@TheEconomist on #Homelessness in @SFGov.

I blog from time to time on the trustworthiness of news sources, and in general in the United States, the Economist is often considered the most reliable when surveys of the public are conducted. Before the June 5, 2018 primary in California, they took a look at San Francisco's Mayor's race. Their article touched the twin problems of the cost of housing and of homelessness, and I recommend the piece (available online here).

It's disturbing reading.  The author (The Economist eschews bylines) confronts the lived reality in terms that the reader can almost smell.  But the striking sentence to me was "[t]o voters, though, the problem seems to be getting worse ... '[but t]here’s not more homelessness than before. It’s just a lot more visible,” says [Jeff] Kositsky [San Francisco's Director of Homelessness Services]."

We all struggle in the San Francisco Bay Area to understand how wealth disparities in the nine county area can rival those on display in what the article characterizes as "poor-world entrepôts." But that the situation has become clear to so many is not in dispute, and perhaps that is the silver lining -- for we must have awareness before we can take action together.

The Return of #Cash.

Image available at http://tinyurl.com/yaxw3y5g

Just a brief note today, regarding reporters who are pointing to an economic and financial shift.  Extraordinarily low interest rates have had a significant impact on asset prices in Sonoma Valley (as I blogged about here, here, and here).  In 2015, Robert Shiller pointed out that in the San Francisco Bay Area, that most people expected annual home price increases over the next decade of 5%. However, more than a quarter of respondents thought prices would increase each year by 10% or more. Many of the second group leveraged (and profited impressively) as real property prices have continued to rise over the intervening 36 months.

S&P 500 dividend yield v. 3-month T-bill yield

courtesy the Board of Governors of the Federal

Reserve System (US), retrieved from the Federal 

Reserve Bank of St. Louis [FRED] May 15. 2018. 

S&P 500 dividend yield courtesy mutlpl.com,

 May 15, 2018. Excel data and graph available here.

Today, though, there is evidence that change is afoot, as the yield on "cash" (short term Treasuries) now exceeds the dividends on a broad range of stocks (the S&P 500).  The Financial Times' graph, courtesy of John Authers, is on the right.  I extended the graph back a bit (to 1933) just to get a longer perspective, via FRED and multpl. For about a thirty year period, dividends were generally always higher, until some point in June of 1963, when the rule flipped. Cash was king, more or less constantly, for the following ~2,335 weeks, until February of 2008. There are periods where these two measures briefly "invert" from the norm in both eras (e.g. 1959 for dividends, 2002 for cash), but it's unusual.

What does it mean? Stanford economist Bob Hall (who continues as chairman of the academic panel that dates American business cycles) notes that, economic syncopation being what it is, “[t]he next recession will come out of the blue ... just like all of its predecessors.” However, the Economist has pointed out previously that this economic cycle is already running exceptionally long at ~105 months, and it is now more than a year past the average of the last three (the longest ever, March of 91-March 01, was 120 months).  Meanwhile, valuations continue to be particularly rich (the Shiller PE is at 32.33, in excess of the '29 crash and only matched by the dot-com bubble). My sense is that the financial columnists pointing to this data are wondering how "out of the blue" a contraction could be at this point. Which is an interesting point to consider, when one reflects on the power of narratives in financial markets.

Casa Del Maestro, Pt. 1. #teacherhousing #sonoma

"Casa Del Maestro"
3380 Lochinvar Ave, Santa Clara, California
image available at http://tinyurl.com/htm8n2z

On Monday, the Press Democrat’s editorial board described a “brewing fiscal crisis” for Santa Rosa's schools, who must, as of their first interim report for 2016-17, implement a ~2.2% budget cut going forward.  SRCS is confronting flat enrollment coupled with declining rates of return on pension funds, that will increase budget pressure over the next four years. At least one board member’s suggesting a parcel tax in response.  

The editorial describes a problem familiar to Sonoma Valley Unified. SVUSD will implement a ~5% budget cut in a similar fashion to SRCS. While Santa Rosa must deal with a 1.6% reserve reduction due to an accounting error, and Sonoma Valley's audits have consistently been clean, it is the medium-term funding squeeze, with costs rising substantially faster than revenues, and an increasing inability to make up the difference via one-time funds, that’s driving concerns. SRCS' potential pursuit of a parcel tax is one solution that certainly appears to be on the table, but it could cause voter confusion, if not outright fatigue, given Santa Rosa's successful $229 million bond in 2014. As Jenni Klose, president of the SRCS board noted in a letter to the editor today, "[SRCS], as with all California districts, is simply wrestling with how best to meet its increased pension obligation while continuing to fairly compensate staff[.]" 

Sonoma Valley, grappling with the same situation, should investigate creating structural, long-term advantages to ensure our teachers and staff aren’t crushed between stagnant funding and our ever-rising cost of living. Housing remains the single largest expense for many teachers and staff, whether laterals or new graduates. Meanwhile, those further up the step-column need salaries that can pay for mid-life expenses, such as children starting college. Addressing one issue means more’s available to deal with the other. Much as our schools confronted rising power prices by getting on the supply side of the equation with solar panels, so too should our district pursue construction of high quality, reasonably priced teacher and staff housing, an advantage in recruiting and retention independent of state funding.

2.83 acre Sonoma Valley Health Care District Property

432 W MacArthur, Sonoma, California
image available at http://tinyurl.com/joonh66

Serendipitously, Sonoma Valley’s health care district must make a decision regarding 2.83 acres on West MacArthur in the next 18 months. The land is four houses from Sassarini Elementary, and down the street from the SVHS/Adele/Prestwood campus.  Due to some (very) recent changes in the law, SVUSD has an opportunity to pursue a teacher housing project there, before the main front of the financial storm hits our budget.

The model for such housing is Santa Clara Unified’s Casa Del Maestro. Commenced in 2002 on a previously closed middle school, the project utilized certificates of participation to fund construction of 70 units, subsequently rented out to teachers and staff via a functionally integrated public charity. Construction was done at market rates. No subsidy was involved. One bedroom apartments rent for ~$900, and a large two bedroom for ~$1,450 (typically $2,390 for one in Santa Clara, $2,930 for two).

The cost advantage has four parts. First, the District owns the land, and thus land costs are not included in the cost of ownership or operations. Second, the capital structure allows for tax-exempt finance. Third, the land and construction are both property tax-exempt. Finally, there is no profit -- rents are set at a level sufficient to pay back costs of construction, financing, maintenance and operations, and to fund a long-term reserve.

Former Cal. State Sen. Mark Leno
image available at http://tinyurl.com/zbw9tum

Despite such success, few K-12 housing projects have gone forward since, due to an aura of legal uncertainty. Is restricting residency to teachers and staff consistent with California’s Unruh Civil Rights Act? Can land held in educational trust be used for teacher and staff housing? Can Certificates of Participation be used to fund construction? Can schools cooperate with other agencies on projects? Are there legislative findings that the housing crisis is hitting teachers and staff?

We got our answer January 1. Mark Leno’s SB 1413, known as the “Teacher Housing Act of 2016,” codified at Health & Safety Code § 53570 et seq., provides the express authority to proceed. The law’s factual findings and statutory language gives the same type of guidance for K-12 districts long available at the junior college, CSU, and UC levels. Doubts regarding limiting the rentals to teachers and staff, about the use of lands held in educational trust, and the availability of innovative financing and intergovernmental cooperation were all addressed.

2.83 acre Sonoma Valley Health Care District Property
432 W MacArthur, Sonoma, California
image available at http://tinyurl.com/gtmavhq

And this brings us back to the 2.83 acre parcel. Ideally located, the site is nearly identical in size to the Casa Del Maestro. It’s within walking distance of supermarkets and the Sonoma Square. The neighborhood already has several master planned facilities (Village Green, Sonoma Hills, Pueblo Serena, Moon Valley). Further, the school district has broad powers available to support the project, given the financial flexibility of the authority granted by Health & Safety Code § 53573.

What of the hospital, the current owner? Hospital sites must be “multi-decade,” allowing new buildings to be constructed as others pass from use, like a wave traversing the property over decades. For now, the MacArthur parcel is surplus to requirements. But the two districts could allow for a future exchange of land with fair compensation. The Andrieux site could become housing and MacArthur a hospital, when contemporary structures reach their end of life.

There are any number of problems that could interfere with teacher housing at this site (or another), but the rough contours are clear.  Making sure teachers and staff can afford to live in our community was the first item I discussed when walking Sonoma door to door this past fall. There are few more effective proofs of the power of small-town cooperation, especially in the face of discord we now witness washing over our small valley.  Let’s get our government agencies talking about working together, and let's set an example, by having our health care and school districts discuss how they might make this land continue to serve the public interest for decades to come.

@SVHSDragons @SVUSD1 #SonomaValley College Readiness Going Up.

It's a day of sorrow, and for the acknowledgment of tragedy for Sonoma Valley's school district. But it's important to remember that great work is being done overall in our public schools.

Per Person Income vs. College Readiness, California Counties.

Sources and methods available here.

PDF version available here.

In particular, this year has been a strong one for SVUSD, because both governmental and commercial measures indicate our schools are having increasing levels of success.  For instance, US News & World Report found that Sonoma Valley's College Readiness Index, at 36.7, is now exceeded by only three Napa-Sonoma area schools: Maria Carrillo, Casa Grande, and Roseland University Prep.

This result is confirmed by State measures of performance, as the graph on the right shows. In general, Sonoma County rates poorly given what's expected for a county of its wealth. It is one of the clearest and worst under performers.

But Sonoma Valley is different.  SVUSD does 40% better on preparing students for college than the rest of Sonoma County. Sonoma Valley now outperforms Napa as well. SVUSD deserves a lot of credit for turning in such a strong result.

One of the best things about working for the past couple of years with the District's trustees, our very strong Superintendent, and so many dedicated principals and teachers, is that it gives some context concerning the regular and sustained progress being made.

@eloisanews, nice article on #Sonoma grad rates ...

Eloísa Ruano González
image available at @eloisanews

So, I don't personally know Eloísa Ruano González. I do read her articles via the Press Democrat from time to time, though.  Her writing caught my eye earlier this year regarding Cloverdale High; recently it was a piece about graduation rates in Sonoma County overall. I'm typically favorably disposed towards education writers, particularly those that focus on the interplay between education and economics, and so I'm very supportive of Eloísa for focusing on statistics for the different parts of Sonoma County.

Of course, a well researched article on an important subject often makes people want more of the same, and I thus wonder whether an article on the County's A-G graduation rate might now be a good idea, too. For those who find education jargon impenetrable, that's the difference between whether a graduate has or has not met the college entry requirements for the University of California ("UC") or for the California State University ("CSU"). The technical requirements of A-G completion are complicated, but can (very roughly) be boiled down to passing the second semester of Algebra II with a C- or better.

Most parents and voters think that a graduate's a graduate, and that anyone receiving their diploma is ready for college, but that's not necessarily the case.  And that's where Sonoma County seems to have trouble, because while the statewide rate for A-G is 43.4%, in Sonoma County it's only 33.7% (for my friends and neighbors reading this post, Sonoma Valley High's rate is 47.2%).  I feel like I'd really like to see our educators explain the overall rate of preparation for college being achieved by Sonoma County's high school graduates to a reporter like Eloísa ...

What Do Bubbles Look Like, Pt. 3.

Today, I'm revisiting a post from last November, and a followup from March of this year. I had blogged about a property for sale on Austin Avenue, in the Prestwood neighborhood of Sonoma. The asking price was $2,295,000; the house was a little under 1,900 square feet. There was some disbelief at the listing, given the property had sold in November of 2010 for $407,500. But it duly sold for $2 million. 

Zillow advertisement, May 24, 2016.

image available at http://tinyurl.com/zae624d 

I'd speculated that this market could continue for another summer, and perhaps even two. Today is just a small update; I was browsing Zillow for unrelated reasons and saw the image at the right. 348 Patten, which had sold for $725,000 in November of 2013, is now at $2.8 million; Zillow estimates the house is for sale for about $994 per square foot.  To put that in perspective, the most expensive zip code in the USA (10007, also know as Tribeca, New York) has prices per square foot of about $2,829 (yes, the source is Business Insider, but bear with me).  Atherton, at #2, is $1,669 per square foot, and there are four more above $1,000 (33109, Fisher Island in Miami, $1,586; 92662, Balboa Island in Orange County, $1,443; 90401, Downtown Santa Monica, $1,304; and 02108, Beacon Hill in Boston, $1,290). The next on the list is actually below 348 Patten, and that 92118, Coronado, in San Diego, at a mere $866 per square foot. 

Board of Governors of the Federal Reserve System (US)
Multiple Series
retrieved from Federal Reserve Bank of St. Louis [FRED]
May 23, 2016, available at http://tinyurl.com/p4cmzyv

The one thing that all those locations have in common is access to an extraordinary job market; whether it's downtown Manhattan, Palo Alto, Miami Metro, The OC, LA's Westside, or Greater Boston, there is a nexus of price and productivity evident in each instance. Sonoma, though, is much different; the economy is orders of magnitude less intense.  Perhaps the most striking contrast is the property Zillow listed immediately below; a George Ranch home, 4,500 square feet, on 8 acres, with 5 bathrooms, for (only?) $2.3 million. 

I've turned from time to time to the graph on the right as an illustration of where markets have been moving since June of 2009. Since I first posted this graph, the situation has actually gotten more extreme. I continue to think that prices may hold up through the summer, but expecting real estate to continue to appreciate along this trend line increasingly strains credulity.

Regarding Roundabouts.

A brief post today, about what can be a surprisingly vigorous debate.  Speaking with Ron Willis on Thursday, we discussed Sonoma Valley's issues with affordable housing, which turned into a conversation about traffic congestion.  The two are more closely linked than they may at first appear. As many are aware, the traffic problems Sonoma experiences are exacerbated by so many employees of local businesses who cannot afford to reside in the community they serve, and must commute 90 minutes or more (a topic that has come up on this blog before) to find affordable housing for their families.  Reform of local housing policy could help unlock the consequent roadway snarls.

Ron and I also touched on the physical layout of Sonoma's roadways, noting that increasing capacity isn't really consistent with the previously expressed preferences of local voters, but that roadway improvements have made a difference in mitigating congestion. We agreed that a nice example was the construction of a roundabout by the County of Sonoma on Arnold Drive, a project that was, at times, controversial.

The intersection had been a notorious problem for years.  One of the nice features of Google Maps is that it contains a time series of photographs of the roadway. The earliest images (from 2007) actually show two CHP officers trying (in vain) to clear the traffic backup -- Google's Maps service allows users to see just how bad the situation was prior to the County's efforts.



While the cost of the project surprised some (~$2 million), and was considered larger than expected, it eliminated the daily backup of twenty to thirty cars turning right onto Agua Caliente Boulevard that frustrated so many drivers, and that disjointedly interrupted the otherwise rural tenor of Sonoma Valley with a mess of cars more reminiscent of the MacArthur Maze. The improvement has since received wide acclaim. Advancing the map from Google to 2015 illustrates the complete transformation of the intersection and the restoration of the pastoral character of the area.

Arnold Drive Roundabout, 2015.

Image available at http://tinyurl.com/gw5gl4f

The takeaway, for me, is that persistent efforts to improve the quality of Sonoma Valley's infrastructure is a key part of the strategy necessary to address Sonoma's affordable housing crisis. The evidence shows that the situation continues to worsen, and indeed to become more extreme as the months pass. Perhaps the roundabout solution points the way to other ideas that might help resolve the situation, with Sonoma borrowing even more ideas from the Garden City movement than just Ebenezer Howard's traffic innovations.