that there aren’t any mortgages behind bonds, especially when the bonds that aren’t even printed on paper? The pictures of hookers, strippers and cocaine make the movie ominous enough and have a certain visual appeal that producers look for in a story.

    Inside Job included lots of stuff on who is funding the academic studies being used to justify wrecking the financial markets. They present more on the serious academic fraud in the crisis than I was aware of. I first posted Tweets about Duke University back in June 2009. A couple of Duke University professors published a research report about a model they developed that justifies manipulating stock prices and corporate votes. What I Tweeted was: “It should be illegal to write this crap.” Duke University’s research center is funded by a wide selection of the bailed out financial institutions. Your tax dollars at work!

    The point I try to raise — perhaps loudly because it’s a little self-interested coming from me — is that the perpetrators of the financial crisis are funneling billions of dollars to the academics who will write anything they are told for the sake of continued funding. In the meantime, those who are willing to take the adverse position are relegated to the Daily Show (no offense, Jon).

    Then I sat through Inside Job and I saw this segment on former Federal Reserve Board of Governors member and current professor at Columbia University Business School Frederic Mishkin. Before the crisis, Mishkin took money from the Chamber of Commerce in Iceland to write a report about the “Stability” of their banking system. The source of the funding was not disclosed in the published report (an academic no-no). Then, after Iceland’s banks completely collapsed, Mishkin changed the name of the paper on his resume to the “Instability” of Iceland’s banking system. This was shocking to me, as I didn’t realize how deeply the desire to deceive ran among these guys. Mishkin resigned from the Federal Reserve Board in the middle of the crisis – yes, even the rats will abandon a sinking ship.

    Last week, Mishkin was on CNBC’s Squawk Box (a chuckle-head fest about how to make money on the day’s stock trades) pontificating about Fed monetary policy. CNBC is no stranger to corrupting academics to support their bad habits. Inside Job included examples of a slew of academic economists taking money from Wall Street to write papers justifying the systemic failures. Here’s an example they didn’t have. Someone recently sent me a study penned by professors at the University of Oklahoma Price Business School. The study concluded that naked short selling (the practice of selling shares you don’t own and can’t borrow) is beneficial for making financial markets more efficient. (If you don’t know what short selling is, here’s a five minute video that explains it in a light-hearted way.) Insane, right? No reasonable person would agree that it is good for markets if you can sell things that don’t exist – yet it happens every day, even in the market for US government securities. It takes fewer than 6 degrees to connect the dots. The University of Oklahoma’s Price College of Business is named for major donor Michael Price. Price is “personal friend” of CNBC personality Jim Cramer. For more on Jim Cramer’s ties to Naked Short Selling follow @deepcapture on Twitter and check out the March 12, 2009 episode of the DailyShow.com.

    I was getting very discouraged about continuing to write about the causes of the crisis, since no corrective actions are being taken. A lot of work remains to educate the public about the issues and to come up with solutions. The old political ways are too corrupt to work anymore. It seems like we keep covering the same territory without progress, but I’m inspired by the closing line of Inside Job: “Some things are worth fighting for.”

    Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. She will be participating in an Infrastructure Index Project Workshop Series throughout 2010. Her training in finance and economics began with editing briefing documents for the Economic Research Department of the Federal Reserve Bank of San Francisco. She worked in operations at depository trust and clearing corporations in San Francisco and New York, including Depository Trust Company, a subsidiary of DTCC; formerly, she was a Senior Research Economist studying capital markets at the Milken Institute. Her PhD in economics is from New York University. In addition to teaching economics and finance at New York University and University of Southern California (Marshall School of Business), Trimbath is co-author of Beyond Junk Bonds: Expanding High Yield Markets.

    Photo by carlossg

  • I Opt-out of California

    Like the harried traveler who made famous the expression, “Don’t touch my junk”, I have elected my own personal protest, California style. I have decided to OPT-OUT of California to protest my overgrown state government. I am tired of California legislators sticking their hands in my pants to pay for the European style social welfare state they have created. My work, my earnings and my taxes will go elsewhere.

    I am one of those evil “high-earners” in California with income over $200,000 per year. It is unimportant to state legislators that we high-earners pay most of California’s taxes. According to the Franchise Tax Board, in 2007 more than 87 percent of California capital gains taxes came from taxpayers with adjusted incomes of more than $200,000. Residents with incomes over $200,000 pay 66 percent of its income taxes even though earn just 39 percent of the state’s income. More important to California’s future, most of us are small businesses, which account for 65 percent of new job growth in the state.

    When I moved to California in 1981, California was truly the Golden State. Its budget revenues of $22.1 billion levied just $920 per person from its population of 24 million. It had great freeways, great schools and its inexpensive college/university system was the envy of the planet. By 2009, the budget revenues had grown to $86 billion, or $2,324 per person from each of its 37 million residents. But California has a $25.4 billion deficit, which means the aging “movement” activists who govern this state are spending $114 billion or $3,081 per resident. Spending is up 520% from 1981.

    The $86 billion in revenues California collected from capital gains and income taxes is not the only tax that has increased. Despite Prop 13 that capped property taxes at 1%, property taxes expanded from $6.36 billion from 1980-1981 to $43.16 billion in 2006-2007, an increase of 579%. For point of reference the CPI index increased just 133%, from 88 in 1980-1981 to 202.4 in 2006-2007.

    The Legislative Analyst’s Office says California will have an additional $6.1 billion shortfall in the current fiscal year reaching $25.4 billion next year. Legislative Analyst Mac Taylor says the state faces deficits of $20 billion each year through 2015.

    “Unless plans are put in place to begin tackling the ongoing budget problem, it will continue to be difficult for the state to address fundamental public-sector goals — such as rebuilding aging infrastructure, addressing massive retirement liabilities, maintaining service levels of high-priority government programs and improving the state’s tax system,” the report said.

    How did California voters respond to this fiscal irresponsibility in November? They rewarded the Democratic Party with every elected office from Governor to Insurance Commissioner, and returned Barbara Boxer to the US Senate. I guess California voters did not get the Tea Party memo that resulted in a “shellacking” of 64 Democrat Congressional seats in the rest of the nation. The political tsunami that hit even parts of the Eastern seaboard in 2010 totally missed California. Perhaps it ended somewhere in Nevada with the re-election of Harry Reid.

    So, in protest to the insensitive indulgent big-spenders that run Sacramento, I say, “Don’t touch my junk!!!” My beautiful California home is now on the market for $2,000,000. My next home will be in a no state income tax state like Texas or Nevada. I will not buy that new Jaguar that I was planning to purchase for $75,000. I will keep my old Cadillac and deprive Sacramento of $6,562 from its 8.75% sales tax. My next purchase for my real estate business will be an office building in Prague in the Czech Republic, a democracy that has lower taxes and fewer regulations. My income will remain either offshore or in a state that does not confiscate like the money grubbers in Sacramento. And, I will not be investing my capital to create any new jobs in California. In the digital age, my staff will be located in states that are a little more business friendly.

    Apparently, I am not alone. Migration out of California exceeds the rate of almost every other state. Why are my fellow “high-earners” leaving the Golden State? Maybe it is because California ranks nationally in the bottom two for business friendliness while placing third in state income taxes.

    We have Jerry Brown as our Governor again, meaning that he will live his entire life without a real job. The Central Valley, once agricultural wonderland of America, has Depression era unemployment, this as a result of a green-inspired court water shut-off designed to protect an Anchovy sized piece of bait called the Delta Smelt. And, our brilliant voters – including those working class voters most impacted – rejected Prop 23. That means that on January 1, 2011, California must begin to reduce our greenhouse gases by 40%. To achieve this noble goal, we seem certain to make ourselves even more uncompetitive with other countries and other states.

    If that was not enough, voters also approved Prop 25 which allows the public union dominated Democrats to pass its budget with a simple majority. They did such a good job ($20 billion shortfalls) when they were forced to obtain a 2/3rds vote for approval. They no longer will need a single Republican vote to pass their budgets.

    Margaret Thatcher remarked to Parliament on February 22, 1990, “The trouble with socialism is that you eventually run out of other people’s money.” Such will be the fate of the failed state of California and its free spending legislators, when high-earners like myself vote with their feet, and their wallets, and take their earnings elsewhere.

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    Robert J Cristiano PhD is the Real Estate Professional in Residence at Chapman University in Orange, CA and Head of Real Estate for the international investment firm, L88 Investments LLC. He has been a successful real estate developer in Newport Beach California for twenty-nine years.

    Photo by ASurroca

  • A New Word in Development

    In the old days a “blurb” was a positive promotional recommendation statement on a book jacket. I have done a few myself. Now we are informed by the developer of Civita, an urban infill project in San Diego, that “blurb” really means a cross between suburban and urban.

    Are they going to put a picture of it on a book jacket?

    As for villages, I live in one myself. Fine and dandy, Very nice to have shops, bars, and restaurants you can walk to. But most people are not going to want to be limited to the retail and recreational opportunities of their “village,” nor even to those one can reach by good public transport from said “village.” Most particularly, most people are not going to be able to be limited to the job opportunities reachable on foot or by public transit from one’s “village.”

  • Honolulu Rail Costs Balloon, Ridership Projections Called High

    Hawaii Governor Linda Lingle has released an independent analysis of the proposed Honolulu rail program to the public and to elected officials. The report was commissioned by the state Department of Transportation. Infrastructure Management Group, CBRE Richard Ellis and Thomas A Rubin performed the equivalent of a “due diligence” report on the project, and according to the Honolulu Star-Advertiser, indicated that the project would rise in cost by $1.7 billion to $7.0 billion for the 20 mile long line.

    In addition, the consultants indicated that operating subsidies could be substantially higher than forecast, and that the city of Honolulu could become saddled with heavy debt by the project. Further, the consultants noted the likelihood that ridership projections might not be met.

    Post-rail transit system usage and fare revenue are likely to be substantially lower than that projected in the current Financial Plan, since the Plan’s projection would require an unprecedented and unrealistic growth in transit utilization for a city that already has one of the highest transit utilization rates in the country.

    The findings of cost escalation and over-projection of ridership have been noted as a fairly routine occurrence in international infrastructure research.

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    Note: Honolulu rail project planning documents indicated greenhouse gas emission reductions as a benefit of the project. Demographia published an analysis indicating that the impact on greenhouse gas emissions either a marginal increase or a marginal decrease depending upon performance. It was projected that any reduction would have been at costs per ton many times above international standards.