Economics and the Mona Lisa Smile.

"Mona Lisa."

Leonardo da Vinci.

Public domain.

via Wikimedia Commons.

The Economist this morning observes that economic forecasting has become increasingly unpredictable, with analysts struggling to accurately forecast many key international measures. Contributing to the confusion are challenges in data collection and interpretation due to Covid-19 disruptions and declining response rates to official surveys. The pandemic caused significant fluctuations in growth, complicating seasonal adjustments in economic numbers. Also, reduced response rates to surveys may have led to increased data volatility and potential bias, as non-respondents tend to be less prosperous, which could distort income statistics. The article uses the ambiguous "smile" of Mona Lisa, painted by Leonardo da Vinci via the sfumato technique, as a metaphor for the difficulty of discerning the true state of the economic environment given this unpredictable data. 

One source of confusion arises from the discrepancy between "hard" and "soft" data—objective indicators such as unemployment rates, and subjective variables like individuals' future expectations. Typically, these two classifications of data are congruent. However, at present, they exhibit a stark contrast. "Soft" measures indicate a recessionary trend, while "hard" measures suggest a reasonable economic expansion. This divergence may be attributed to the public's discontent with inflation. In affluent nations, prices continue to escalate at an annual rate of 9%.

Economic measures really matter for government budgeting, as California's Legislative Analyst's office (LAO) relies upon that data in planning future budgets. Necessarily, many of the points the Economist makes about uncertainty get resolved by the LAO in the "negative" (that is, they accept the more dire forecast). As the LAO (accurately) writes in their 23-24 budget analysis, the U.S. economy experienced rapid expansion from summer 2020 through 2021 due to pandemic-related federal stimulus. However, this growth was (as far as the LAO is concerned, and many others) unsustainable, leading to record low unemployment and supply chain challenges, causing consumer prices to rise 8% year-on-year. To combat inflation, the LAO points out that the Federal Reserve has enacted large interest rate increases throughout 2022. The LAO interprets the hard data it sees, that California is experiencing decreased home and car sales and falling stock prices, as well as weaker state tax collections, and concludes there is a slowdown in the economy. 

The LAO, though, is looking at some of the same data as the writers of the Economist, and thus notes that while overly optimistic projections could result in future shortfalls, an excessively pessimistic projection could lead to premature cuts to public services. Further, despite all the foregoing, the LAO points out that "the state can afford to maintain its existing school and community college programs and provide a cost-of-living adjustment of up to 8.38 percent in 2023-24," which would essentially meet the rate of inflation for educational funding in California. Despite the economy's sfumato, at least that is clear. 

Attendance, Housing, and Basic Aid.

 Sonoma County's 40 public school districts continue to see attendance declines. The lack of housing and a steadily declining birth rate are among the factors contributing to the decline. Sonoma County is predicted to experience a 16.9% enrollment drop by 2031, the fourth worst in California, as reported by the Press Democrat. In the past five years, Sonoma Valley has already experienced an 18.9% decrease in attendance, and as a trustee, I am familiar with the very profound changes that can cause. 

The article elides past some distinctions that are worth noting. First, school funding in California is based on attendance (the so-called "ADA," or average daily attendance), not enrollment (ADA is usually about 90% of enrollment, although there is a lot of variation).  Paying attention to the attendance figure will be the more reliable indicator of the state of school finance going forward in Sonoma County. 

Second, and related to the first point, is that as of November 2022, 16 of the 40 school districts in Sonoma County were "basic aid" districts, whose revenues do not change with either attendance or enrollment. In 2021‑22, the state had 118 basic aid school districts (about 13 percent of all districts).  As attendance continues to drop, more and more Sonoma County districts will become basic aid. Basic aid will increasingly be the default rule in Sonoma County. These districts (like Sonoma Valley) will ironically end up with more money per student given declining attendance, which is why many of these districts may very well not be interested in district consolidation intended to cut costs, as such consolidation would in fact reduce per-student funding.  There are a number of these districts in San Mateo, Santa Clara, and Marin counties, those counties having had many of the same housing issues as Sonoma County for a longer period of time, and the trend in those counties has generally been against consolidation of districts.   

A final point, which comes up here from time to time. "Affordable Housing" is a term of art in many respects, and while there is a shortage of housing that can be afforded in Sonoma County by most people, that is different from "Affordable Housing." Sonoma County just lacks housing, period. Narrowing the issue using the term of art is probably not the most helpful, because it obscures the fact that the response to the crisis needs to be comprehensive.

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.

@SVUSD1 @svhsdragons 2015-16 Budget "Best 3 Year Projection in Years."

The Sonoma Valley Unified School District had the first read of its 2015-16 budget on Tuesday night, presented by John Bartolome, the District's Chief Business Official.  John, for those of you who don't know him, is a graduate of Purdue University, helps out faithfully with the Sonoma Valley High School Wrestling Team, and apparently is one hell of a golfer.  He also had the chance, with this budget, to give Sonoma Valley Unified some of the best budget news it has ever had. I got the video courtesy of SVTV, which is very much appreciated. The video runs about 20 minutes, but I recommend it to anyone interested in a succinct picture of how things now look after the past half-decade of cuts.

John does a very nice job of explaining what's taking place; there's some terminology that can be confusing. To make sure nobody gets lost, LCFF stands for "Local Control Funding Formula," which is the new (reformed) method of financing public schools in California.  It was supposed to be phased in to its planned level through 2021–that is, schools weren't planned to be fully funded in California for another half a decade.  But, given the improvement in California's budget, school funding under LCFF has reached 70% of the 2021 figure. 

There's some discussion of deficit spending.  The district "planned" to run a deficit in the last year, and has done so for several years; that was due probably to the conservative projections made on funding.  When the local economy takes it in the teeth, that's what reserves are, of course, for, and the level of State funding has gotten to the point where the budget is essentially balanced as of 2017-18, which is a very significant change from years past.

There's also some discussion in the presentation of the concept of "Basic Aid," which is a special system under the line of legislative responses to Serrano v. Priest that allows some Districts to receive more funding than others due to their very high levels of property tax received.  During the most recent economic mess, State funding fell so low that Sonoma Valley actually became a Basic Aid district–which is expected to end in the next year.  Not a bad thing, as John points out, but instead more of a sign of the consequences of an economic recovery (... or of another speculative bubble). 

What Do Bubbles Look Like?

Sentinel Media Services

"Midcentury Modern in Sonoma"

 The San Francisco Chronicle, Nov 19, 2014

screenshot taken Nov. 19, 2014

 available at http://tinyurl.com/lu93z8y

The San Francisco Chronicle gets my attention today.  On a fairly regular basis, the paper features a particular piece of real estate for sale somewhere around the San Francisco Bay Area.

Today, they're publishing about a property on Austin Avenue, in the Prestwood neighborhood of Sonoma.  The asking price is $2,295,000. The house is a little under 1,900 square feet.

You can see the location here. One nice thing about Zillow is that it will show you the recent sale history of the property.  I took a screenshot of that, and that's on the right, too.  

The Zillow history shows that William Grecian tried to sell this property back in November of 2010 for $445,000; he couldn't find any takers.  He dropped the price to $420,000 in April of 2011, but still didn't find a buyer.  He dropped the price another $12,500 -- and that's when Laura and Richard Tackett made their offer, for $407,500 on July 15, 2011.  

Zillow.com
"826 Austin Ave, Sonoma"
 screenshot taken Nov. 19, 2014
available at http://tinyurl.com/krxbtzh

Laura and Richard held the property for 872 days.  On December 3, 2013, they listed it for sale at $648,000, a 59% price increase.  Laura and Richard figured the change in the real estate market meant that they'd just made an investment with approximately a 20% annual rate of return.  Of course, Richard and Laura were wrong; the property didn't sell for $648,000. 

Instead, it sold 17 days after listing for $730,000. 

More like a 26% annual return.  

The property was purchased by an LLC, which is more or less the general practice in California with real estate projects that are expected to appreciate significantly.  The registered agent for the LLC is Patrick Doyle of Petaluma, who's a general contractor and is the manager of the LLC. The Deed of Trust on the property (which I checked) reveals the equitable owners. The Deed of Trust is a public record and if anyone's particularly excited to find out who put up the money for this deal, feel free to head to the County of Sonoma's Recorder's office -- they're open 8-5 Monday through Friday.  

The LLC listed the property for sale on November 5, 2014.  The LLC held the property for 320 days.  I can't calculate the annual rate of return, because the calculator I use presumes that the values change monthly; here, the ∆ in the price is so substantial that the number of days included can change the implied rate of return.  But it looks like about a 215% presumed annual rate of return.

Comments, "Midcentury Modern in Sonoma"

Sentinel Media Services

The San Francisco Chronicle

screenshot taken Nov. 19, 2014

 available at http://tinyurl.com/lu93z8y

There are a great many things I could say about this situation. I'm going to hold those observations, and I think I'll revisit this blog post in a couple of years (months?), perhaps updating it with the transaction history of the address.  

At this point, though, I do want to draw attention to the comments about the house on the Chronicle's web site.  

One poster thought the property looked like a good "flip."  

Another wrote that "I can't believe anyone would pay over 2 million for this toy house."

Interesting.

Further Reading.

Regarding Monday's post, three articles caught my eye in the past few days touching on some of the particular points made in that post.  The first is from the Economist, the second from Time Magazine, and the third from the New York Times.

Angela Ahrendts

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

Starting with the Economist, this will be among the few times this blog ever mentions Burberry.  Angela Ahrendts, its CEO, has quit to run Apple's retail operations. In six paragraphs, the Economist's editors managed to miss (or chose to ignore) the significance of the fact that Ms. Ahrendts is a woman. Apple's executive suite is composed of CEO Tim Cook and eight male senior vice presidents. Ahrendts will be Apple's ninth SVP, and first female SVP since 1992.

Why should Ahrendts quit as a CEO to play second fiddle to Tim Cook?  There's a lot of things that Tim Cook's been responsible for, but amongst his biggest achievements was the move from PowerPC to Intel chips for the Mac line; that's an engineering, not a design function.  The Economist correctly notes that Ahrendts is very effective at fusing design and technology, but I have a strong suspicion that Ahrendts is willing to make the jump because she has confidence she has a shot to run Apple if she's successful, and that she's risen as far as she practically can in the UK, although perhaps not in California ...

The second article, from Time Magazine, notes that the end of the government shutdown was, in many ways, attributable to a group of female senators.  The U.S. Senate has been called the ultimate men's club, with, "unspoken rules, hidden alliances, off-hours socializing and an ethic based at least as much on personal relationships as merit to get things done."  But the article instead drew attention to the success that the group of female senators, regardless of party, have managed to achieve:

image available at  http://tinyurl.com/mkcsu8c

"Most of the Senators say they feel they speak not just for the voters in their states but for women across America. Over the years they have pushed through legislation that has vastly expanded funding of women’s- and children’s-health research, testing and treatment. They’ve passed the Lilly ­Ledbetter Fair Pay Act and other anti­discrimination laws. And they’ve won federally mandated maternity and family medical leave. While most of these efforts were driven by Democrats, the women are strongest when they unite on legislation like the Homemakers IRA, which allows tax-deductible contributions to retirement plans by stay-at-home parents."

image available at http://tinyurl.com/khgcs7w

The final piece, from the New York Times, concerns California's government. Noting that the State has long been "the national symbol of partisan paralysis and government dysfunction," the article points out that a sunny assessment of changes in the State have been voiced by people inside and outside the government:

"... [T]he new atmosphere in Sacramento also offers the first evidence that three major changes in California’s governance system intended to leach some of the partisanship out of politics — championed by reform advocates — may also be having their desired effect in a state that has long offered itself as the legislative laboratory for the nation." 

... 

"Lawmakers came into office this year representing districts whose lines were drawn by a nonpartisan commission, rather than under the more calculating eye of political leaders. This is the first Legislature chosen under an election system where the top two finishers in a nonpartisan primary run against each other, regardless of party affiliations, an effort to prod candidates to appeal to a wider ideological swath of the electorate."

... 

"The turnaround from just 10 years ago — striking in tone, productivity and, at least on fiscal issues, moderation — is certainly a lesson in the power of one-party rule. Democrats hold an overwhelming majority in the Assembly and Senate and the governor, Jerry Brown, is a Democrat. The Republican Party, which just three years ago held the governor’s seat and a feisty minority in both houses, has diminished to the point of near irrelevance."

California, where Malala Yousafzai becomes Janet Yellen.

This is the fourth (and final) part of a series on the future of California. The first post is here, the second is here, and the third is here.  A three paragraph summary of those posts is here.

This post is not brief, but a summary of it can be.  Education makes women powerful, and California is the place where women can get it, use it, and be recognized for it better than anywhere else.  It comes from the character of the State's institutions --  there is evidence that they are earning the public's trust, while nationally faith in government has collapsed.  California, like the Nordics, is building a society that can support women who are working. It will increasingly be immigrants, particularly those that are the mothers of young children, that will hold the keys to California's future. Government must re-earn their trust, generation after generation.  Through education and law, California can continue to win that confidence, making it one of the world's citadels of hope in the face of primitive barbarism.

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Malala Yousafzai

Image available at http://tinyurl.com/kbt55hd

Malala Yousafzai's on my mind this week. She's come up here before, back in May, when I noted the most popular movie trailer on Apple's site was for Girl Rising, a film partially about her experiences. Malala is a Pakistani girl from the northwestern Khyber Pakhtunkhwa province. In early 2009, when Malala was 11, she began writing a blog detailing her life under Taliban rule, and their ban on girls attending school. In October of 2012, she was shot in the head and neck in an assassination attempt by Taliban gunmen while returning home on a school bus. The assassination attempt sparked a national and international outpouring of support for Malala.

Because she was nominated this year for the Nobel Peace Prize, there were a series of interviews with her in the run-up to the announcement of the award last week (she did not win this time, but don't count her out). Malala made one comment a few days ago on "The Daily Show" that specifically caught my attention, in response to the question "[w]here did your love of education come from?" Her response was:

"We are human beings, and this is the part of our human nature, that we don’t learn the importance of anything until it is snatched from our hands … and when, in Pakistan, we were stopped from going to school, and at that time, I realized, that education is very important, and education is the power for women, and that is why the terrorists are afraid of education, they do not want women to get education, because then women would become more powerful.” 

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Janet Yellen

Image available at http://tinyurl.com/kt5qv3z

It was also last week that Barack Obama nominated Janet Yellen to be the Chairman of the Federal Reserve. As the Daily Telegraph's Ambrose Evans-Pritchard put it:

"Janet Yellen is to take over the US Federal Reserve, the world's monetary hegemon, the master of all our lives ... [n]o Fed chief in history has been better qualified. She is a glaring contrast to Alan Greenspan, a political speech writer for Richard Nixon, who never earned a real PhD (it was honorary) or penned an economic paper of depth ... [s]he has pedigree. Her husband is Nobel laureate George Akerlof, the scourge of efficient markets theory. She co-authored "Market for Lemons", the paper that won the prize ... [c]urrently vice-chairman of the Fed, she was a junior governor from 1994 to 1997 under Greenspan, and then president of the San Francisco Fed from 2004 to 2010. She was head of Bill Clinton's Council of Economic Advisers from 1997 to 1999, when she handled the Asian crisis. You could hardly find a safer pair of hands."

Yet despite her obvious ability, Janet Yellen hasn't exactly had an easy time of it; in 1978, when she and her husband were both teaching at the London School of Economics, Yellen encountered the same resistance Margaret Thatcher described in the UK's culture. ” Meghnad Desai, Baron Desai, who worked alongside Yellen at the LSE, said that:

“She was very undervalued at that time, because we only thought of her as someone’s wife ... I could see that she felt she was not getting her due.”

While neither Akerlof nor Yellen were from the San Francisco Bay Area, they had jumped ship from the LSE to UC Berkeley by 1980.  Yellen became a full professor within five years, the position from which she vaulted to her most impressive achievements.

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So much for Yousafzai and Yellen, how does California come into this story?

David Brooks, in his "Sidney" Awards in December 2012, called attention to an article by Ron Unz, entitled "The Myth of The American Meritocracy." Unz's article demonstrates the sharp differences in admissions practices between, on the one hand, the Ivy League, and on the other, CalTech, MIT, and the flagship UC campuses, Berkeley and UCLA.

Between 1980 and 1993, Asian students went from ~5% of the entering Ivy League freshman classes to over 20% -- but then the percentage fell to 16.5%, where it has held constant more or less since. Meanwhile, CalTech, MIT, and the UC campuses saw the same increase starting in 1980 -- except that the rise never stopped. Unz points out that CalTech, MIT, Berkeley and UCLA have about the number of Asian students that would be expected based on the number of Asian National Merit Scholars overall (about 40% as of 2013).

I cite to Unz (while disagreeing on several points) because he singles out the University of California (along with the science-focused CalTech and MIT) as the schools continuing to fulfill the meritocratic ideal. I think he's right on that particular issue. Berkeley and UCLA will not discriminate against a student that looks like Malala Yousafzai based on the color of her skin.  It is the UC system that will, regardless of sex or religion or race or whatever, catapult one to the apogee of their field. It is where someone like Janet Yellen is not "someone's wife."

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The meritocratic ideal, of which UC and CalTech are examples, is a value that has spread far beyond California's universities -- the State's institutions draw in women with ability from all over the world, and advance them to positions of power in government, science, business, and law. Dianne Feinstein. Barbara Boxer. Condoleezza Rice. Laura Tyson and Christina Romer. Meg Whitman, Carly Fiorina, Carol Bartz, and Marissa Meyer. Rose Bird, Tani Cantil-Sakauye, and Kamala Harris. Elizabeth Cabraser. Mary Meeker. Susan Wojcicki and Sheryl Sandberg. 

"Asia Has Surpassed Latin America As The

 Leading Source of Immigrants to California"

Infographic, "Immigrants In California," 

Public Policy Institute of California, 

available at http://tinyurl.com/kgnorac

When we speak of the technical achievements of California researchers, or of the skill of the State's businesses in the creative arts and in cutting-edge technology, it is in no small part due to the fact that California is the place in the US that has done the best at unlocking the intellectual abilities of all of its citizens. This is a feat unimaginable in Japan, and a continuing challenge even for the UK. As a consequence, California has become a magnet for talent worldwide.

This means there's been a lot of very powerful, very intelligent women in California demanding practical solutions to the issues such a situation creates. The Nordics were (probably) the first to encounter the problem of how to organize society when almost all women work -- and California has learned from their example. Systematically, the kinds of programs supporting working mothers taken for granted in the Nordics have been, or are being put in place in California. And it is the challenges faced by those mothers -- particularly by immigrant mothers -- that will determine the future of California.

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"How Much of the Time Do You 

Trust The Government in Washington?"

Public Trust in Government Survey, 1958-2013, 

Pew Research Center

available at http://tinyurl.com/knmrhmy

The Pew Research Center has conducted a survey of Americans for over fifty years, asking them "How much of the time do you trust the government in Washington?" The chart on the right graphs the "just about always/most of the time" response. It has gone from 73% in 1960 to 26% today.

From the early 1960's through the present, the US embraced an elite educated at Ivy League (and similar) schools. On a national level, those leaders have systematically lost the confidence of the nation's citizens. The result of this dysfunction is now on display, as our federal government remains closed for business. Returning to Ron Unz for a moment, his criticism should sting when he writes that:

"Over the last few decades America’s ruling elites have been produced largely as a consequence of the particular selection methods adopted by our top national universities in the late 1960s ... the elites they have produced have clearly done a very poor job of leading our country[.]"

California, though, is different from the nation as a whole. For a generation, the basic operating levers of the California Republic were virtually locked via onerous voting requirements -- a statement by the citizens that the government could not be trusted to make decisions. But Californians have now created a supermajority in their legislature -- and they handed it to the party of government, the Democrats.

Despite an 8.9% unemployment rate, and a tax policy that horribly distorts economic behavior, California's future is brightening. Its voters have engaged in fundamental political reform, creating a nonpartisan citizen's commission to conduct redistricting, instituting a top-two system for general elections that defangs partisan primaries, while at the same time increasing funding for education. Its elected officials have simultaneously ended ineffective, pork-barrel economic development programs and have returned control over education to local school districts.

Meanwhile, perhaps the most significant problem for California has long been, both culturally and from a budgetary perspective, the costs associated with health care. It is no mystery why California has enthusiastically embraced the Affordable Care Act. The former US system, where health insurance was typically provided by employers, has long since been abandoned by the UK, Japan, and the Nordics. Not only does the ACA address the massive long term growth of the cost of health care for the State, but delinking health care from employment (and breaking entrepreneurial lock) means starting a business doesn't require changing (or losing) your doctor -- an annoyance for a thirty-something man, but an entirely different matter for an entrepreneurial female (or, one better, a business-minded mother).

This is not to suggest that California's government is pursuing magical thinking; California has a balanced budget, passed on time.  It is to point out that California and the Nordics are converging on a model that bears great promise for the future.

"The Share of California's Residents Who 

Are Foreign Born Has Plateaued at High Levels"

Infographic, "Immigrants In California," 

Public Policy Institute of California, 

available at http://tinyurl.com/lspkztn

There are countries in the world that deserve low ratings on trust -- in many countries fear of the "government" (kleptocracies) is well warranted. Half of the children in California have at least one immigrant parent, and many of the immigrant families who come to California have lived with governments of that type. So when those parents hear that the government cannot be trusted, they believe it, with damaging consequences.

The mother in such a family, oftentimes without any traditional networks to draw on for support, and perhaps not speaking the language, is making decisions about how to raise her children that will chart the future of the State. Education is the escalator to the future for her kids, and especially for her daughters, and that mother must be able to trust her local school -- to trust her government -- for that to happen. And it is the enduring challenge for the State to make sure that she can.

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"The Economist Staff's Favorite
Covers From The Past 20 Years"
Business Insider, July 22, 2011
 available at http://tinyurl.com/ojvaqf7

I have been asked, what is it about California, that makes it a place of such remarkable achievement for women? Surely government cannot be given credit for this?

I have always been struck by one of the covers of the Economist from March of 2010, which is on the right. The article is here. I caution the reader, the stories related by Xuē Xīnrán are amongst the most terrible, poignant, and emotional you will ever read, and the following passage, describing what she witnessed in the Yimeng area of the Chinese province of Shandong, is heart rending:

"We had scarcely sat down in the kitchen when we heard a moan of pain from the bedroom next door...The cries from the inner room grew louder—and abruptly stopped. There was a low sob, and then a man's gruff voice said accusingly: ‘Useless thing!' ... Suddenly, I thought I heard a slight movement in the slops pail behind me ... to my absolute horror, I saw a tiny foot poking out of the pail. The midwife must have dropped that tiny baby alive into the slops pail! I nearly threw myself at it, but the two policemen [who had accompanied me] held my shoulders in a firm grip. ‘Don't move, you can't save it, it's too late.' ‘But that's...murder...and you're the police!' The little foot was still now. The policemen held on to me for a few more minutes. ‘Doing a baby girl is not a big thing around here,' [an] older woman said comfortingly. ‘That's a living child,' I said in a shaking voice, pointing at the slops pail. ‘It's not a child,' she corrected me. ‘It's a girl baby, and we can't keep it. Around these parts, you can't get by without a son. Girl babies don't count.'”

The horror of a police officer that refuses to protect a female baby is the most dramatic example of why this issue is all about government.

It may surprise the reader, but the message I took from the Economist's series of articles on this subject was one of hope, rather than despair. I remind myself of the following passage when I consider this issue today:

"Baby girls are thus victims of a malign combination of ancient prejudice and modern preferences for small families. Only one country has managed to change this pattern. In the 1990s South Korea had a sex ratio almost as skewed as China's. Now, it is heading towards normality. It has achieved this not deliberately, but because the culture changed. Female education, anti-discrimination suits and equal-rights rulings made son preference seem old-fashioned and unnecessary. The forces of modernity first exacerbated prejudice—then overwhelmed it."

Like South Korea, female education, anti-discrimination suits, and equal-rights rulings are ultimately what can put daughters on an equal footing with sons -- all things that California's government has accomplished. But a country cannot summon the will to take such action, to continue such action, unless it first believes in the effectiveness of the efforts of its own government -- if it possesses the trust of the public.

Where families can trust that their daughters will enjoy the same rights as sons, where the law will protect their daughters, the horror of gendercide can be brought to an end. And the success of California (fittingly, named after a fictional queen) is thus a beacon of hope for families across the world.  It is the place where the immigrant mother can obtain an education, for herself and her daughters, of the highest quality at nearly no cost -- thanks to the California Master Plan for Higher Education. California's commitment to equality reflects the emerging public trust that promises the same rewards for the Golden State as it has for Sweden, Denmark, Finland, Norway and Switzerland.

And so when I consider the future of California, and how the State is not infrequently mocked for its liberal politics and concern with social welfare, I think of the little pink shoes from the Economist's cover.  And as a father, I think of my daughters, and why government matters.

And I have hope for the future of us all.

Hanlon's Razor.

So, the Index-Tribune took the time to review the post I made here yesterday. They acknowledged mistakes.  However, they missed the substantive error with their reporter's analysis.  Further, others have now weighed in, pointing out that the STAR test is obsolete -- a point recognized by their sister publication, The Press Democrat, and echoed by the SVUSD Superintendent in another comment today on this blog.  Finally, while I generally always apply Hanlon's Razor in situations like this, I have concerns regarding the adequacy of the reporter's byline that test the applicability of that adage.

To summarize what happened yesterday, I pointed out that the crushing effects on families of the continued Greater Recession/Lesser Depression is increasingly being revealed by standardized test scores in California.  The I-T's article never mentioned the effect of a depressed economy on educational outcomes for students.  However, I also pointed out the technical shortcomings of the reporter's analysis, including specific factual errors included in the article.

While the paper acknowledged the specific errors I pointed out, to understand the magnitude of the mistakes made means that we have to look at the explanatory PDF on appropriate comparisons of the API prepared by the California Department of Education.

"Invalid Comparisons of the API,"
2012-13 API Reports Information Guide, p. 13
California Department of Education
available at http://tinyurl.com/q7a8ty7  

California helpfully explains invalid comparisons using the API on page 13 (!) of the PDF.  The article in question made a series of these invalid comparisons -- in the same sentence.

The sentence at issue was "[t]he [high] school’s base API was 712 in 2013, down from 723 last year and down from 735 in 2008."

• First, this sentence mistakes the 2013 Growth API for the 2013 Base API. The California Department of Education Guide never even considers the possibility of a mistake like that -- it's such a basic mistake, I think it would kind of blow their minds. This is the mistake the I-T has admitted. 
• Then, the sentence sought to compare what it thought was the 2013 Base API to the 2012 Base API, which is invalid comparison Number One from the list.  The I-T hasn't admitted this mistake yet. 
• Then, the sentence sought to compare the 2013 Growth API to the 2008 Base API, which, coincidentally, is invalid comparison Number Two from the list.  The I-T hasn't admitted this mistake yet, either. 

These errors using the API aren't limited to the discussion of Sonoma Valley High -- they run throughout the discussion of all the other schools as well.  That's why I noted that "most of the multiyear comparisons in the article thus don't really hold up as a consequence." The fact that the article reports nonexistent numbers is one thing, but the basic error here is that the author really doesn't understand how the testing system works. 

Of course, there's yet another issue that's compounding the problems with the reporting in this article, which is that California's schools are in the middle of implementing Common Core.  My opinion (and I'd really like to have completed that blog post by now, but I do actually have to run my law practice and coach soccer, too) is that the individuals behind the creation of Common Core have taken the legal doctrine undergirding the Free Software (Open Source) movement and have implemented it brilliantly to revolutionize American education.

As a consequence, the STAR testing regime has been akin to legacy software for several years now -- and the advent of Common Core renders it obsolete. It's probably time for application retirement.  The Press Democrat's editorial board weighed in this week, calling for exactly that. The Superintendent of SVUSD commented this morning here, and based on that post, I think she concurs. Frankly, I have to agree -- STAR testing results get overwhelmed by demographic noise that obscures the signal concerning educational effectiveness, which has come up on this blog before.

California Schools Guide, Los Angeles Times

Screenshot Taken June 7, 2013.
Screenshot available at http://tinyurl.com/p8ztwrd

Regarding the balance of the comment from the I-T, I'd note that neither of the URLs posted in the comment work, and stating "our print article included a huge chart" is a "defense" that explains many of the problems faced by the newspaper industry.  Further, telling parents "you can go search here" rather than doing the analysis seems to miss the point of reporting.

Finally, I respect the paper when it notes that "[a]s for the reporter being remiss in not speculating why the scores went down, that isn't our role." I agree that the role, as described, is indeed the proper province of the paper. However, I have a hard time reconciling that statement with comments like the one the author of the article left on the LA Times' web site, a screenshot of which is at the right, where the reporter explicitly speculates about what causes test scores to move -- a comment that also suggests a level of partisanship one would think is inappropriate in a reporter.

If there is some relationship, business or otherwise, between the reporter and a private school here in Sonoma Valley, I think that relationship should, at a minimum, be disclosed in the reporter's byline.  Whether the existence of such a relationship should render that individual ineligible to serve as a reporter on the subject of public school test scores is a question that is, however, above my pay grade.

34 Cents of Your Property Tax Dollar Goes To Our Schools.

So, this post is about increasing the resources available to Sonoma's public schools. There's background here and here. Due to Sonoma Valley's basic aid status, local property tax revenue controls our school funding, and 34 cents of every new property tax dollar goes to our schools.

The Lodge at Sonoma

image available at http://tinyurl.com/mg2dku9 

This post is a long one, and it's in four parts.  The first part explains a bit of the history of school finance since 1971.  The second explains the impact of redevelopment.  The third part describes how property tax revenues can increase.  The fourth gives an example of a specific project, The Lodge At Sonoma -- for were the Lodge to be built today, the school district would get nearly $100,000 each year in additional revenue.

Because of the dramatic impact of property taxes on local schools, this issue should come up in every planning decision made by the City of Sonoma. 

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"Education is a unique influence on a child's development as a citizen and his [or her] participation in political and community life ... '[t]he pivotal position of education to success in American society and its essential role in opening up to the individual the central experiences of our culture lend it an importance that is undeniable' ... [e]ducation is the lifeline of both the individual and society." Serrano v. Priest (1971), 5 Cal.3d 584 (Serrano I)

California State Supreme Court Chambers.

image available at http://tinyurl.com/k3ewj4k

In 1971, by far, the major source of school revenue was the local real property tax. The amount of revenue a district could raise depended largely on its tax base -- on the assessed valuation of real property within its borders. Then the California State Supreme Court ruled in Serrano v. Priest (1971), 5 Cal.3d 584 (Serrano I), finding that the funding scheme invidiously discriminated against the poor because it made the quality of a child's education a function of the wealth of his parents and neighbors.

The California Legislature responded by establishing a formula that calculates a ceiling on how much local property tax revenue each district should receive. If a K-12 district's local property tax revenue is not sufficient to meet this "revenue limit," the state provides additional funds up to that level. Today, we call most of the ~1,000 school districts in California "revenue limit" districts, because this formula applies to them, and their funding is determined by a (heavily modified) variant of the system created in response to Serrano I. 

The courts ultimately approved the State's plan, which continued to allow a relatively small number of districts to retain a higher level of funding, based on well-above-average local property taxes.  The rub was that if there was other State aid those districts were to receive, that aid would be reduced, dollar for dollar, by the amount that local property taxes exceeded the revenue limit.  These districts became known as "basic aid" districts, a term that comes from the State Constitutional requirement that all students receive a minimum level of state aid, defined as $120 per pupil, regardless of how much local property tax revenue their district receives.

Thus, we ended up with a naming system whereby the "revenue limit" districts are poorer than the "basic aid" districts.  Which is a wonderfully delightful piece of counterintuitive nomenclature.

The initial number of basic aid districts was small -- places like Pasadena and Beverly Hills. In the intervening decades, the number of basic aid districts has continued to increase, to the point now where nearly 15% of all districts are basic aid, and some of those districts are quite large indeed.  After forty years of trying to equalize school funding, places like Sonoma find themselves right back where they were before Serrano I -- that they are entirely dependent on local property tax revenue -- and for such districts, the exception has swallowed the rule.

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For nearly a generation, local property taxes were essentially irrelevant to school funding in Sonoma Valley.  This was not merely due to the consequences of Serrano I.  Redevelopment also played its part.

As California's Legislative Analyst points out, prior to the dissolution of redevelopment agencies in 2011, most of the growth in property taxes from redevelopment project areas went to the redevelopment agency, rather than other local governments like school districts. In Sonoma, this meant that any significant commercial development, most of which took place inside city limits, almost always saw the increased property tax revenue redirected exclusively to the City of Sonoma, rather than SVUSD.

I don't think that any local leaders were intending that the consequence of this policy would be that the School District would thereby qualify for additional State assistance as a revenue limit district, but that was the actual consequence.

Along came ABX1 26 in 2011, which dissolved all redevelopment agencies. Under the dissolution process, the property tax revenue that formerly went to redevelopment agencies is first used to pay off redevelopment debts and obligations, and the remainder is distributed to local governments, and the school districts receive their share.

When redevelopment went "boom," this was thus a stark change.  It's difficult to point out just how significant the change was.  Indeed, many individuals who are quite knowledgeable regarding California's school system had no idea at all how much property tax was being diverted from the schools through the use of redevelopment, and City officials themselves hotly disputed that money was being redirected away from schools at all -- a point that is now nearly universally recognized to have been incorrect.

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I've touched on the importance of increased funding for schools in previous posts here and here.  Because local property tax revenue controls school funding for Sonoma Valley due to the district's basic aid status, more revenue depends on increasing local property tax revenue.

How can that happen?  California's Legislative Analyst, as usual, has a nice explanation.  There are three mechanisms -- recently sold properties, newly improved (or newly built) properties, and then Proposition 8 "decline in value" properties.

• When a property sells, its assessed value resets to the purchase price. This represents additional value that is added to the tax base because the sale price of the property is often much higher than its previous assessed value. 
• Newly built property and property improvements add new value to the county's tax base when new construction takes place or improvements are made — mainly additions, remodels, and facility expansions — because structures are assessed at market value the year that they are built. 
• Finally, Proposition 8 "decline in value" properties contribute significantly to growth or decline in a county's tax base because their assessed values may increase or decrease dramatically in any year. A particularly large impact on assessed valuation tends to occur in years when a large number of these properties transfer from Proposition 13 assessment to reduced assessment (due to falling real estate prices) and vice versa in a rising market.

What do these changes in revenue look like, and how can someone determine how much property tax revenue will change?  The San Francisco Chronicle has a nice overview of calculating the numbers for a home purchase, and the rules generally hold up for commercial properties, too.  If you pick a typical Sonoma Valley tax revenue area (TRA), like, say, 006-032 (which covers part of the City of Sonoma), the rate's easily determinable by checking Sonoma County's table here. 

There's one piece of data that I've not been able to find, though, and that's the portion allocated to each entity of the property tax collected.  If a reader happens to know where Sonoma County's put that data, please forgive this bleg and let me know. 

However, the number (ratio) is not too difficult to determine for a particular entity for a particular year.  For Sonoma Valley Unified, the numerator is the property tax received for a particular year (in 2012-13, that appears to have been $25,176,110).  The denominator is the total assessed value of all real property in the school district ($7,176,806,784) multiplied by the rate (1.108800%). 31.44% of each property tax dollar thus ends up going to SVUSD.

"Allocation of Ad Valorem Property Tax Revenue"
"Understanding California's Property Taxes"
California Legislative Analyst
available at http://tinyurl.com/ljkr59b

That's not the end of the story.  As the Legislative Analyst's graph on the right shows, about 40% of property tax revenue is allocated to K-14 (not K-12) education; about 8% of every property tax dollar heads to the Santa Rosa Junior College.

Further, there's another 8% marked as "redevelopment," which is ending.  The school district will end up with about 3/9ths of that money.

When redevelopment is wrapped up, the school district will therefore receive ~34% of each property tax dollar.

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So how much money is at issue with a particular project?  Well, consider, for a moment, The Lodge At Sonoma. It's a good example, because the development is unitary -- it's on one piece of land for tax purposes -- and because its development was relatively recent (opening in 2000, IIRC).

The land that the Lodge sits on is valued at $7.2 million for property tax purposes, and the improvements (the structures) are valued at ~$19.2 million.  The total assessment is thus $26,387,300.   Knowing that the effective tax rate for the parcel is 1.108800%, we just multiply those two numbers and get $292,582.38 per year.  The official "bill" is $381,108.52, but that includes non-property tax water charges, among other things.

City of Sonoma GIS, APN 128-261-009
"The Lodge at Sonoma"
1325 Broadway, Sonoma CA
available at http://tinyurl.com/nxfz9rk  

So how much does the school district get? You'd think $91,987.90 if you just applied the rules I posted above. You'd be completely incorrect, but at least you'd have followed instructions properly.

The reason you'd be wrong is due to redevelopment.  As Bob Klose reported in the Press Democrat on June 14, 1998, the Lodge was built in part with money from the City of Sonoma's Redevelopment Agency. Thus, the entire increase in property tax went to the City of Sonoma.  The school district's share was limited to the assessed value of the parcel prior to the project.  I've looked at the records, and it looks like the assessed value of the parcel before the construction of the Lodge was $425,000.  The assessed value may have been higher than that due to some increase over time under Prop. 13, so call it $600,000 as an estimate.  The school district's share of the property tax collected is ~$2,091.64.

It is probably therefore unsurprising that people have rarely brought up the school district budget at planning commission meetings in the City of Sonoma.  But they probably should. Because were the Lodge to be built today, the school district would get approximately $100,000 each year.  That's equivalent to an Impact 100 donation every twelve months.

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A final point: because Preserving Sonoma is under discussion in town, I can certainly see how someone like Darius Anderson would try to use a post like this to his advantage. This post, though, is about more than the debate about any single project.  It's about a factor that's just not being weighed at all in the planning process in Sonoma. 

Because commercial development (and, increasingly, tourist-oriented development) is concentrated in the City of Sonoma, the impact on our schools of planning decisions in the long run is profound indeed. To paraphrase Serrano I, education is a unique influence on a child's development as a citizen and her or his participation in political and community life. The pivotal position of education to success in American society and its essential role in opening up to the individual the central experiences of our culture lend it an importance that is undeniable -- education is the lifeline of both the individual and society. Failing to consider education in the planning process is a disservice not least to our students, but to our entire Valley.