Wednesday, November 14, 2012

The 2013 Recession - Part II

(perma-link: )
Now that the election is over, everything is looking rosy for a slow but steady emergence from the Great Recession.

On the other hand...
Another crash would result in an even bigger increase in pension unfunded liabilities which this coming year will take $30M out of Sunnyvale's General Fund city budget of $150M.  This is up from nothing a few years ago.  (There is another city budget which is bigger but it includes money from other governments usually earmarked for specific activities like Nova).  The general Fund is what pays for street maintenance, libraries, police and fire protection.

On the plus side, more CA city bankruptcies will clarify the law as to who owes what to whom and how much of a debt obligation a city can wiggle out of before it is Sunnyvale's turn to confront the pension issues.

A look at the stock market suggests things may not be looking great for 2013 - as in really, really bad.

If you look at the S&P 500 going back to 1994 on a chart like for SPX ( ) you see what is called a head-and-shoulders pattern described nicely here:

This is absolutely not a good sign - the "neckline" they mention is at Dow = 7,000-8,000 vs. 13,000+ a few weeks ago.  So we're talking a 2008 crash (as in "oh-my-gawd-we're-all-gonna-die") all over again.

One of the signs of this pattern is declining volume after the "head" which in fact is absolutely the case adding a confirming note to our pattern.  Volume is half what it was before 2008 and has been declining continuously since then.  

As long as we're looking at patterns, look at the last few years since 2009 and you see another bearish market pattern called a "wedge" described nicely here ("rising wedge in an uptrend"):

So a bearish pattern on top of a bearish pattern.  Ugh.

If the stock market volume is declining, where has the money gone?  The money has gone into US Treasuries and the British equivalents called "Gilts" which are showing their lowest rates ever.  For Gilts, "ever" means back into the 1700s before the US revolution.  The inflation protected US treasuries, "TIPS", are actually paying negative interest - meaning that investors are willing to take a small loss just to have some place safe to store their money.  That isn't you and me - our money in banks is insured by the FDIC.  These are big investors (mutual funds, pension funds) with many $ Billions who are sitting tight waiting for the next crash.

Where might the next crash come from?  The Euro is #1 on my list.  Spain, for example, is suffering 25% unemployment (50% among those under 30) and it just keeps getting worse.  See the Financial Times here:

What the FT seems to be saying is that Spain's forecast of budget gaps of 4.6% of GDP is such a rosy scenario compared to what the European Central Bank is forecasting that the ECB feels it would be a fool to loan it any more money. The IMF in turn, thinks the ECB is being unrealistically optimistic.  Which means Spain will pay even more for loans which will make it's budget deficit worse.  Rinse, repeat.  And there are rising mortgage defaults in Spain where even a default doesn't get you out of debt.  Sound familiar?

Greece is at the point where it is hard to see how leaving the Euro could be any worse than staying in. 

Economics Nobel laureate Dr. Krugman of Princeton and NY Times doesn't see any way out of it.  

More hopefully, the most recent edition of The Economist suggests Germany can keep the Euro together by giving Greece really low interest loans to essentially subsidize their debt until they can get their act together and pursue growth policies - like for example, actually collecting taxes.  Sounds good if you think Germany has any stomach for subsidizing Greece and that Greece has any ability to behave like a responsible government after many years of not doing so. 

Maybe Germany will leave the Euro and solve things: 

Or maybe all that money sitting on the sidelines will decide to buy stocks and send the market soaring.  I can't see why that would happen, but its hard to make predictions, especially about the future.

The 2013 Recession - Part I


Typically the stock market has a 4 year cycle with the presidential election year being the top and the year after being the worst.  Usually the decline comes from the Fed fighting inflation by raising rates but that seems unlikely soon.  So, where will it come from this time?

No matter who wins the presidency, the "Fiscal Cliff" will be only partially averted and there will be some combination of reduction in spending and increase in taxes which will take some money out of the economy in January.  Regardless of whether that is necessary for long term debt reduction, it can't be good short term.  

Germany has elections somewhere in August to Oct. 2013 so they will try to keep the Euro afloat until then.  I can't see how they can manage that for very long without writing off big loans to Greece and no one wants to do that any more.  So, the Euro starts collapsing before 11/2013 with a dramatic drop in their stock markets.  They will be weakening well before that so the International markets and European economy simply accelerate their decline after late Summer 2013.

The Fed's "quantitative easing" (QE) (printing money to increase investment and get the economy moving) by buying mortgages has driven mortgage rates to historic lows driving income investors to dividend paying stocks.  Growth investors are then driven to riskier stocks and so on down the line so all markets look better.  This has kept the market indices from falling (since those are mostly dividend paying stocks) but at some point QE stops working if everyone sees even the dividend paying companies aren't doing well because markets are collapsing around the world.

So we have a recession on top of the Great Recession.  More CA cities go bankrupt, CalPERS does even worse on investments, CalPERS unfunded liabilities explode, LA votes all their employees into 401(k)s, and every other city starts wondering why they don't either file for bankruptcy or shift everyone to 401(k)s (or both).

On the bright side, ah, well...

Wednesday, October 31, 2012

Retirement Benefits an Irrevocable "Contract"?

An interesting legal opinion is buried at the bottom of the article "How much priority for pension payments?" at:

in the penultimate paragraph:

Mr. Cabaniss also pointed us to a recent article by Amy B. Monahan, a professor at the University of Minnesota Law School, in the Iowa Law Review. As the article abstract put it, "This Article demonstrates that by holding that benefits not yet earned are contractually protected, without explaining the basis for finding that such a contract exists, California courts have improperly infringed on legislative power and have fashioned a rule that is inconsistent with both contract and economic theory."


Monday, September 24, 2012

Sunnyvale's Lesson in Free Speech - Part I

Perma-Link for future reference:

Sunnyvale City Council on 9/18/2012 Part 1

- After Council Member Jim Davis speaks to the issue of increasing personal time off for City Manager Gary Luebbers, Mayor Tony Spitaleri asks/tells Council Member Pat Meyering that he (Mayor Spitaleri) will speak before Council Member Meyering.  The Mayor stops speaking a bit past the 6:30 minute mark. CM Meyering starts to speak and then a motion is made to cut off debate before CM Meyering can speak and it gets interesting. (about 10 minutes total).

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Sunnyvale's Lesson in Free Speech - Part II

Permanent Link:

Sunnyvale City Council on 9/18/2012 Part 2 - They return from their recess.  Pat Meyering speaks, some others, Jim Davis cites the first amendment, and they vote (under 23 minutes).

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Friday, August 31, 2012

High Speed Rail - Dead But Still Spending Money

Permanent Link:
The average legislative testimony is a real snoozer but I came across the most amazing video of testimony before a legislative committee by a high speed rail ADVOCATE, Joe Vranich in 2008.  Start to finish his testimony is only about 6 minutes long (which is amazing in itself) but he pulls absolutely no punches in saying the HSR analysis and the commission in CA is totally and completely fouled-up-beyond-all-recognition.  Honestly, even if you don't care one way or another about HSR, it is worth watching just for it's no-holds-barred fresh energy.

On a slightly more sedate note, you can see State Senator Joe Simitian give his reasons for not voting for the HSR bill.  Again, he's an advocate and isn't quite as forceful as Mr. Vranich but he goes into more detail.  If you have any interest in how politics works and what happened to HSR it is well worth the watch:

FWIW, I favor HSR in places where it makes economic sense, but California is very clearly NOT one of those places.  People talk of other country's HSR (like Japan) but in Japan it is very expensive and so is used only by business and the well-off (and tourists with a rail-pass).  It works fine but it has never made money so you have the absurd situation of 95% of the country subsidizing a HSR used by the upper 5% of the country.  Even a lot of business travelers don't feel like paying for it and send their people on buses and regular rail (as I observed when my rail pass expired).  HSR is also a money loser in Spain.  I think it makes money in a very heavily populated part of Germany.  Let's not get into China where economic data are filed under "Fantasy and Science Fiction"

- Michael Goldman

Tuesday, August 21, 2012

Buffett: Bond Insurance - I'm out; Moody's: Muni Bonds = Junk?

Warren Buffet has just divested itself of local govt. bond insurance.  "Credit-Default Swaps" became infamous as the primary cause of the 2008 crash but all they are is a form of insurance on an investment.  The problem was when insurer's couldn't pay the claims.

"“A decision by Warren Buffett's Berkshire Hathaway Inc. to end a large wager on the municipal-bond market is deepening questions from some investors about the risks of buying debt issued by cities, states and other public entities. The Omaha, Neb., company recently terminated credit-default swaps insuring $8.25 billion of municipal debt. The termination, disclosed in a quarterly filing with regulators this month, ended five years early a bullish bet that Mr. Buffett made before the financial crisis that more than a dozen U.S. states would keep paying their bills on time, according to a person familiar with the transaction. The insurance-like contracts, which required Berkshire to pay in the event of bond defaults, were originally purchased by Lehman Brothers Holdings Inc. in 2007, more than a year before the Wall Street firm filed for bankruptcy, the person said.”"

The recent CA city bankruptcies have got the municipal bond market worried, especially with LA rumored to be considering bankruptcy.  This is bad.  If cities can't borrow money because bond buyers don't trust them to pay their debts, then capital projects like fire stations, city halls,  and libraries won't get done.  This nation lives on credit - if everyone and every city and county had to pay cash for everything economic activity would freeze.  That is essentially what happened in the Lehman Bros. crisis which precipitated the 2008 crash.  Govts world-wide started backing up every bank and insurance co. on the ropes because of the fear of a complete credit freeze.  This current situation isn't that bad (yet), but it isn't good.

Moody's is thinking about downgrading all California debt or at least selectively downgrading some.

Sunday, August 19, 2012

College Tuition and Public Pensions

On Aug 18, 2012, at 12:52 PM, xyz  wrote:

"I also not sure why everyone is talking about the increases in College costs over the last 40 years as if it's some problem particular to California and it's evil unions. Costs have skyrocketed everywhere, in public and private universities. It might be worth thinking about a little more before immediately assigning blame to the unions. 

I don't think anyone is saying it is purely a California problem.  It is a problem around the country and for pretty much the same reasons in every state.  No state is immune and California is by no means the worst off (probably in the middle) in regards to pension's unfunded liability cutting into support for services.  And for the same reasons - the end of the housing & stock market bubbles and union's inability to face that reality. 

Limiting my discussion to pensions, it is true there are overall funding problems with the end of the bubbles but whereas the state is cutting services to the poor and middle class in all sorts of ways to make up for the loss in revenue, pension costs keep escalating - and dramatically so.  So, the cuts to services and increases in fees are much worse than they would be with sustainable pension costs.  The state budget alone has gone from $3B last year to $7B this year (out of a state budget of around $90B) for CalPERS and CalSTRS (the teacher's pension fund).  This is due to their inability to make 7.75% annual returns.  I don't know what the additional bill will be for all the cities and counties but it was over $7B last year and has gone up by about $1B every 2 years.

Is it anti-union to say "retiring on 90% of your final year's income (counting overtime & traveling expenses in some districts) is unsustainable - 60% is doable - can you accept that" ?  Is it a liberal position to say the poor, college students, and everyone else should receive less and pay more so some public employees and school administrators can retire on $200,000 and above?  In this, one of the most liberal of states, most people don't think so which is why it is so hard to get a tax increase through.  Fix the pension problem and you can get a tax increase.  "Taxes are what we pay for civilization" according to Oliver Wendell Holmes, Jr.  Maybe in his day, but not right now.

There are over 21,000 public retirees getting over $100K/year with annual increases for cost of living.  147 of them from Sunnyvale city & schools.

12,338 public retirees (87 from Sunnyvale) getting over $100,000/year in retirement benefits = total at LEAST $1.3B - top 3 over $300K/year.

6,609 public school retired administrators (27 from FUHSD, 5 from Sunnyvale SD, 28 from CUSD) getting over $100,000/year in retirement benefits = total at LEAST $0.7B - top 4 over $290K/year.

2,129 retired University of California Employees getting over $100,000/year in retirement benefits = total at LEAST $0.2B - top 3 over $300K/year.

When the bill finally comes due and all the crazy bookkeeping tricks can't hide it any more, there is a major fiscal train wreck coming around the US and public employees will be hit worst.  Denial is not a viable problem-solving strategy.  

A man is falling from a 100 story building.  Someone shouts out as he goes by the 50th floor - "How are you doing?"  He answers with a smile - "So far so good!"

Thursday, August 16, 2012

CSU Grad Schools Barring CA Residents

I was as dismayed by CSUs closing grad schools to California residents as anyone.

So here are a few observations:  You can download a spreadsheet of the CSU budget and for campus after campus you see academic salaries comprise less than 50% of the budget, and salaries are 85% of costs.
CSU Budget spreadsheet:

You can look up a professor's salary and it is only a tiny bit more than the average public school teacher, (looking at the avg with 15 years experience). All that work to get a Ph. D. and you make little more than a 3rd grade teacher.  Yet senior administrators make around $300,000 or more.

Voters can look at cops and senior city and county officials retiring on over $200K/year at 55 and wonder "if the govt can afford that with their tax dollars why can't they afford to pay for more professors?"  (CalPERS took in $7 Billion from state and local govts last year to make up for their inability to make their 7.5% earnings).  Hence a reluctance to vote for new taxes because the people who you want to get it aren't going to - it will go to those with the richest unions, not for whom you intend it.

In 1999 retirement benefits for highway patrol and other state employees were substantially boosted and state and local govt's were encouraged to do the same with the promise that the state and local govts wouldn't have to pay anything - it would all come from CalPERS and CalSTRS investment earnings.  That lasted one year and then the earnings fell short and every year since then they have gotten worse and worse and this year the state bill alone is over $7 Billion.  Cities and counties are putting in even more which is coming from libraries and parks, and the sale of city property.  To put that in context, ALL tuition money from ALL students for ALL CSU campuses = about $4.5 Billion.  The figures for the UC system are $3 Billion.

In other words, tuition at CSU and UC's could be COMPLETELY AND TOTALLY FREE!, even with the bloated administration if the state didn't have to pay so much for retirement benefits that aren't sustainable from employer-employee contributions.

UC  (page 7)

Employees should have a retirement benefit that is self-sustaining and provides a reasonable retirement.  That is why I support Gov. Brown's proposal for a hybrid plan that would provide 60% of salary at a reasonable retirement age.  No one "needs" to retire at 55 with 90% or more of grossly inflated salaries.

- Michael Goldman

Monday, August 13, 2012

The Coming Recession and Will CalPERS Take a Hit?

Recessions happen pretty regularly every 4.2 years so we are about due for one - it is 4 years since the 2008 decline.  This could be a tipping point for many cities and states trying to pay pensions, etc. as they see tax revenue decline further.  As Buffet said, "you don't know who's swimming naked until the tide goes out."  A likely cause fo the next recession is a Euro break-up.

Arguing that the wisest course for the weaker Euro-zone countries is to leave the Euro: 
The significance of this article is that it appears in the very serious "Financial Times" of London and that it is written by an American adviser on the President’s Council on International Activities.  In agreement in greater detail is "The Economist" for this week: and

This affects pensions because ING (a large Dutch bank) estimated that a breakup of the Euro would result in a decline in GDP of Euro-zone members of about 8% the first year and about 4% the second year.  The US GDP's decline was estimated at about 4% the first year and about 2% the second year.  For comparison, the US GDP declined about 4% in the 2008 recession 4 years ago.  A similar decline in GDP with a concomitant decline in tax revenue this time around would likely put a lot of US states, counties, and cities over the edge into bankruptcy, now that that wall has been breached. 

The numbers for GDP decline are falsely precise.  No one really knows what would happen, but there is general agreement by all who have looked at it that it won't be pretty.  Eventually, there will be a strong bounce back but it could be years for that to happen.  For example, Greece would overnight become 50% cheaper as a vacation destination but it would be saddled with crushing debts denominated in Euros.  It won't be able to pay them and a default - whole or partial - will bring down big banks and investors (like pension funds) who will see a substantial portion of their assets disappear in a poof of drachmas.  Greece won't benefit because without loans it will have to lay off over 100,000 govt employees who were hired simply as payback for bringing in votes (25 votes got you a govt. job). further depressing the Greek economy.

In separate news, CalPERS is at risk of not being paid by their debt by cities in bankruptcy if the municipal bond insurer's win their suit against Stockton.  The bond insurers are saying that (simplifying here) if they have to take a hit, so should CalPERS, especially since one of the bonds Stockton wants to default on was to pay off the unfunded liability arising from CalPERS inability to make the 7.5% they assume.  When CalPERS doesn't make their 7.5% return on investment, that becomes an "unfunded liability" that the state, cities, and counties have to make up.

Saturday, July 21, 2012

Sunnyvale Libraries - III

Last time I looked at the cost to increase Sunnyvale's library facilities to the size per capita of similar nearby cities by building branch libraries vs. tearing down the existing one and building a new one.  The numbers were:

Using $500/sq ft

1.   50K sq. ft more - branch libraries = 110K sq. ft. total = $25M = $1.5M/yr @ 2% bond interest (match Mtn Vu's space/person)

2.  87K sq. ft more - branch libraries = 147K sq. ft. total = $44M = $2.7M/yr @ 2% bond interest (match San Mateo's space/person)

3.  ABA 2007 proposal:   81K sq. ft more space in one main library = 141K sq. ft. total = $81M = $5.0M/yr @ 2% bond interest.   Since they proposed to tear down 60K sq. ft. the cost for the additional 81K sq. ft. would have been $81M/81K sq. ft. = $1,000/sq ft.

There is another option for expanding facility space.  We could form joint school-city libraries at any of the many school libraries in town.  This has been and is being done throughout the world.  Publications on how to do it include:

"Is a Combined School/Public Library Right for Your Community? A Guide for Decision Makers" by the State Library of Iowa available at:

"Combined School and Public Libraries Guidelines for Decision Making, Second Edition" by Wisconsin Department of Public Instruction available at:

The Iowa publication on page 24 shows a number of combined libraries and shows that they save money on a per capita basis, sometimes quite a bit.  In the Wisconsin publication they give brief descriptions of how selected combined libraries work (pg 18 ff).  There is sharing and collaboration along reasonable lines that are pretty much what you would expect.

There will be severe cutbacks in school funding if the tax measure doesn't pass this November.  The first to get cut may well be school librarians who are becoming an endangered species in some states.  The city already pays for some athletic coaching for the public schools, it could take on the library staff of say Columbia Middle School and perhaps an elementary school or two in return for having public access during non-school hours and school vacations.  This could be a real win-win with cheap public branch libraries for the public while helping out the public schools.

These are difficult economic times.  We should be creative.

Sunnyvale Libraries - II

I was looking at the cost estimates in the 2007 study.  They came out to about $450/sq ft (in the 3rd part of the study "3_r_sunnyvale_lof_building_program_070628.pdf") which seems in line with what I found elsewhere - specifically here:

Including everything else needed to equip a library, we're looking at around $500/sq ft. as the spread sheet available here shows:
(5th link down under "Resources")
Construction Costs for Recently Completed California Public Library Buildings (xls)

Here are a list of a few comparable Bay area cities (by income and house value) and their (sq. ft.)/person of library facilities.

Sta Clara - (88K sq ft)/pop 119K = 0.73 sq ft/person
Mtn Vu - (60K sq ft)/pop 76K = 0.79 sq ft/person
San Mateo - (106K sq ft)/pop 101K = 1.05 sq ft/person
Sunnyvale - (60K sq. ft)/pop 140K = 0.43 sq. ft./person

If we got one branch library sufficient to give us the sq. ft. per person that Mountain View has we would need 110K sq. ft. total or about 50K more space - almost as large as the existing main library.  That would be about $25M for the entire project.  Municipal bond interest rates are at about 2% for 20 years which works out to $1.5M/year, according to a mortgage calculator I used.  If we go for San Mateo's (sq. ft)/person we would need 147K sq. ft total or about 87K more sq. ft at $500/sq. ft = $44M.  At 2% over 20 years this would be $2.7M/yr.

By comparison, ABA's projected cost (page 17 of part 3) was $81M to tear down the existing library and build a new one of 143K sq. ft. = $566/sq. ft.   As it would still be only one library, it would not have solved the problem of accessibility that branch libraries address.

Wednesday, July 11, 2012

Sunnyvale Libraries

(Updated 4/5/2014 with 2012 publication data - the most recent)
Prelude: Given it's education and income level, Sunnyvale residents may very well want a bigger main library and several branch libraries.  This can be acheived through expansion and renovation - not tearing down the existing building.  BUT, Sunnyvale's library is by no means worse than average within the state.  It is in fact, dead average in floor space, and above average in several other metrics.

1. Summary: I show (using CA state library data for all library systems in CA) that Sunnyvale's library size is bigger (sometimes much bigger) than most comparably sized cities (on a per person basis).  Sunnyvale residents may want an even bigger library than the average for California. This should be done in the same way that others have done it - by adding on and renovating the existing library and converting some park buildings into libraries.  We see that out of 10 library systems closest to Sunnyvale's size only 2 - Torrance and Pasadena - have bigger systems (per capita).  Out of 36 other library systems of comparable size to Sunnyvale, only 20% have bigger library systems.  They achieve this mainly with lots of little branch libraries similar in size to our park buildings.  Sunnyvale can certainly do this and far more cost effectively than by tearing down our current library.

2.  Sunnyvale Library Size Compared to CA Average:
There are a number of publicly available documents summarizing key data for libraries in the State of California.  One from the CA State Library web site is reached by going to

Clicking on
Key Ratios and Performance Indicators-FY 2010-11
gets you here:

This is a table which you can sort by clicking on any column heading to sort by that statistic.  If we choose square feet per person we get the following (click on image to enlarge):
This shows that when you compare Sunnyvale to the average for all of California you get comparable square feet per capita:

For all of CA:  (Total Sq. Ft. of All CA Libraries) / (Total CA Population) = 0.4348
For Sunnyvale:  (Sunnyvale Library Sq. Ft.)/(Sunnyvale Population) = 0.4309

This puts Sunnyvale at the State average to 2 significant figures.  Only the town of Hemet (in So. CA) is any closer to the average for all of California.

3.  Sunnyvale Library Size Compared to Same Sized CA Cities:
How does Sunnyvale's library "square feet per person" compare to comparably sized CA cities?  This is easy to find with the same online database (which is also downloadable as an Excel Spread Sheet).  Sorting by population we get the following (click on image to enlarge):
We see above that of the 10 library systems serving a comparably sized population, only Torrance and Pasadena (2 out of 10) are more than 10% above Sunnyvale in Sq. Ft. per person. Several systems are below, or far below Sunnyvale.  This screen image was captured with 10 cities per page but going to 20 cities per page doesn't change anything - only the same 2 library systems are more than 10% above Sunnyvale's.  That screen is impossible to get a screen capture of but you can visit the web site (given above) and try it yourself very easily.

Torrance: (listed here: )  If you look at the Torrance branch libraries using Google satellite and street views, you see they are little more than the size of our city park buildings (following are 3 examples).
Torrance El Retiro Park Branch Library

Torrance SE Branch Library
Torrance Henderson Branch Library
Which suggests we could do wonders for accessibility and materials space by converting and possibly enlarging our existing park buildings.

4.  How Other Cities Get More Library Space
Pasadena: (listed here: )
The Pasadena Public Library is a famous 1927 building on the National Register of Historic Buildings.  It was modernized and enlarged several times to it's current size of 130,000 square feet.  It is worth a view (click to enlarge):
Pasadena's Historic Library - Preserved, Enlarged and Modernized

Lovely old preserved interior
This main library has been enlarged to 130,000 sq. ft
Modernized interior of the preserved and enlarged library
Again, we have one main library with a lot of little branches, in schools, parks,and local neighborhoods.  None except the main library are noticeably larger than our park buildings.

As I mentioned you can download in Excel spreadsheet format many of the documents listed on the CA Library Website.  I downloaded "Public Library Survey Data (2010-11 Fiscal Year) (635 KB XLS)" and after sorting by size of the "Library Service Area" (LSA) got the following 38 library systems near Sunnyvale in population (click to enlarge):
Counting those with sq.ft. per capita greater than Sunnyvale's, you can see only 6 of the 37 have over 10% more sq. ft. per person than Sunnyvale's and many have much less.

So what can we conclude?  That if we want more library space comparable to other similar sized cities, we should enlarge the current library and convert neighborhood park buildings into branch libraries.  I showed how one library with the same square footage as ours managed to double their total space from 60,000 sq. ft. to 120,000 modernized sq. ft. in:

I covered library costs for expansion and new construction in:

I showed other library expansion plans in:

5. How does Sunnyvale's library compare in other regards?

I asked the City for a reference to the 2007 library needs assessment study and they promptly sent me this link:

The links to the PDFs are on the bottom of the page.  (Click on image to enlarge)

It mentions on page 90 of the "Community Needs Assessment" document a report compiled annually by the California State Library called "California Library Statistics".  The latest I could find is for 2012 (covering 2010-2011) located here:

This has page after page of tables comparing every community library system in California.  On page after page we see Sunnyvale either at or far above the state average for many items - FTE staff per person, etc., etc.

Here are some comparisons that didn't make it into the "Needs Assessment" study.  From "StatsPub11.pdf" available at the web site mentioned above.

Page 8 of the document: "Expenditures Per Capita FY 2009-2010"
-> CA avg: $32.70 <-
San Jose: $35.99
San Rafael $39.87
San Bruno $44.01
* Sunnyvale: $50.20 *
San Mateo $50.24
Santa Clara $61.32
Mountain View $62.70
Menlo Park $69.95
San Mateo Co $65.44
Santa Clara Co $79.91

(Not a comprehensive list)
Sunnyvale is well above the CA avg and towards the lower end of the middle range of local communities. But this has to be taken with some recognition of population.  You wouldn't take the average income of Richtown of pop. 1,000 at $200,000 and a working class Bigcity of 1,000,000 at $50,000 and then declare that average salary in the two cities is ($250,000 / 2) for the total population of the two cities.  That would effectively result in counting each Richtown resident as equal to over 1,000 Bigcity residents.  So not counting San Jose really skews the data.  Omitting San Jose as ABA ("Anderson Brule' Associates") did in their "Needs Assessment" document cited on the Sunnyvale web site is misleading.

Some more data from StatPubs12.PDF:
Materials Expenditures Per Capita:  CA Avg = $2.68, Sunnyvale = $4.27  (pg 13)
Circulation Per Capita: CA Avg. = 6.41, Sunnyvale = 17.89 (pg 17)
Visits Per Capita: Avg. = 4.41, Sunnyvale = 5.19 (pg 19)

There's a ton of other data more relevant to whether we need more library space which I'll get to later (I still think we should expand Sunnyvale's library space, just not by selling the Civic Center). 

- Michael Goldman

Friday, February 17, 2012

CA Pension Funds Under-Perform (again)

CalPERS - the CA Pension fund for state, city and county employees - returned an anemic 1.1% for all of 2011.  This makes their 10-year average 5.5%.  CalPERS assumes a 7.75% annual return on investment in order to fully fund the pensions of cities like Sunnyvale, County, and CA state employees.

The pension obligations are fixed, so CalPERS' failure to meet those projections means the difference has to be made from the general fund of the various levels of government.  

CA spent an additional $1.8B this year on additional funding for CalPERS and is slated to spend an additional $3.15B next year to make up for CalPERS' deficit.

Sunnyvale will likely spend more next year to make up the unfunded liability assigned to the city by CalPERS.  I believe Sunnyvale spent $15M out of a General Fund budget of $129M (about 12%) on contributions to CalPERS based on the City budget slide show here:
More at:

For more info, see also

Friday, February 10, 2012

Pension Coincidence - this year only!

I admit I like numbers so here's an interesting coincidence about the two largest CA state pensions.

You know that $100,000 "Club" - the web site that lists all those with CA state pensions over $100K/year?  Here:

Looking at CalPERS, it turns out that if you take the average of the 2nd highest pension = $300K (the highest of $500K is an "outlier" so we can ignore it for this calculation) and the lowest = $100K you get $200K.  If you multiply that by the 9,111 retirees you get over $1.8 Billion.  The coincidence is that $1.8 Billion is only slightly less than the amount the legislature had to add to CalPERS from the general fund (over and above the state's usual contribution).

Looking at CalSTRS and doing the same calculation you get $1 Billion.  Which is almost as much as the amount that CA had to take out of the general fund to add to CalSTRS this year. (Over and above the 'normal' state contribution).

This coincidence is only for this year (sort of like last year's date of 11/11/11).  Next year the contribution to CalPERS will rise to $3.15B so no more coincidences for a while.

The "general fund" is where money for schools and support of the poor and disabled come from.  For example, the state funding for the CA Community College system is roughly equal to that $3.15B going to CalPERS next year.  Maybe we'll just shut down the CC system to pay for the pensions for CalPERS $100K+ retirees (including the guy retiring on $500K).

This is a government wealth transfer program - but from the "have nots" to the "haves".  FDR must be spinning in his grave.

Sunday, January 8, 2012

If CalPERS can't make their numbers... (Part II)

CalPERS must make their 7.75% annual growth rate or taxpayers must make up the unfunded difference.  The CalPERS funded level as of June 30, 2011, for different hypothetical returns are:

7.75% return = 74% funded => $86B unfunded = $7K per household debt
7.1% return = 67% funded => $118B unfunded = $9.7K per household debt
6.2% return = 58% funded =>$170B unfunded = $14K per household debt
4.5% return = 45% funded => $289B unfunded = $24K per household debt

(from page 19 of the "Nation Report")

For comparison, Governor Brown's proposed 2012 CA state budget is $92.6B.

To have even a 75% chance of fully meeting its obligations, CalPERS would have to make 12.5% return on investments Every Year for the next 16 years.  This is absolutely inconceivable.  Not going to happen.  Beyond the realm of possibility.  In the last 30 years CalPERS has averaged 7.1% - slightly less than the S&P500, with dividends reinvested.

CalPERS widely publicized their 21% return for one year but to see how pathetically inadequate this is, you need to consider how compound interest works against you if you have a loss.

Consider the great crash of 2008.  For every $100 invested, CalPERS was supposed to end up with $107.75 had they made their 7.75% annual return.  Instead, CalPERS lost 23% and that $100 ended up as $77.  Just to get that $100 back to its original value of $100 they had to grow that $77 by 30% (!)

But it was actually worse - much worse.  The year after that 23% loss, they were supposed to have grown that $107.75 (that they didn't make but were supposed to) to $116.10 (1.0775 * $107.75).  To get that $116.10 from $77 they needed a 1 year return of *51%* (!!??).  CalPERS has never, ever, made 51% return on their investments in a year and they never will. 

They are so deep in the hole now they will never get out and the question is only how much will taxpayers get stuck with to make up CalPERS unfunded liability.

(to be continued)

Dr. Nation's report is available here:

Governor Brown's 2012 Budget summary is here:

Saturday, January 7, 2012

If CalPERS can't make their numbers... (Part I)

A lot hinges on whether CalPERS makes that 7.75% rate of return they promise.  It's like a mortgage in that a small change in the % return on CalPERS investments makes an enormous difference in how much is owed.  If CalPERS can't make 7.75% (it's made 5.5% for the last 10 years), then retirement liabilities will keep mounting as CalPERS continually fails to make its targets.  Tax money will have to make up whatever the gap is between the projected earnings and the actual earnings, tax money that would otherwise go to schools, roads, parks, aid to the elderly and poor, etc., etc.

What is the likelihood of making that 7.75%?  Less than 1 in 5, based on the average stock market returns from 1900 to 1999 (excluding the two recent big bubbles and their collapse).  Dr. Joe Nation (former Democratic legislator from San Rafael) in a Stanford Economic Institute for Economic Policy Research report recently calculated the probabilities of the 3 largest retirement funds making their targets and what happens if they don't.  Looking at stock market returns over the 100 years 1900-1999 he found the average return on investments is 6.2%.  Meaning CalPERS has a 50% chance of making that.  The higher the return required, the lower the probability of making it.  7.75% has an 18% chance.

At that 6.2% rate, this means state retirement funds are currently underfunded by 3 times the current estimate based on a 7.75% return. A powerful testament to the multiplying power of compound interest.  This translates into triple the pension liability, and the annual payments to make up that gap tripling from the current $4.8 Billion to $14.6 Billion.  That is larger than Brown's proposed 2012 budget for the UC, CSU, and all the Community Colleges in CA ($9.8B), bigger than the entire prison budget ($10.7B), nearly 3 times the CA budget for "Natural Resources" and "Environmental Protection" ($5B).

The assumed return on investments of 7.75% was set by the CalPERS governing board.  Of the 13 current board members, 11 are also beneficiaries of the CalPERS retirement plans giving them a vested interest in keeping the projected actuarial assumptions high so that benefits can appear to be well funded.  No professional or technical proficiencies are required to be a board member.

(To be continued)

Dr. Nation's report is available here:

Governor Brown's 2012 Budget is here:

Monday, January 2, 2012

CalPERS: A bunch of clowns or what? Part 3

So far we've looked at CalPERS incompetence and corruption.  But they do have new management since then.  In "Cleaning Up CalPERS" by Robinson and Marois, 10/2010, CalPERS missteps are described in some detail and the new head, Joe Dear, is quoted saying he has "7.75% burned in his brain" as the goal he has to reach to keep CalPERS on track.  That was in October, 2010.  So it's a year later - how are they doing now? According to CalPERS their total returns for the last fiscal year ending in 9/30/2011 were 7.0%, for the last 3 years they were 2.2%, for the last 5 years 1.0%, and for the last 10 years 5.5%.  The figures before 2011 don't subtract the hefty fees they were paying so they are smaller than they appear. They are not making the 7.75% and there is no reason to suspect that they will in the future.

From the above article: "'Calpers should retreat from making high-risk bets and accept that it won’t outperform the Standard & Poor’s 500 Index and other key benchmarks over the long haul,' says Frederick Rowe, the former chairman of the Texas Pension Review Board" "'It’s folly to think a $200 billion pension fund is going to do better than the economy,' says Rowe ... 'To move out on the risk spectrum to beat the market is imprudent; it’s like running your retirement from Las Vegas.'"

Same article: "As a group, state retirement systems earned a median 3.4 percent annualized return for the 10 years ended on June 30, [2010] ... That about matches the performance of U.S. Treasury bonds."

As CalPERS continues failing to make 7.75% it will fall further and further behind, and it's unfunded liability will grow greater and greater.  At some point reality will set in and the actuarial assumption of 7.75% will be AGAIN revised downwards.  At that point, the state and employers like Sunnyvale will be hit with a hugely bigger bill in order to make up the unfunded liability.

Here's how that works:  Say you invest $100 hoping for 7.75%/year to get $445 in 20 years.  If you get 5.5% (like CalPERS), you will have $171 after 10 years.  In order to get that $445 you wanted, in the remaining 10 years you need to earn 10% annually.  If instead you continue to average 5.5% you will have $292 at the end of 20 years.  An unfunded liability of $153 = 34% of the expected return.  Except that the sums are waaayy bigger.

This is one of those things that everyone knows but doesn't want to admit. To admit this would mean that every city, and county would have to start NOW making up that unfunded liability when they all feel stretched as it is and are dipping into reserves.  Pretending that CalPERS will get 7.75% keeps costs low now - and later??  Later a miracle happens.  People go around quoting a single good return from a biased source (like CalPERS) when everything around them is screaming "slooowww growth".  Where is that miracle going to come from?  Europe (the continent voted most likely to go bankrupt)?  US Manufacturing rebounds? (what US manufacturing?)  Housing rebounds?  (Defaults are increasing in number, house prices are still dropping.) China? (They propped up their economy in 2008 by starting a housing bubble - which is now about to crash, and burn taking much of the world's economy with it).

When that unfunded liability comes due in all it's glory, hiring freezes will become massive layoffs, and bankruptcy will start to look like a good option.  With bankruptcy will come a further decrease in tax revenue since no one will be particularly eager to set up shop or buy a house in a bankrupt city which can offer no services.

It would be far better to get out of CalPERS now while the "getting is (relatively) good" and have all city employees be put back on Social Security with a 401K like most people in the US.  Better for the taxpayers and better for the employees.