Wednesday, December 22, 2021

"How the Hell Can You Stand to Live in San Francisco?" Part 7

Click here to read the original Cautious Optimism Facebook post with comments

7 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff concludes his series on how to survive in the People’s Republic of San Francisco. Although there’s no shortage of small nuisances to discuss like militant bicyclists, road-blocking protests, and overall crazy people we’ll wrap it up with the BART transit system and San Francisco’s (now) $16.32-per-hour minimum wage.

BART

As we discussed in the last column, San Francisco’s Muni bus system is a subpar, filthy, prohibitively expensive public transportation system that has bled red ink for decades and is forecast to lose billions in coming years.

Well the Bay Area Rapid Transit system (BART)—an elevated rail and subway system—is Muni’s equally dysfunctional twin brother. The only difference is it extends outside of San Francisco throughout most of the Bay Area.

Once again let's just establish from the beginning that I have a car and a garage, and unlike many bedroom community commuters I live in San Francisco itself and have little need to take BART. So although I've seen many of the shambles you'll soon read about, I don't have to cope with them on any regular basis.

BART loses hundreds of millions of dollars each year. In FY2019 BART’s operating expenses were $922 million on ticket and parking revenues of $561 million, the $361 million hole being filled by the hapless taxpayer.

Its unionized janitors routinely make close to $100,000 (one janitor made $276,000 in a single year and was caught by the local TV news sleeping for hours on end in a storage closet)…

https://abc7news.com/bart-janitor-overtime-pay-makes-276k/1584858/

…its managers are famous for $300,000+ salaries, BART police lieutenants—unpleasant as their jobs can be sometimes—routinely make over $250,000, and nearly all BART employees are notoriously apathetic, rude, and treat customers as a nuisance.

But what concerns riders even more is that BART trains and stations are filthy.

Investigators have found all kinds of nasty bacteria linked to human feces on its seats as well as used syringes.

From KTVU News via Yahoo!:

“tests of the seats on BART revealed fecal and skin borne bacteria that were also resistant to antibiotics.”

https://news.yahoo.com/news/blogs/san-francisco/biologists-drug-resistant-bacteria-bart-seats-144248198.html

BART stations have famously been filmed with drug addicts lining the hallways with needles in their arms.

https://www.youtube.com/watch?v=5gT5NULvRSk

Moreover, in 2012 a major downtown BART station’s escalators were temporarily shut down when they stopped working. Mechanics discovered the escalator machinery underneath the steps had been jammed up by months of dried human feces. 

Evidently the homeless found moving escalators a convenient place to relieve themselves and liked that the teeth at the bottom of the escalator ground up their feces, acting as a sort of a makeshift “flush.”

https://www.sfgate.com/bayarea/article/Human-waste-shuts-down-BART-escalators-3735981.php

And what does this all mean for BART fares?

They’re irrationally expensive. A BART fare is usually higher than the gasoline + wear and tear cost of driving a car from any one point on the network to any other point. Add to that either the BART fee for parking a car at their suburban stations or add another passenger to your car and the BART cost premium really goes up.

There’s something wrong with a “mass transit” system that costs far more to ride than simply driving a car to the same destination.

However BART still holds one advantage due to outrageous bridge tolls that keep cars artificially uncompetitive. And for those riders simply commuting into downtown San Francisco the market phenomenon of very expensive parking still makes BART a cheaper proposition.

GOVERNMENT VS MARKET

San Francisco is hardly the only large, coastal blue city with overpriced and lousy rail service, but a contrasting system in a better-run large city is illustrative.

Using a comparative example of short-distance city core travel, a one-way BART single-use ticket from San Francisco’s Embarcadero station to the Civic Center costs $2.10. That’s three stops down and 1.2 miles away.

Now your Economics Correspondent has been to Hong Kong many times, and his uncle actually leased out much of the heavy equipment used to dig its MTR underground rail line during the 1970’s. 

Today an MTR ride from Hong Kong’s own “embarcadero” station at Tsim Sha Tsui in Kowloon to Mong Kok station is also three stations down albeit a little further distance: 1.4 miles.

The cost? 65 U.S. cents, a 70% discount to BART.

Now I can already hear the objections: “Hong Kong has a great deal more ridership so it can afford to charge less.”

That’s true. But more ridership is also a function of lower fares. If fares are driven sky-high by inefficiency and insane labor costs as they are with BART, demand declines and rider traffic falls. If fares and costs are lowered to rational levels, more people buy tickets.

Ridership is also a function of cleanliness. Unlike BART Hong Kong’s MTR is clean and has very frequent service and in-car video monitors. 

Hong Kong MTR trains report 99.9% on time ratings, quarter after quarter. This includes before the PRC exerted greater control over the city in 2019 (ie. the numbers can be trusted).

https://www.brunswickgroup.com/mtr-i6540/

Unlike BART MTR underground stations have glass barrier doors to prevent riders from falling onto the tracks, and also unlike BART its cars’ climate control systems work reliably.

MTR stations are also drug-addict free, syringe-free, trash-free, feces and urine-free, and full of great lease-revenue generating shops like 7-Elevens, bakeries, florists, drugstores, gift shops, and small restaurants.

https://upload.wikimedia.org/wikipedia/commons/6/67/HK_%E8%8D%83%E7%81%A3%E7%AB%99_Tsuen_Wan_MTR_Station_concourse_shops_Mrs_Fields_Cookies_Jan_2017_Lnv2.jpg

In the Hong Kong “suburbs” MTR stations are more like mini-shopping malls.

In fact, the MTR system is a dynamic economic model that also involves building new high rise housing and shopping complexes close to subway stations. But that would be impossible in San Francisco since, as we’ve already discussed in Part 2, Bay Area city governments have banned most new housing construction for decades.

And the best part is unlike BART, Hong Kong’s MTR doesn't need taxpayer subsidies. It’s privately operated by MTR Corporation, a for-profit company listed on the Hong Kong Stock Exchange.

The Hong Kong government used to wholly own MTR Corporation at its beginning, but in 2000 it was partially privatized via IPO. The government still owns a majority stake but is generally a passive shareholder, allowing the system to operate as a for-profit enterprise.

And profits it makes. Typically over $1 billion USD a year ($1.5 billion net income in 2019), a great deal of which is channeled to the Hong Kong government as majority shareholder, and which helps keep Hong Kong’s overall tax rates low.

Imagine that. $2.10 for a three stop ticket on San Francisco BART and the system still drains hundreds of millions of dollars a year from the taxpayer. 65 cents on MTR and profitable enough to give the taxpayer a break.

In the Economics Correspondent’s opinion, MTR’s private, for-profit status is what makes it a success—run by businessmen trying to appeal to consumer preferences, not left-wing bureaucrats appealing to government union workers and their own pensions.

Here’s a two-minute video with images of MTR and an explanation of its innovative model (that will never be tried in California).

https://www.youtube.com/watch?v=jan-cC-meaw

THE MINIMUM WAGE

And here we wrap it up with, believe it or not, the one crazy San Francisco government policy that has impacted me more than any of the others listed in all seven of the columns I’ve written on this subject: the minimum wage.

In late 2014 San Francisco government, envious that Seattle had beat them to the punch passing a $15 minimum wage, placed Proposition J on the ballot. If passed by the voters, minimum wage would increase on July 1, 2015 from $10.74 to $12.25.

On July 1st, 2016 it would increase to $13.

On July 1st, 2017 to $14.

On July 1st, 2018 to $15

Beyond 2018 it would increase every year “based on inflation.”

San Francisco voters approved the measure by a 77.43% to 22.57% margin. And today San Francisco’s minimum wage is $16.32 per hour.

As one might expect, this harmed many retail businesses and the most visible aspect was restaurant closures. Each year’s July wage increase was followed by a round of restaurant employee firings, reduction of hours, or more commonly shuttering of the businesses entirely.

Many restaurants that I personally patronized closed down. I remember two in particular that were late-night destinations for me, usually 24-hour operations. One summer after the wage hike they would reduce their hours to closing at midnight and open 24 hours on weekends only. The next summer they would reduce their hours to closing at midnight every night. The next summer they would close at 10PM every night. And finally a year later they would close their doors entirely.

There was also a local Panera Bread whose prices went up like clockwork every July. Within two years the front lobby had eight new electronic kiosks and no one working cashiers unless you called for help.

The next year no one even advised you your order was ready. You just watched a computer screen for your number to come up and walked to the kitchen window to find your plate waiting for you.

And a year later the restaurant was shuttered and gone. The commercial space remains empty today as do many others that once housed popular restaurants.

Of course all along local Fight for $15 proponents staunchly denied raising the minimum wage would result in layoffs or restaurant failures. But it became hard to deny when in 2018 and 2019 the local San Francisco Chronicle reported on a “shocking” number of restaurant closures, “including restaurants that served their communities for decades, in many cases.”

As the minimum wage continued to rise relentlessly even into 2019 the Chronicle reported on 400 closures in that year alone and even cited minimum wage as a major reason.

https://www.sfgate.com/food/article/411-restaurant-closures-San-Francisco-Jardiniere-14928007.php

To which the local Fight for $15 proponents changed their tune from “It won’t close any restaurants and won’t harm workers” to “Well if your business model is based on exploitation then you deserve to be shut down.”

Sympathy for the workers sure disappeared quickly, displaced by activists' belief that they have the unilateral right to destroy any business they feel isn’t paying workers enough, even if the restaurant and the worker have mutually agreed to accept the wage.

Well as a late-night diner the reduction of hours and disappearance of restaurants has had a greater negative impact on me personally than any of the other lousy San Francisco policies: more than skyrocketing home prices and apartment rents, more than homelessness, more than power blackouts, more than high gas prices, bridge tolls, my taxes that haven’t yet gone up, shoplifting, or anti-Trump protests.

And I’m sure those restaurant workers and restaurant owners who have been deprived of their livelihood feel the same way.

Friday, December 17, 2021

Note to Cable News: Inflation Is Not Caused By Economic Growth

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2 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff just heard more talking heads on cable TV reporting that the Fed will taper and raise interest rates into 2022 to “slow the economy, you know… to fight inflation.”

It can’t be repeated enough to these television experts that... 

Economic growth does *not* cause inflation. Printing money faster than the economy can produce new goods and services does.

History is replete with examples that television reporters should learn.

In the six years of the Reagan administration following the Volcker Fed recession of 1981-1982, the economy measured by real GDP grew by an annual rate of 4.75% per year, the fastest expansion of the last half-century. Yet the average inflation rate during Reagan's same last six years was 3.6%, never once reached 5%, and certainly never reached today's 6.8%.

The same is true for the 1950’s and 1960’s economic boom. At no point during the Eisenhower, Kennedy, and Johnson terms—16 years in all—did the inflation rate ever reach 5%. In fact from February 1952 to April of 1968—more than 16 years—inflation never even touched 4%.

Lastly let’s go back to the 1850’s, 1870’s and 1880’s, arguably the greatest decades of economic growth in American history:

1850's GDP growth: +65.5% or +5.17% per year for a decade

1870's GDP growth: +70.8% or +5.50% per year for a decade

1880's GDP growth: +66.7% or +5.24% per year for a decade

The inflation rates for the same three decades were:

1850’s average inflation rate: +0.8%

1870’s average inflation rate: -2.7%

1880’s average inflation rate: -0.7% 

Yes you’re reading that right. During the 1870’s and 1880’s, again arguably the two strongest economic decades ever, there was no inflation at all. Prices actually fell (ie. deflation).

The reason is simple: under the bimetallic standard (1850’s) and classical gold standard (1870’s and 1880’s) the mining of new gold and silver deposits was unable to keep pace with the growth of new goods and services produced by the zero-income tax, very-lightly regulated economy.

In fact the only reason prices didn’t fall in the 1850’s as well was faster monetary growth attributed to the California Gold Rush.

We're also told by television reporters and the New York Times that falling prices will trigger another Great Depression, and that even zero inflation or "too-low inflation" will throw the economy into a depression tailspin. Instead we got the two greatest decades of economic growth in American history. 

Once again history proves what Milton Friedman famously stated correct (and what TV reporters still haven’t learned):

“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

For a more detailed critique of the “growth causes inflation” fallacy see the Economics Correspondent’s July 2020 column at:

http://www.cautiouseconomics.com/2020/07/inflation-currencies05.html

Inflation rate sources:

1980-1989:

https://fred.stlouisfed.org/graph/?g=JZp3

1950’s and 1960’s:

https://fred.stlouisfed.org/graph/?g=JZoX

Pre-Fed era:

https://westegg.com/inflation/

Tuesday, December 14, 2021

How the Hell Hell Can You Stand to Live in San Francisco? Part 6

Click here to read the original Cautious Optimism Facebook post with comments 

7 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff’s penultimate column on San Francisco screwups and how to survive them focuses this time on its lousy public bus system with plenty of supporting URL links.

As CO has reported in the past, San Francisco’s bus system and the Bay Area’s BART commuter rail are giant, moneylosing albatrosses.

Now before I describe how bad these transit systems are, let’s first establish that I have a car and a garage which allows me to avoid setting foot inside San Francisco's crummy buses and railcars—one more bullet I've dodged that makes living here easier.

RIDING MUNI

When I first moved to San Francisco I tried to be a na├»vely good steward and use the “Muni” bus. That lasted all of two or three rides before I gave up, now using it only rarely.

My very first ride on Muni (ie. "hazing') went like this: 

Even though I live in a really nice area and was riding the “1 Line” through other nice neighborhoods, I still found myself sitting next to a crazy guy mumbling to himself while in the seat across from me another passenger was reading a book titled “Murdered by Capitalism.”

On another ride the driver hit the brakes and a passenger’s wine bottle rolled down the aisle, crashing into the floor air vent spilling wine everywhere. Muni rules dictated the bus couldn’t operate anymore so we all got to wait outside on a chilly night for the next bus to come around 30 minutes later.

One ride I took downtown to pick up my car I was forced to listen to a crazy and/or drunk guy screaming about American imperialism in Spanish. It was nonstop “ch*nga Nicaragua!” and “ch*nga Vietnam!” and “ch*nga Iraq!”

Finally another passenger screamed “Hey, shut the f*ck up!” and the drunk/crazy guy went completely nuts screaming back. I thought a fight was going to break out, but there were too many passengers separating the two belligerents and eventually the crazy guy got off. I could still hear him screaming his politics on the sidewalk as the bus pulled away.

A friend of mine rode Muni in the winter and when the driver turned on the heat a colony of roaches came pouring out of the vents, scampering all over the floor and under the seats.

And on one ride a live chicken got loose from its Chinese owner and ran all around the bus with feathers flying everywhere. OK a friend of mine was on that ride, not me, but she told me all about it.

You get the idea. Muni is famous among locals for mentally unstable passengers and uncleanliness.

Adding to the unpleasantness is most Muni buses stop literally at every other block, making trips agonizingly slow. It takes over half an hour to travel the three miles from my apartment to downtown, not including time walking to your stop and waiting for a bus to arrive. The trip takes 10 minutes in a car.

If you have to make a connection to another bus to get to your destination the wait can be insane. Years ago Muni fares had already become so expensive and discouraged so much ridership that the city was forced to cut frequency. So you often spend more time waiting for a bus than sitting on one.

I once took a ride to a destination less than three miles away which required one connection. From the time I arrived at my first pickup point to the time I was finally dropped off at my destination one hour passed—30 minutes of it waiting for my connecting line. 

I could literally have walked the three miles faster.

FARES AND COSTS

Muni fares are outrageously high. Just traveling three miles to the downtown Union Square area is $3. If you wait more than 90 minutes to take a bus back home it’s another $3.

Just the gasoline required to drive a car's single occupant six miles roundtrip only costs $1 to $1.50. Throw a second passenger in the car and it’s still $1 to $1.50, but the Muni fare goes from $6 round trip to $12.

How does $3 to ride a bus in this tiny 47 square mile city measure up? Browsing online I’ve found the bus fare in deep blue Los Angeles, which at 502 square miles is over ten times larger, is $1.75. Even in liberal Austin, Texas (272 square miles) the fare is $1.25.

Unsurprisingly the reason lies with Muni’s costs which, like everything else done by San Francisco government, are also outrageously high—not just in terms of compensation but also union work rules that force management to hire more workers and operators than it should have to.

So even with such high fares Muni still bleeds red ink every year which we’ll look at more closely in just a moment.

Muni workers are government employees represented by the Transportation Workers Union (TWU) of America, and truancy is rampant. The city estimated in 2016 that every Monday and Friday an average of 15% of scheduled workers simply called in sick. The cost of absenteeism to the taxpayer in 2014 alone was $42 million on a 2014 budget of $840 million (>5%).

https://sfist.com/2016/12/28/muni_drivers_cough_sick/

In a particularly egregious example, on the first Friday of May 2009 22% of Muni’s 1,600 drivers and operators were unavailable, most calling in sick.

https://www.nbcbayarea.com/news/local/no-driver-on-muni-must-be-monday-or-friday/1851006/

Just a reminder that May is not part of flu season.

And Muni management has to employ that many more drivers to cover for the ones they know aren't going to show up for work.

According to website comparably.com the median Muni bus driver makes $79,617 a year with the middle 57% of drivers earning between $71,153 and $137,810 and the top paid driver making $272,000.

https://www.comparably.com/salaries/salaries-for-muni-bus-driver-in-san-francisco-ca

Furthermore every time the Muni union's contract is up for renewal the city grants generous raises.

But in early 2010 things were supposed to be different.

While the rest of America was sweating through the most painful phase of the Great Recession and millions of Americans were losing their jobs, then-mayor Gavin Newsom announced he was engaged in “tough negotiations” with the Muni union over their new contract. A few days later he promised a historic new agreement that would look out for the interests of the riders and taxpayers and “end business as we know it.”

When the terms were announced, Newsom had granted the drivers a 10% raise for the next year. The contract also restricted Muni management from hiring additional drivers for peak periods, management was severely limited in its ability to discipline bad driver behavior, and overtime was paid to drivers based on vacation and sick days, not actual hours worked.

Yes, a driver could call in sick Monday, then work ten hours each day Tuesday through Friday for a total 40-hour workweek, and still get paid forty hours plus another eight hours overtime, a 30% raise for the same hours worked.

That makes the Monday/Friday truancy problem a little easier to understand.

https://www.sfgate.com/opinion/editorials/article/Muni-work-rules-A-long-ride-to-reform-3250310.php

Finally the contract guaranteed Muni workers would remain at least the second highest compensated bus operators in the USA. That requirement has been a cornerstone of Muni worker contracts for a long time.

In return, the city was granted the “historic concession” of some additional flexibility in scheduling part-time drivers.

BUDGET DEFICITS ETERNAL

To understand Muni’s budget, let’s quickly establish that it’s a part of the larger SFMTA (San Francisco Metropolitan Transportation Authority) that also includes parking enforcement, bicycle infrastructure, and street planning.

SFMTA's main revenue sources are bus fares, parking meters and fines, and the city’s general fund which is effectively a taxpayer subsidy.

In 2017 bus fare revenue was $206 million, parking fees and fines $329 million, and $293 million came from the city’s taxpayer general fund.

Yet even before the pandemic SFMTA’s annual deficit was over $100 million a year on a budget of about $1 billion, and post-pandemic the agency is forecast to produce an accumulated deficit of $36 billion over the next thirty years.

https://www.sfchronicle.com/bayarea/article/Even-without-the-pandemic-Muni-faces-a-deep-15923137.php

Yes, you read that right: $36 billion with a "B." 

Even I don't understand how on earth an agency running $100 million annual deficits can rack up a $36 billion shortfall in thirty years. Even if one adds the $300 million city taxpayer subsidy to the deficit it still doesn’t come close.

Three decades of future expected inflation could explain some of it but not enough. So lacking more information I’m inclined to finger impending pension costs. It’s no secret that California government pensions are insanely generous and that a giant statewide $1 trillion underfunded pension tsunami is just around the corner.

https://www.forbes.com/sites/ikebrannon/2021/02/28/californias-pension-woes-are-made-worse-by-moving-emergency-services-in-house/

But not to worry, according to the San Francisco Chronicle SFMTA received $370 million from the first CARES Acts which I’m sure Nancy Pelosi had nothing to do with. The Biden administration awarded SFMTA another $288 million in 2021 and commitments to future bailouts raise SFMTA’s take to more than $1 billion through 2022.

https://www.sfexaminer.com/news/sfmta-received-1-billion-in-federal-stimulus-why-are-some-buses-and-trains-not-running/

So back to lousy, overpriced Muni service. Combined with the purposely inadequate taxi licenses issued by city government, is it any wonder that Uber and Lyft were wild overnight successes the moment they arrived in San Francisco? White collar professionals with daily downtown commutes were particularly fast defectors.

The arrival of Uber and Lyft precipitated an acceleration of Muni's ridership decline, widening its operating losses, and the Muni union and many city officials sought to hobble Uber and Lyft’s ability to compete.

The solution? Slap a city tax on Uber and Lyft rides and redistribute the money to Muni to prop up its failed model.

https://www.sfchronicle.com/bayarea/article/New-SF-tax-on-Uber-and-Lyft-will-fund-drivers-for-14864815.php

Just as Ronald Reagan said many decades ago: “Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

====

PHOTOS

Note: Facebook only allows a single preview photo per post, but here are links to some Hall of Fame pictures taken by Muni riders themselves.

1) Caption: “No privacy, no sinks, no tp!!!”

https://s3-media0.fl.yelpcdn.com/bphoto/8jDOb9bGV72j3nzpqDu7Yg/o.jpg

2) Caption: “Smell cleared out the entire midsection of the bus”

https://s3-media0.fl.yelpcdn.com/bphoto/p5elheVrsZHs5HCSyl56Fg/o.jpg

3) Caption: “Usual sort of rider”

https://f12.cf.brightcove.com/3142682442001/3142682442001_4329516246001_4329504214001.mp4

4-7)

https://s3-media0.fl.yelpcdn.com/bphoto/okxRoYrpoPv7vdYkXUgNjA/o.jpg

https://s3-media0.fl.yelpcdn.com/bphoto/BucJWB4VVcS9genEoWqo1w/o.jpg

https://s3-media0.fl.yelpcdn.com/bphoto/Vz_EbZizUW2GeuAnr5U4Uw/o.jpg

https://s3-media0.fl.yelpcdn.com/bphoto/8ND_6UqBM-o5aStARqDnaw/o.jpg

ASU's Jonathan Barth on Inflation: "It's the Fed, Stupid"

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Jonathan Barth

The Cautious Optimism Correspondent for Economic Affairs and other Egghead Stuff usually likes to do the writing and the typing, but Jonathon Barth of Arizona State University did such a great job summarizing the primary culprit behind America's recent price inflation that I'll let his article do the talking this time.

Read " It's the Fed, Stupid" at...

https://www.americanthinker.com/articles/2021/12/when_it_comes_to_inflation_its_the_fed_stupid.html

BTW Barth has an entire Youtube video series on his "History of Money" college course that would take dozens of hours to finish. View at...

https://www.youtube.com/c/ProfessorBarth/videos

Great work on both fronts Dr. Barth!

Tuesday, December 7, 2021

How the Hell Can You Stand to Live in San Francisco? Part 5

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7 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff submits another entry from his series on surviving San Francisco’s epic screwups. The first of today’s subjects is electric power blackouts and rates. The second, rising bridge tolls, might not sound very interesting until you read exactly why they've skyrocketed.

POWER BLACKOUTS

As CO has previously reported California suffers from wildfires in part because most of California is naturally a very hot and dry place in the summer, because environmentalists prevent prudent forest management, because its utilities are forced by Sacramento regulators to divert billions of dollars from maintenance budgets into expensive green energy initiatives, and because it has psychotic left-wing academics who run around committing arson in the wild (see URL).

https://www.cbsnews.com/news/gary-maynard-college-professor-charged-arson-near-dixie-fire/

California cities and states have since sued utilities like PG&E into bankruptcy who in turn switches the power off during hot and windy days to protect itself from even more liability.

https://www.theverge.com/2019/10/10/20908434/california-blackouts-utilities-fires-lawsuits-san-francisco-bay-area-pge-pacific-gas-electric

Which makes tough sledding for senior citizens living in Modesto when their air conditioning goes out on a 105 degree day, or an ice cream shop owner in California’s Central Valley whose electricity gets cut off in the summer.

But your Economics Correspondent has so far been immune from both fires and blackouts because he lives in the city of San Francisco itself. 

Being surrounded on three sides by cold Pacific Ocean water summer temperatures in the city are typically 60 to 65 degrees while San Jose, just 40 miles away, bakes in the triple digits.

Summer is also the foggiest season in the city. Constant waves of fog from the Pacific keep the vegetation watered and green. In fact, if I’m out for dinner on a foggy night I deliberately avoid parking under tree overhangs because they drip so much condensed moisture on my car. It’s also not unusual to use intermittent wipers when driving through San Francisco on a foggy summer day.

San Francisco’s vegetation remains green all year round while grassy hills even just a few miles away in Tiburon are parched yellow eight months out of the year.

HIGH ELECTRICITY RATES

Yes, all of California’s green energy initiatives have produced one of the highest kilowatt-hour rates in the nation at $19.90 (Nov 2021: only lower than Alaska, Hawaii, Connecticut, and Massachusetts).

It's also unlikely to get better if San Francisco city government gets their way: they want to nationalize PG&E’s power lines and operate the grid themselves.

https://www.sfchronicle.com/bayarea/article/San-Francisco-asks-state-PUC-to-name-a-price-for-16343431.php

However once again I’m spared high power bills by living in the city itself. The surrounding waters make for mild temperatures all year round and San Franciscans generally don’t need to consume a lot of power. My typical monthly power bill outside of winter is $50. During winter it might rise to $90 with the use of electric space heaters when the timed gas radiators aren’t running.

One piece of trivia many people don’t know is that most residences in San Francisco have no air conditioning. Aside from the fact that many of the buildings are quite old, the truth is they don’t need it. The cold Pacific Ocean regulates temperatures and keeps them moderate.

I’d say there are probably seven or eight days out of the year that I wish I had air conditioning, and living on the top floor I’ve got it worse as anyone who has gone up to their attic on a hot summer day can attest to.

But for those who live in the 80%+ of the Bay Area that does heat up in the summer, power bills can be murderous.

THOSE RISING BRIDGE TOLLS?

The San Francisco Bay Area’s bridge tolls have skyrocketed since I moved here. In 2004 the toll for two-axle vehicles on the Oakland Bay Bridge into San Francisco was $2. Today it’s $6 and goes to $7 on January 1st (up 250%)

In 2004 the car toll on the Golden Gate Bridge was $4. Today’s it’s $8.60 and increases to $8.80 next July (up 120%).

Yet the bonds for the original construction of the Oakland Bay and Golden Gate bridges were paid off in 1955 and 1971 respectively, and the remaining maintenance costs don’t come anywhere close to the near $250 million in annual toll revenue collected by the Bay Bridge and $150 million by the Golden Gate.

So what’s caused the huge toll increases?

Answer: the disaster that was the Oakland Bay Bridge new east span construction project.

During the 1989 Loma Prieta earthquake a section of the cantilever design east span’s top roadway collapsed onto the bottom section, killing a driver. Engineers analyzed the damage and concluded that in the event of another 1906 Great Quake, which is estimated to have released 30 times more energy than the Loma Prieta quake, the entire span would collapse into San Francisco Bay. 

Engineers also reported that the west span connecting Yerba Buena Island with San Francisco, being of more resilient suspension design, could withstand another 1906 Great Quake with seismic retrofitting instead of replacement.

But everyone agreed a new east span must be built. The cost estimate was $250 million.

However the project was delayed by nearly 15 years due to political infighting over issues such as:

-The most aesthetic design to use

-What color to paint the span

-What political leader’s name the span should bear

-The question of bicycle lanes on the span

-The question of a BART rail line on both the new east span and the old west span

-An environmental impact study on the water beneath (a huge holdup)

-Arguments about building over a small patch of water that technically belonged to the U.S. naval base on Treasure Island

By 1998 the cost estimate had risen to $1.4 billion, a 460% overrun.

Finally in 2004, fifteen years after the initial disaster, construction began. 

With all the delays, higher financing costs, and higher materials costs due to increased demand from China, the project ran out of money one year later. 

Bay Area officials asked Governor Arnold Schwarzenegger to fund the cost overruns from the state’s general fund. He turned down the request, blaming them for the delays, and refused to force all California taxpayers to fill the gap for what had become such an expensive project.

Schwarzenegger did offer to help on the condition that Bay Area officials abandon their glorious but costly suspension design and settle for a cheaper “highway on stilts” viaduct. Local politicians balked in turn, the Bay Area Metropolitan Transportation Commission director slamming Schwarzenegger’s proposal as “an aesthetic Chernobyl” (never mind the aesthetic Chernobyl that is the San Francisco Tenderloin District's sidewalks—evidently that looks just beautiful).

Then Bay Area officials asked Caltrans to hike tolls all over the Los Angeles area to raise the money. L.A. commuters were incensed, arguing the Bay Bridge fiasco was a Bay Area screwup and they refused to pay.

Finally a compromise was worked out for a single suspension tower design combined with a “highway on stilts” and would be paid for with huge Bay Area bridge toll hikes for decades to come.

A decade later when the new east span was opened, nearly a quarter century after the earthquake that prompted its construction, the cost had reached $6.5 billion, more than twenty-five times the original estimate.

https://www.bloomberg.com/news/articles/2015-10-13/how-the-cost-of-remaking-the-san-francisco-bay-bridge-soared-to-6-5-billion

And even after all the cost and schedule overruns, officials made a last-minute discovery right before opening: large bolts that provided a key seismic support were defective and already cracking from “hydrogen embrittlement,” the product of incorrect specifications, manufacturing defects, and the moist sea air. The highway had already been paved over the bolts—which are anywhere from seven to nineteen feet long—so it took a lot of additional investigation and money to determine a fix.

https://sfist.com/2015/06/24/bay_bridge_bolts_show_more_ominous/

Nevertheless Caltrans argued the new span, even with defective seismic bolts, was safer than the old one which was promptly torn down. Locals joked that officials were in a hurry to disassemble the old 1936 cantilever span fearing that if a strong earthquake struck the new span would collapse into the Bay while the old one held up. 

With the bolt problem finally addressed years later, the total cost of the east span plus demolition of the old cantilever span exceeded $6.5 billion.

And all for a “span” which is actually just half a bridge.

For comparison purposes, the Golden Gate Bridge was constructed in the 1930’s within four years under far more difficult engineering conditions at a cost of $35 million or $570 million in 2014 dollars.

Granted the Golden Gate Bridge wasn’t built to be as seismically stable (officially, at least) as the new Bay Bridge east span, but does seismic soundness really cost 11.4 times more than the entire Golden Gate Bridge?

But that’s San Francisco for you. And that’s why tolls have gone up by triple digits over the last decade-plus.

Incidentally I have never read about the firing of a single high-ranking Caltrans or Metropolitan Transit Commission official over the debacle. But I guarantee you if the east span project was for-profit and conducted by a private corporation San Francisco voters and commuters would be demanding arrests, show trials, executions, and burnings at the stake.

Oh, and how am I personally affected? 

Again, mostly not. Living in San Francisco itself I have little reason to drive over any of the bridges. I rarely have reason to drive over the Bay Bridge into Oakland. And driving south towards Los Angeles one can just head down the peninsula and use no bridges at all. 

But for daily commuters who are forced by high housing prices to live in the burbs it’s a huge cost. A commuter from Marin County using the Golden Gate Bridge on weekdays pays $180-$190 a month without an electronic tag (about $2,200 per year).

Of course one could just commute in using the BART rail system, only that BART doesn’t serve Marin County. Bridge officials have expressed concern that BART could cut into their toll revenues and Marin County's uberwealthy, progressive residents are lukewarm to the prospect of the lower classes gaining easy access to their exclusive neighborhoods. Plus BART is another huge albatross plagued by obscene cost overruns, so if you live outside the City and have to commute in then it becomes a matter of “pick your poison.”

Wednesday, December 1, 2021

How the Hell Can You Stand to Live in San Francisco? Part 4

Click here to read the original Cautious Optimism Facebook post with comments

6 MIN READ - The Cautious Optimism Correspondent for Economic Affairs and Other Egghead Stuff continues his mini-series detailing a hodgepodge of self-inflicted problems plaguing San Francisco and how he's been able to sidestep most of them living there. This time the two subjects are taxes and the more complex issue of gas prices—with plenty of supporting URL’s.

TAXES

OK, California has high taxes. When I moved here nearly 18 years ago the top income tax rate was 9.3% (of taxable income minus California deductions) for any marginal income over about $43,000. The marginal bracket has since been raised to $58,000 which still isn’t even middle class in San Francisco (ie. “the City”).

Then the 2009 Great Recession produced yet another state fiscal crisis. Then-governor Arnold Schwarzenegger accepted a “temporary” top income tax rate hike to 11.3% on higher incomes with Sacramento Democrats. Minority Republicans abandoned Schwarzenegger when he caved to more tax hikes telling him he was “on his own,” because we all know how long “temporary” tax hikes last.

Well Schwarzenegger and legislative Democrats were actually honest about that hike. The 11.3% rate technically was “temporary.” 

Because a few years later Governor Jerry Brown raised the top rate yet again… this time to 13.3% for incomes over $1 million where it sits permanently. Higher rates of 10.3%, 11.3%, and 12.3% exist for taxable incomes over $300,000, $360,000, and $600,000 respectively.

I don’t want to disclose my annual income but let’s just say once again I haven’t been impacted, at least not in the sense of having my taxes raised since I moved here. I still pay the same 9.3% rate as before, but a lot of richer people have seen their taxes skyrocket and moved out to Nevada, Florida, and Texas, taking their businesses, jobs, and tax revenue with them. California government has thus become increasingly dependent on a smaller and smaller number of wealthy taxpayers to finance a majority of its revenues… all while campaigning that “the rich don’t pay their fair share.”

And as my income has risen over the years I’ve plowed more and more into my 401k which is one of the few tax breaks the state still recognizes. Having a Health Savings Account also helps lower your income tax burden, except in three out of 50 states which, yes, includes California. Sacramento politicians claim they want to help working families, especially to afford healthcare, but they’ve made California one of those just three states—alongside New Jersey and Alabama—that prohibits a tax deduction for HSA contributions.

GAS PRICES

Yes, California has the highest gas prices in the 48 continental states. But before I touch on how it got that way I’ll just establish that I’m pretty immune from that one too—yet another reason I can stay here.

San Francisco is a very small city (7 miles by 7 miles) and everything I need is typically very close. I also work from a home office or fly to clients with company paid Uber rides to the airport so there’s no daily commute.

In a typical year I put 4,000 miles on my car and that includes an annual vacation drive down to Los Angeles and/or San Diego which contributes to 1,000 of those miles.

So gasoline can go up to $10 a gallon and I really don’t notice. One more reason I’m not driven out of San Francisco.

However millions and millions of Californians have been home-priced way out into the suburbs and forced to commute two, three, or even four hours round trip to work every day. For them, gas prices are a killer, especially now that regular gas is well over $4 a gallon and premium over $5.

So why is California so bad?

The first reason—and the easiest to grasp—is California has the highest gas taxes in the USA. About 61 cents per gallon for gasoline and 87 cents for diesel (neither includes the additional 18.4 cents federal gas tax, click on map).

When oil and gasoline prices were low during the Trump years, the Sacramento legislature quietly snuck in more gas taxes when the public wouldn’t notice and the law raises the tax year after year (California gas taxes rose yet another 5 cents in July of 2021).

Well now California motorists are upset about gas prices that are closing in on old records, but the local news is blaming higher crude oil prices.

Wrong.

Crude oil was hovering around $80 a barrel two weeks ago, but during the 2011-2014 period crude oil regularly traded in the $100-$110 range and gas prices were almost the same. Clearly something other than crude oil is contributing to near-record gas prices in 2021. All the new taxes that have been added in the last decade are a big part of it.

Another inflationary California policy is gasoline blend mandates. California regulations require several unique gasoline blends that are deemed more environmentally friendly, but the law goes even further. Gasoline that is refined outside California, even if it meets all the formulaic requirements, cannot be sold in California.

So the California market is an “island” separated off from the rest of the country. I know what you’re thinking: If only its voters were the same, right?

Furthermore, there are only a few refineries in the state and regulators haven’t allowed a new refinery to be constructed in over forty years.

So the supply of gasoline is artificially constrained by law with no out-of-state shock-absorbing capacity, and every time a refinery has an outage for maintenance or an accident and takes capacity offline, the supply blip sends prices soaring even further.

In the rest of the 48 United States a single refinery outage isn't as big a problem. Refined gasoline can flow in effortlessly from other states, most easily over pipelines, and the effect of the refinery supply shock is so spread across the country that it’s barely noticed.

Not in California.

Next, California is famous for capricious changes in gasoline mandates that drive up costs for refiners.

In 1989 the California Air Resources Board (CARB) mandated refiners must formulate their gasoline with oxygenators like methyl tertiary butyl ether (MTBE) or ethanol. The refiners objected, arguing that retrofitting their operations would cost billions of dollars that would be passed on to consumers, that the oxygenators reduced fuel mileage which would partially cancel out pollution gains, that oxygenators tore up car engines faster, and that MTBE in particular was a carcinogen (which CARB strongly denied).

http://www.cnn.com/TECH/science/9812/15/camtbe.enn/index.html

https://www.latimes.com/archives/la-xpm-1997-dec-03-mn-60158-story.html

Nevertheless California refiners were ordered to add the chemicals, driving up the cost of gasoline.

Ten years later gas station tanks in Santa Monica were found leaking fuel into local groundwater and CARB quickly reversed course, ordering refiners to stop putting MTBE in their gasoline. The City of Santa Monica sued several energy companies for (paraphrasing) “allowing a known carcinogen to contaminate the local groundwater,” despite the fact that refiners fought the oxygenator mandate to begin with. 

CARB and state politicians also lambasted refiners for putting such a dangerous substance in their gasoline with zero mention that it was CARB and state politicians that pushed the mandate in the first place.

Ultimately several refiners settled a class action suit with governments primarily in California and New York for $423 million.

https://propertyid.com/article/view/257/mtbe-contamination-lands-423-million-settleme

Then CARB ordered California refiners to put ethanol in their gasoline leading to more refinery refitting costing billions more dollars.

You get the idea. These costs were all ultimately borne by California motorists at the gas pump.

Finally, put all these factors together and you can get a full blown crisis such as in 2012.

When a major refinery outage caused yet another surge in California gas prices, Senator Dianne Feinstein decided to grandstand and threatened an investigation into price gouging:

https://www.feinstein.senate.gov/public/index.cfm/press-releases?ID=d5f32f54-4bec-490e-a350-f68797cef1d7

Refineries and gas stations, fearful of becoming targets of the political crackdown, chose to avoid controversy by voluntarily limiting their price increases. And as we all know price ceilings, whether mandated or adopted “voluntarily” by suppliers fearing retribution, produce shortages. So California gas stations began running dry creating a full blown supply crisis.

https://www.usatoday.com/story/driveon/2012/10/04/los-angeles-california-gas-shortages-5-gas/1613369/

Out-of-state refiners offered to relieve the shortage with their own “winter blend” gasoline, but by law they couldn’t help.

Finally after several weeks of mass disruption with commuters and businesses that relied on ground transport then-Governor Jerry Brown signed an emergency provision allowing winter-blend fuels to be imported from outside California.

https://www.latimes.com/business/la-xpm-2012-oct-07-la-fi-mo-gov-brown-gas-prices-20121007-story.html

The shortage crisis ended almost immediately, but the entire affair serves as Exhibit A of how California regulations not only produce the highest gas prices in America, but intermittent severe energy squeezes as well.

In the next chapter we’ll talk about Bay Area power blackouts, electricity power rates, and those skyrocketing bridge tolls.