Local

July 05, 2008

Dam Single Points of Failure

By Fester:

Pittsburgh is a massive port.  The rivers provide a cheap, convienent, high volume highway for the transhipment of industrial goods and raw materials, most notably coal.  That coal is used for power generation to supply power both locally and to the mid-Atlantic seaboard, and as an intermediate good in the production steel.  However the river system is full of numerous single points of failures that could have very large repurcussions on both the region and the nation as Forbes reports on the state of the region's navigation system:

Should the Emsworth dam fail, it would isolate river activity around Pittsburgh, Crall said. Public utilities, industry, ecosystems and water supply would be harmed. Nearly 12,000 jobs would at risk...

Without the river transportation system, U.S. Steel would require either 160 railroad cars or 700 trucks a day, instead of 10 barges, to serve its Clairton Coke plant, said Lisa Roudabush, general manager for United States Steel Corp.'s Mon Valley Works.

A few weeks ago, I was looking at the question of best practice dissemination and I am still scratching my head as to whyDiesel_prices there is not more guerrilla warfare on water.  Some of that is because naval guerrilla warfare is called piracy in most cases, but I think this is an area of luck that we can not count on over the long term. River shipping is prone to single points of failures which in my eyes means attacks on river navigation systems should be high return on investment attacks as the substitution transportation methods are very costly.

For instance, a single barge requires seventy trucks to substitute for its capacity if the barges were stranded.  Paul Krugman posts this convienent chart of the fuel costs of diesel today.  Shifting to trucks instead of transport massively cuts down on profit margins, increases the opportunities for smuggling while also decreasing connectivity and existing elite/governing legitimacy.

These single points of failure are numerous and by their very nature, fairly brittle.  I wonder why similiar structures have not been attacked in Nigeria or Russia where there are significant navigable waterways and insurgent/terrorist groups.  Chechynan guerrillas have demonstrated a capacity for systemic infrastructure attacks in Russia, and MEND in Nigeria has developped its skill sets in taking down oil infrastructure to the point that it is capable of operating in the littoral and near-deep sea areas.  Why not the riverine system as the substitutes to it are expensive, and lacking in capacity to fully shift the load from a failure. 


(h/t to Chris Briem for a post that got this thought rolling for me)

June 30, 2008

Pittsburgh Financial Implosion??

By Fester

Chris Briem at NullSpace is getting into the weeds of the new Hockey Arena's financing and notes that there could be a couple of very large problems on the horizon.  The arena has the potential of straitjacketing the City of Pittsburgh AND Allegheny County due to the bond statement's seniority arrangements AND the weak condition of the Don Barden and PITG finances.

The Pittsburgh Post Gazette has been reporting that the final financing for the casino is still not coming together:

"A combination of anxiety and curiosity has built in recent weeks surrounding Don Barden's efforts to secure $780 million in financing for the Majestic Star casino, and it could come to a head at the construction site Monday. The team of more than 20 companies erecting the North Shore casino has not been paid on time for work done in either April or May, according to the primary contractor. They agreed on one extension already at a June 16 meeting with Mr. Barden. They meet with him again on Monday, and will decide collectively what action to take if he cannot provide payment of about $10 million that is owed, said Dan Keating III, chairman of Philadelphia-based Keating Building Corp., the primary contractor."

Barden and PITG have had trouble getting financing as they have swapped principal backers and have found raising capital in the crunched credit markets much tougher than they anticipatead a few years ago.  This could have some massive regional financial impacts if the casino is either not built at all, OR if it is significantly delayed or downsized. So let's get into the weeds with Chris by reading the bond statement and working through some of the implications. The bond statement is here SEA_arenabond_2007.pdf and we'll start with Chris's analysis:

The core financing in the form of $7.5 annually is indeed slated to come from him, but he isn't really involved in building it. So who does bear the risk of the arena project.

One answer is the Sports and Exhibition Authority (SEA) because THEY ALREADY BORROWED THE MONEY. That raises lots of questions. If the Barden money stream does not start flowing in as expected, what happens? ....

the revenue backing the project are not limited to the revenues specifically tied to the arena, to include the Barden payments, rent or other sources.. but all the SEA revenue. At least that is my reading. So before these bonds could default to bond insurers it seems the holders have claims against most SEA revenue.

WARNING --- SOME SERIOUSLY NERDY FINANCIAL WONKERY AND SPECULATION AHEAD --- Read at your own risk to your mental health.... 

Rad_revenues_06_30_08 The Sports and Exhibition Authority currently is paying off the bonds for most of the major destination projects in the city center right now.  These include the two new stadiums, Heinz Field and PNC Park, and the Convention Center.  The Convention Center is a money losing proposition at this time that is consistently blowing a hole in the current Sports and Exhibition Authority budget.  It already drew upon the Regional Asset District's general fund of the 1% county sales tax to cover its 2007 operating deficit.  The SEA is drawing upon a wide variety of general revenues to pay its pre-existing bond obligations. 

So you can see there are significant revenue streams for the SEA from the county sales tax, hotel tax and dedicated parking taxes.  Those revenues are already assigned to pre-existing debt obligations, but I am a bit worried when I read the bond security summary from page 6 of the statement:

The Bonds are payable from, and are secured solely by, certain payments and other revenues to be received by the Authority including: (a) Special Revenues; (b) Swap Receipts; (c) Commonwealth Lease Payments under the Commonwealth Lease (each as hereinafter defined); and (d) other moneys pledged to or held by the Trustee under the Indenture for such purposes.

THE BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM THE TRUST ESTATE PLEDGED UNDER THE INDENTURE. THE BONDS ARE NOT OBLIGATIONS OF THE COMMONWEALTH OF PENNSYLVANIA OTHER THAN THE COMMONWEALTH’S OBLIGATION TO MAKE ANY ANNUAL LEASE PAYMENTS TO THE AUTHORITY UNDER THE COMMONWEALTH LEASE.... THE FULL FAITH AND CREDIT OF THE COMMONWEALTH IS NOT PLEDGED FOR THE PAYMENT OF THE BONDS. NEITHER THE CREDIT NOR THE TAXING POWER OF THE CITY OF PITTSBURGH, THE COUNTY OF ALLEGHENY, OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED FOR THE PAYMENT OF THE BONDS......

What are the special revenues?  From page 27 of the entire statement and page 17 of the counted pages:

“Special Revenues” include certain rental payments expected to be received by the Authority
pursuant to the Arena Lease (its sublease of the Arena to the Arena Operator), payments it expects to receive from the entity which receives a license to operate a slot machine casino in the City (the "Casino Operator"), and payments it expects to receive from the Economic Development and Tourism Fund (“Economic Development & Tourism Fund”), a fund established pursuant to Act 71 of 2004 of the Commonwealth (4 Pa. C.S.A. §1407) ("Act 71").

In English, the special revenues are the arena lease payments, and two streams of casino revenue.  The arena lease payments are paid by the arena operator and collected from the users and tenants of the arena, including he Penguins.  The two slot streams are a $7,500,000 annual payment pledged by Don Barden and PITG, the slot license holder, and another $7,500,000 from the state of Pennsylvania.  The state money is from a bond issue backed by casino revenue.

And here is the genesis of a potential financial implosion.  The arena's financing is dependent upon the casino being built and rapidly generating revenues. The arena is already being built in anticipation of the casino running on time and on budget.  The vast majority of the SEA's ability to repay is tied to the casino.  however the casino looks like it will not be completed on time due to financing problems and more importantly, it will be completed when disposable incomes are shrinking.  Ooahhhh Shit....

Despite the bond statement limited the SEA's responsibility to only the dedicated special revenues, interest rate swaps, lease payments and insurance payments, this bond structure could turn itself into an implicit moral bond structure. 

The county and the city have authorized the SEA to perform some local government functions, including agreements to place golden handcuffs on the city amusement tax, and have allowed the SEA to borrow off the books.  If this debt is placed on the books, neither entity can handle the additional debt load strain.  Furthermore, the SEA has current claims on varying amounts of local revenue, including payments from RAD that are dedicated to rehabbing the current Mellon Arena and are due to terminate in the near future.  Local entities are counting on additional RAD funding becoming available.  IF the SEA or the city/county decide that the implied cost to their credit ratings are too high to use insurance, that RAD revenue will be eaten up and could also displace other currently funded projects.

This right now is a low probability event but as the troubles with PITG continue, combined with a slowing economy, the probability of an implosion increases.

June 25, 2008

Red Guy In A Blue State

By Ron Beasley

Smithtvnot Here in Oregon we have Republican Senator Gordon Smith.  Now most of the time Smith is a wingnut - he voted with Bush and the Republicans 98% of the time.  But every six years he attempts a temporary color change.  This election cycle is no different.  After the Democrat's win in 2006 he suddenly found that he opposed the occupation of Iraq after supporting it for four years.  He is John McCain's campaign manager in Oregon.  A couple of weeks ago he started running an ad with to Democrats who said they support him and one of those is a black state legislator.  Ben Smith reports that he is now trying to associate himself with Obama.

A fairly stunning new ad from Oregon's Republican senator Gordon Smith leaves little doubt as to which way the wind is blowing there.

In the ad, Smith, running hard away from Bush, associates himself at length and explicitly with Obama.

"Who says Gordon Smith helped lead the fight for better gas mileage and a cleaner environment?" the female narrator asks. "Barack Obama."

The ad shows Obama's face and an image of his website.

"I approve working together across party lines and this ad," Smith closes.

Obama is having no part of it however:

Barack Obama has a long record of bipartisan accomplishment and we appreciate that it is respected by his Democratic and Republican colleagues in the Senate. But in this race, Oregonians should know that Barack Obama supports Jeff Merkley for Senate. Merkley will help Obama bring about the fundamental change we need in Washington.

Jeff Merkley will have a tough time beating Smith even this year.  Very conservative Smith is a political slim ball with a lot of money and the support of Oregon's largest Newspaper which is constantly trying to pass him off as a moderate.  If you have any spare change Merkley would be a good investment.

More on Smith and Iraq can be found here and his history of dirty politics and history with The Oregonian here.

June 12, 2008

McCain, Hallucinations and Allegheny County

By Fester:

Watching the John McCain strategy briefing for victory is painful.  It sounds like a senior class project where the student has a predetermined result in mind and is trying to be agile enough to get the right arguments into place even if they don't make sense.  The one thing that lept out at me was the following map from Ohio and Pennsylvania ( about 8:13 in).  I have modified the map a little bit by adding a couple of geographic pointers:

Mccain_pa

In 2000, Allegheny County was about 6% more Democratic than the nation as a whole, and in 2004, Allegheny County was about 9% more Democratic than the nation as a whole.  And yet this map is projecting that it will flip to McCain, or at least it is implicitly arguing that due to the color schema.  This is not the only type of flip that the McCain camp is projecting.  Erie County is about 4% more Democratic than the nation as a whole, and it is projected to flip.  Beaver and Washington counties were even splits.  The only SW Pa county that went overwhelmingly for Bush and has a significant population was Westmoreland.  Allegheny County floods out the region due to its population and mobilization rates.  A lot of trees and coal mines are in the probable McCain counties, but not a lot of voters.

Ouch, this is just a painful distortion of reality that the McCain campaign wants to persuade its supporters that they can see an effective ten point swing in their favor compared to Bush in Allegheny County.  Their best hope is keeping the margin close but that is an unlikely hope.  Sad....   

June 06, 2008

Rising Fuel Costs and the Arctic

By BJ

While the Arctic may be the place most affected by climate change, at least so far, it is also one of the areas most dependent on fossil fuels for its survival. Not only are they necessary for transportation in and out of the communities, but fuel oil is most commonly used for heating houses, and significantly, diesel generators are the major source of power generation. As summer approaches and the bulk fuel supplies are being lined up, the very high cost of all that fuel is causing more than a few people great concern, and the region's governments considerable budgetary headaches.

Village electric utilities in rural Alaska, panicked over the sky-high cost of fuel arriving on the summer's first barges, are appealing to the state for help.

The fuel bill for the Alaska Village Electric Cooperative, which serves 53 small villages in the west of the state, is leaping from $14 million last year to $26 million. That cost will be reflected in electricity rate increases that some villagers cannot afford, said Meera Kohler, the co-op's president.

In the village of Eek, for example, residents are looking at electric bills increasing another one-third to one-half. Eek, near the mouth of the Kuskokwim River, has an average household income of only $17,500, according to the federal census. Many families already have a hard time paying electric bills that run to $300 a month, said city clerk Fritz Petluska.

. . .

And that was the price of electricity when they were burning last winter's diesel. Now that the season's first fuel barge has unloaded, the price of diesel just jumped $3 to $7.50 a gallon, Sweetsir said.

The article discusses several new subsidy proposals being bandied about in addition to the current ones already in place. Alaska currently has the good fortune of being an oil producer that can pour that income into such subsidies. In any case, the debate is one I recognize from the other side of continent.

The Nunavut government is preparing for a much higher fuel bill this year, just as the annual fuel resupply is set to begin this summer.

Finance officials estimate the government will spend $70 million to $85 million more on fuel this year than last, Finance Minister Louis Tapardjuk told MLAs in the legislative assembly Friday.

That increase alone is nearly as much as the government's entire capital budget for this year.

The good news about all of this is that it is finally bringing people around to the idea of using the rather abundant winds to generate power locally and more economically, not to mention the whole environmentally-friendly part.

It's long been the Canadian Arctic's dirty little secret: Most of its remote communities are powered solely by diesel.

But with soaring oil prices and growing concerns about climate change, the Northwest Territories is considering a renewable energy solution that could one day see wind farms sprouting in the Far North.

"Our Arctic coast villages are on the front lines of climate change and seeing the effects on a daily basis," explained Wade Carpenter, the territorial government's alternative-energy specialist. "Wind can help us reduce our dependency on diesel and it fits in well with the Inuvialuit principles of using the land."

There is of course, still some resistance to the idea thanks to the uneven history of such projects.

However, the idea of wind energy has blown through the Canadian Arctic before, with disastrous results.

Yukon is the only territory left with a handful of active wind turbines. Those that were set up as pilot projects by NWT, prior to the creation of Nunavut, in the 1980s and 1990s have all either fallen down, broken down or have been dismantled.

. . .

"Doing anything in the Arctic is more expensive and challenging," he said, adding that trained staff is hard to find and equipment wears out a lot quicker because of the cold and harsh climate.

"The Arctic is incredibly hard on machines. If something has a design life of 20 years, in the Arctic that would be two or three," he explained.

He said when those costs and challenges, such as maintenance and atmospheric issues, began to pile up, the industry and federal government lost interest in the North and concentrated its efforts in provinces such as Alberta and Ontario.

The technology for wind generation has improved significantly since the last attempt, and with ever rising oil prices, the cost-benefit relationship is swinging towards alternatives at an ever-increasing rate. (Though as a note, if trained staff is hard to find to maintain windmills, why would anyone seriously consider nuclear reactors? I do think nuclear power plants will be a necessity in the near future, but they should be limited to places where they can be assured of qualified people to run them.)

It is not just the extreme north that is pushing this idea, but the extreme south as well, with New Zealand and Belgium looking to at least partially power their stations in Antarctica using wind, (the Belgians completely so).

Both seem to be following in the footsteps of the Australians, who started putting wind turbines up at their Mawson station in 2001/02. They have a very neat page where you can see real-time data on their power system. The station is also looking at further means of reducing fuel use, including using excess wind power to generate hydrogen to use for transportation and power generation when the wind itself isn't enough.

Of course, tiny, isolated outposts in Antarctica are a far cry from most places, but they are excellent test beds, as are small, isolated communities in the Arctic. It is far easier to transform the infrastructure of a single community than of an entire inter-connected continent. If we are ever to move to a hydrogen economy, such places make for perfect laboratories. (Though whether or not hydrogen or more purely electric technology wins out in the end, or more likely winds up sharing the stage, is actually far less relevant than where the energy itself is coming from.)

On a larger scale, Iceland is working to prove they can run their nation without fossil fuels, mainly since they don't have any and don't like the idea of being dependent on others for their energy needs. Their example of using locally available means for meeting their energy needs is one we should all be paying very close attention to, since it is likely that we will be forced down that path ourselves in the very near future.

June 04, 2008

Hold and Clear in D.C.

By Fester:

Large scale sweeps have always worked so damn well when they are advertised in advance and take place in areas where the local population has conflicting primary and secondary loyalties towards the sweeping force. Isolating urban communities, denying them interactions and connectivity with other districts and squeezing local economies will be the result of large sweeps and haphazard clear and hold operations.  These results are not the best way to win friends and influence people who are persuadable to move in multiple directions within the social sphere.  We'll see if lessons learned in hundreds of different places will be relearned in D.C. as the city police will be conducting large sweeps and urban isolation efforts in several neighborhoods this summer:

The program will authorize the Metropolitan Police Department to set up public safety checks to help safeguard community members and create safer neighborhoods in the District by increasing police presence aimed at deterring crime....

Potential Neighborhood Safety Zones must be approved by the Chief of Police, and will be in effect for a maximum of 10 days. Public safety checks will be established along the main thoroughfares of the established neighborhoods. Anyone driving into a designated area may be asked to show valid identification with a home address in that neighborhood, or to provide an explanation for entering the NSZ, such as attending church, a doctor’s appointment or visiting friends or relatives. Pedestrians will not be subject to the public safety checks.

I can understand wanting to do something to decrease crime, but checkpoints are not a particularly efficient way of gaining useful intelligence, creating positive personal presence or embedding oneself into the local social milleau.  Instead embedding local cops and integrating into the local social mileau and connecting opportunities and prospects to neighborhoods has a much higher probability of reducing crime.  But those strategies, especially if backed up by good training, data, and multi-system service integration take time while roving roadblocks and hassling classes of people are visible and are evidence that something is being done even if it is ineffective. 

 

June 02, 2008

Fun with Bus Funds

By Fester:

USA Today is reporting that mass transit ridership is at record levels and initial near real time reports indicate continued gains in ridership:

More people are riding the nation's buses and trains, breaking records for the first quarter of the year. Transit operators expect the increase to be greater in the second quarter as gasoline prices soar.

A report set for release today by the American Public Transportation Association (APTA) shows trips on public transit January-March rose 3% over the same period last year to 2.6 billion rides. Light rails saw the biggest jump: 10% to 110 million trips.

Early figures for April show ridership going even higher as gas hovers near $4 a gallon, says APTA president William Millar.

However there is a problem that will be emerging and that is financing increased services.  Most if not all mass transit agencies receive local, state and federal capital and operational subsidies.  This is not unusual as all transit modes receive some type of public subsidy.  However mass transit is seen as a weaker client with a strong claim than the automobile claim which is a stronger political client with a weaker claim on the merits.  Weak clients produce weak support. And given weak state and local budgets as revenues shrink and claims increase in a pro-cyclical pattern, public transit is often one of the first areas cut after social services.   

Chris Briem at NullSpace looks at how this cycle has impacted the Pittsburgh region as our local mass transit agency, PAT, has already engaged in several signifcant reductions in services to balance its books over the past few years:

This all reminds me of the Port Authority route cuts last year. Now as gas prices are hitting $4/gallon, people are actually thinking about switching their mode of commuting. How many folks that might have switched to a bus last year can't now because their route was eliminated. The cuts were concentrated in the longer and, in the past, less used routes to the suburbs. Yet, those were the routes that really served the marginal transit riders which are most likely to switch to riding the bus as gas prices go up.....

So to cure (or is that partially cure?) the Port Authority's short term budget woes, the cuts implemented were precisely the routes that could be enticing new riders out of their cars and onto public transit right now. Maybe the Port Authority should be thinking about putting back some of those routes? But no, while most parts of the country is at least thinking of how to leverage public transit to deal with current energy costs, the only debate that is going here is over the drink tax....

The routes with high ridership are on the whole already in place as they have the strongest claim to continued service on cost-efficency and effectiveness grounds.  It is the more marginal routes that can actually benefit from a change in the bus v. ride cost benefit analysis that are at the most risk of being cut-back as states seek to save an expensive dollar.  And this story is played out in advance in Pittsburgh but it will continue to play out across the country as there is a demand, service and resource mismatch.

May 14, 2008

Pennylsvania political rumblings

By Fester:

In the past few days, I've been listening to a couple of interesting grape vines which may have been aided by a bottle of excellent Merlot and the grapes are talking about outside group mobilization and targeting efforts by non-coordinating with campaign actors.  And it is sounding very interesting.

One liberal leaning group is looking to expand the probable Democratic voter pool by approximately 7% to 8% between May 1 and the general election.  This is on top of the current expansion of approximately the same size that the Obama and Clinton campaigns drove in during the primary campaign.  The plan is to flush the cities and find every last eligible but not registered potential voter. 

Another group is looking to add another 3% to the Dem voter pool by targeting younger and single women.  They are also primarily looking to flush the urban areas. 

Both groups, and several others are hurting for political talent.  Right now they are being staffed up by survivors of the Edwards campaign and independent non-coordinated groups' institutional organizing capacity.  Dislodging either Clinton or Obama staffers or volunteer supporters from locally developed networks has been tough at this time as there is a good deal of buy-in and faith that both campaigns will need their respective talents come July.  I think that the talent drought will not have significant impact if it is resolved in the next month or so.  After that, we could see SW Pa 2008 look like SW PA for Kerry --- a disorganized fiasco when the national campaign parachuted in without a clue. 

The other worry that I have is that I have not heard too much about expanding outreach and mobilization efforts outside of the Democratic base areas.  I think the external groups can increase the Dem voter pool by roughly 10% to 12% and the total voter pool by 6% to 7% but under what I am hearing, the voter pools will not significantly increase coattails. 

May 13, 2008

MBIA and Vallejo

By Fester:

One of my hobbyhorses has been beating the drum on potential downside exposure the City of Pittsburgh has on its current debt due to its dependence on monoline insurers guaranteeing their debt.  The city has roughly twice its annual budget in general obligation debt and a mediocre at best credit rating.  It has been able to access the credit markets by buying a high rating from MBIA, FGIC, CIFG, Ambac or a few other municipal bond insurers.  These insurers guarantee the payment of principal and interest of Pittsburgh's bonds for a fee smaller than the added interest expense of offering bonds at a B rating instead of an AAA rating.

The problem has been that the monoline insurers got greedy and stupid at the same time.  They had a great business model of insuring very low risk municipal bonds and clearing a large net profit but they expanded into insuring and guaranteeing mortgage and other asset backed collateral debt obligations.  These guarantees have blown up in their faces as their modeling never assumed housing prices could decrease.  WHOOPSIE is the technical term for that type of mistake. 

The largest insurer is MBIA and it has not been having a good week (via Calculated Risk).  First we find out that the company has lost another $2.4 billion dollars this quarter.  Most of those losses come from further pay-outs on mortgage backed securities.  This is the area that we expect to see failures as the housing crunch is crushing bonds.  However there is a bit more bad news --- MBIA is on the hook for $50 million dollars in Vallejo, California bonds.  This is important because Vallejo is looking to declare Chapter 9 bankruptcy.  Vallejo is not the only municipality considering that option; Jefferson County, Alabama is experiencing a massive liquidity crunch as their play on interest rate swaps failed miserably.  Pittsburgh considered bankruptcy before going into Act 47 quasi-bankruptcy. 

And right now these communities in trouble are ones with significant structural problems.  However as Mish noted at Global Economic Analysis, another wave of trouble is coming for stressed local government coffers --- reassessments based on declines in real and nominal property values instead of historically normal increases in local real estate values:

Yes, foreclosure sales do set the market if there are enough of them. Guess what? There are more than enough of them and whole neighborhoods are being repriced by market forces. Sadly, assessors have not figured this out. Even worse are cities counting on that tax revenue, spending like there's no tomorrow....

Tax assessors need to throw away the book. One out of line sale does not set a market but scores of them do. Entire neighborhoods have been repriced and it is a huge mistake to ignore distressed sales when distressed sales are the norm....

A taxpayer revolt and city budget crises are coming in mass. Is any city in the country prepared for it?

Pittsburgh and most of Pennsylvania should be able to ride through this problem due to the prevelance of the 'base year' system of non-assessment but most communities attempt to assess properties on a regular basis.  When assessments occur base values will decline.  All else being equal the same tax rate on a smaller base will result in less tax revenue.  However municipal expenses are only somewhat elastic (pension, debt and basic government costs are in the short run fixed costs) and most municipalities are prevented from running deficits so either severe cuts will be made or tax rates will significantly increase.  More likely a combination of moderate cuts and moderate rate increases will occur. 

Once these fights occur the other and traditionally very profitable segment of the monoline business model will be under significant pressure.  The incentive to default on local government debt can be strong if the political pressure means no changes in tax rates or decreases in tax rates to deal with the pain of lost income and lost equity and no decreases in public services.  Given that the voting age population is much older than the tax paying population, shifting the costs to the future is a rational choice in some communities.  If this begins to occur, another leg of the credit crunch will commence.   

May 02, 2008

Sales tax slowdowns

By Fester:

Via Calculated Risk is the first wave of some bad news for municipal and state government finance junkies.  Revenues are coming in below expectations which will necessitate pro-cyclical adjustments to state budgets when counter-cyclical changes (increases in spending) are the appropriate Keynesian response.

From the Rockefeller Institute of Government: Sales Tax Collections Decline in Most States, Rockefeller Institute Survey Finds

State sales tax revenues delivered the weakest performance in six years during the first quarter of 2008, while growth in overall state tax revenues continued to deteriorate, according to preliminary data in a new report by the Rockefeller Institute of Government.

With 36 of the 45 states that collect sales tax reporting, revenue from sales taxes declined both nationwide and in 21 states during January to March 2008, compared to the same period a year earlier. Southeastern states were hit the hardest: nine of the 21 states reporting sales tax declines were in that region. When adjusted for inflation, sales tax revenues declined in at least 27 states. For the states reporting so far, the overall level of sales tax collections fell slightly – the first time such revenues have not grown in six years.

The recent GDP report is showing slow growth in consumer spending, so on first blush, one would think that sales tax growth would be positive although slow.  However there are a couple of interesting things in the GDP report.  The first is that the purchases of tangible goods decreased over the last quarter, and that a good deal of the growth in goods and services purchased were from imputed/calculated transactions such as the cash value of the rent owners pay themselves to live in their house.  Secondly, the areas that saw significant growth were energy and health care.

States don't/can't tax imputed gains in value until they are realized by either a mark to model system such as property tax re-assessment or a mark to market system.  Furthermore, most states do not tax food, clothing, health care and energy at all or at the same rate as other goods.  We have seen significant price increases in food, health care and energy but since these are protected goods from the sales tax, there is no revenue growth there.  Instead since there is a general income stagnation or decline, the budget constraints of most consumers and the pricing profile of goods means people are shifting their consumption from taxable goods and services to non-taxable goods and services. 

April 24, 2008

What's the local value of Rendell?

By Fester:

One of the races that I was interested in on Tuesday night was the Democratic primary in PA-18.  PA-18 is a district to the south and east of Pittsburgh and it is currently represented by Republican Rep. Tim Murphy.  I did some work in this district in 2006 and it may become my white whale as I am convinced that a solid Democratic campaign that fuses grassroots activism, a clear and contrasting message and strong support from establishment centers of Democratic power could give Murphy one hell of a contest and win the seat.  I thought Beth Hafer was the best shot in this cycle of being that candidate and campaign, but I was wrong, she lost the nomination in a close and relatively genial election battle with Steve O'Donnell.

One thing that is interesting to me at least is the relative power differential between Gov. Rendell and the local Allegheny County Democratic machines.  On the presidential level these two groups were working in effective concert and delivered the county to Clinton by 28,000 votes.  However in PA-18, these groups split.  Gov. Rendell sent a personal check to Beth Hafer's campaign while the Allegheny County Democratic Committee endorsed Steve O'Donnell.  And O'Donnell's best county was Allegheny County.  So what exactly is the local vote moving value of Governor Rendell's support out in Western Pennsylvania?  Is his support only valuable out in the southeast portion of the state?

April 17, 2008

Pennsylvania GOTV Observations

By Fester:

My wife and I live in Pennsylvania and on Tuesday our household will contribute a net margin of zero votes for Obama or Clinton.  My wife re-registered from unaffiliated to the Democratic Party in order to vote in this primary.  She fits a couple of favorable demographic and consumer profile groupings for each campaign.  I'm either a Democratic supervoter now or I am two elections (this primary and general) short of having eight consecutive elections where I picked up a ballot. 

GOTV is focusedn on ensuring your supervoters make it to the polls with techniques such as a door hanger and a call to make sure that grandma, who has voted in forty seven straight elections, has a ride to the polls, or in getting the least attached and most marginal votes out to the polls.  This is the much harder and more intensive work as three to eight pre-election contacts are needed to reliably move a freshly registered voter from a low probability of voting to a high probability of voting.  People who usually vote with the I aoccassional lapse are not pushed as hard as momentum will deliver a campaign's fair share to the polls. 

As a supervoter and a newly registered potential swing voter lives in this household, I would have (naively) predicted that we would have been bombarded with mobilization and motivation messages over the past six weeks.  Instead we have received almost nothing besides the Allegheny County Democratic Party endorsed candidate door hanger and my first GOTV identification call from a union affiliated with the Clinton campaign.  They were trying to assess where I stood and if I was a persuadable for Clinton.   At this point I am a 1 (sure thing) for Obama, so we had a pleasant conversation for a minute or two, and he went on down his list.  Tough work, but the guy was doing a good job with a weak script. 

I am just surprised that we have not seen more GOTV activity in my neighborhood as it should be a swing area (Creative Class gentrifiers and young families, older blue collar ethnic whites, and a growing African American population within 500 yards of my front door) in a delegate rich area that CQ magazines predicts as a 4:3 Obama delegate win.  If Clinton can scratch out a 50%+1 win or Obama pushing towards 64.5% of the vote for a 5:2 split that has major implications for the statewide delegate split. 

Right now all of the GOTV activity that is visible or rumbling loudly on the grapevine is the more traditional flush the best precincts out and don't worry about the rest.  This is traditional Democratic GOTV techniques and technology but it is step back from some of the microtargetting of Democratic voters in highly Republican precincts that we engaged in 2006.  Those techniques took a significant time and money investment before the pay-off was worthwhile, but they worked as they helped push Jason Altmire into Congress and a couple of Dem. state reps back to Harrisburg.  So I am hoping that the national coordinated campaign for the summer re-engages in those and improved versions of those techniques while the current flush the best and ignore the rest tactics are temporary field expedients. 

April 14, 2008

Clinton, Rendell and PA-18 coattails

By Fester:

The only really interesting local race in the greater Pittsburgh area is the race for the 18th Congressional District.  I did some work for a Democratic candidate (Tom Kovach) in the 2006 primary, and this is a tough but winnable district.  The incumbent, Tim Murphy (R-Upper St. Clair) has a mildly Republican leaning district, with a Democratic registration edge.  He holds on as he has not had a serious challenger in three cycles and also does a fairly good job of tap-dancing his affiliation with the Republican Party.  He has some personality issues and is tied tightly to Bush on foreign policy and Iraq.  He is vulnerable, but starts from a strong position.

The primary election is next week, and it is a three way Democratic race between Bethany Hafer, Stephan O'Donnell and James Wall.  Stephan O'Donnel is self-funding his campaign and has Allegheny County support from both the party and the Post-Gazette.  During the 2006 primary, Chad Kluko had this coalition wrapped up and it was how he eked out a narrow primary win despite getting wiped out in the outlying counties by Tom Kovach.  James Wall does not have a lot of money or support.  Bethany Hafer is trying to thread an interesting needle, and I think there is a decent chance that she can do it.

She is trying to keep O'Donnell's margins down in Allegheny County by tying into the liberal activist base and the upper income Democrats in Mount Lebanon, Upper St. Clair and Bethel Park while leveraging the Rendell machine to turn out her vote in Washington and Westmoreland Counties.  I think the contested Presidential primary will significantly aid her campaign.  PA-18 is a district that I project Hillary Clinton will win, and win fairly convincingly.  Hillary Clinton does best with older women, and there is a good chance that these voters will also vote for another woman for Congress.  Combine this with significant Rendell support, including a large personal donation this week, and she has a fairly potent combination of name recognition, decent fundraising, institutional support and demographic targets.  I have not seen any good polling out of this district, but I would not be surprised if Hafer wins it in a tight race. 

April 08, 2008

Pennsylvania in T-346 Hours

By Fester

Two weeks until I vote in a presidential primary that matters.  Actually I'll vote early in the morning as my polling place is the senior citizen center down the street  where they sell really good cookies and coffee which are gone by 7:15. I am overly motivated by bakery products. But what is the state of the Pennsylvania race and what can we expect? Right now we are seeing two very different polling pictures.

Pennslvania_polling_3

The first is Pennsylvania is voting its historical demographics as a Democratic but conservative Democratic state and supporting Hillary Clinton by about eight to ten points. She is winning big in the central part of the state, and other areas that are Republican base areas in the general election while keeping it close in Greater Pittsburgh and being blown out in Philadelphia. Obama has been closing, but will come up a couple of points short.  This is the story that I have been expecting.  It is also the story that Kyle at Comments from Left Field is somewhat expecting:

I think without any external influences, Obama is likely to pick up a couple more points on Hillary, but will still likely lose the state by a margin of three to five points.  This is, of course, assuming nothing happens, the aggregated trends are fairly accurate, and both candidates maintain their current trajectory.

Yes, because those three things happen all the time in politics.

The other story is that the race is fundamentally a tie as of sometime in the past week and momentum is moving heavily towards Obama.  The most pronounced poll in this regard was the Public Policy Polling result of a twenty eight point pro-Obama swing from mid-March.  The only significant and readily transparent difference in these two groups is the tie +/- MOE group of polls were conducted slightly later, on average (by about a day or two) than the polls showing Clinton with a significant but shrinking lead.  I don't remember seeing anything on April 1st or 2nd that would have driven that type of movement to Obama. [UPDATE: The Post-Gazette has a new Quinnipiac Poll with a Clinton margin of +6 versus the previous +9 with all net movement coming from undecideds going to Obama and this poll was in the field within the past couple of days, so timing could be the factor here]   

I am guessing that the difference in these two groups of polls are the turnout models.  I think the tighter the likely voter screen, the more likely the poll will show a decent size Clinton lead.  The one exception is Quinnipiac which is screening only for registered voters which is a much larger universe than any likely voter screen.  Interesting. 

Pennsylvania is seeing a massive influx of new Democratic registrations from non-registered and other registered voters (switches from unaffiliated and the GOP dominate this category)  and the question is where do new Democrats in areas such as Montgomery and Bucks County lean?  Right now the evidence suggests that Obama's campaign did a better job of registering their likely first time voters than the Clinton campaign although both campaigns did an excellent job overall.  The looser the likely voter screen with a higher probabiltiy that a newly registered Democrat will vote most likely favors Obama.  And will they vote in numbers proportionate to their strength?

So we are two weeks out, things are closing hard by almost all metrics, the airwaves are getting saturated (I was on the eliptical at the gym a couple of nights ago and on the six screens tuned to four channels, I saw at least eight Obama ads and three Clinton ads in my five miles), and the candidates are touring hard.  I'll still give Clinton a slight lean to win the primary, but I will no longer be shocked if it is too close to call until 4:00AM Wednesday. 

 

   

April 02, 2008

Outlier Poll in Pennsylvania?

By Fester

Earlier this week I gave my impression of how the Pennsylvania primary will play out, and I stand by it, although an event that I thought would happen in about fifteen days happened today:

The dynamic I expect in the state is for Obama to close and close hard, but to fall short by a couple of points at the end as he will have had to have closed a twenty point gap in six weeks.  I  think that the basic demographics in the state still favor Hillary Clinton but not by a whole lot..... I think we'll see most polls showing a tightening race with either Rasmussan or Zogby showing a surprising Obama lead at the end, and then a tight Clinton victory on election night.  The one or two outlier polls will be spun as Clinton beating expectations and staging a dramatic come-back....

Depending on how one wishes to measure, Hillary Clinton led Pennsylvania by fourteen to twenty points the day after Texas/Ohio.  I expect to see Obama close and recent polling has shown him closing by a net two to three points per week.  Given his ability to saturate the airwaves, and previous trend performance of significantly improving his polling share given more time in a state, this is expected.  However I was not expecting to see any poll showing him with a lead.  Well, I was wrong.  Public Policy Polling has come out with a poll showing Obama up by 2.  The poll was in the field this weekend and has a sampling margin of error of +/- 2.8%.

However I am having trouble buying this poll for multiple reasons. This is not jibing with other polling that was out in the field at the same time (Rasumussan had Clinton +5, Survey USA had Clinton +12) and it is not jibing with what I am seeing/hearing on the ground.  The other big thing that has struck out to me is the spread between this PPP poll and the previous PA PPP poll:

It’s a remarkable turn around from PPP’s last Pennsylvania poll, conducted two and a

half weeks ago, that showed Clinton with a 26 point lead in the state. That poll was

released at the height of the Jeremiah Wright controversy and the day before Obama’s

major speech on race in Philadelphia. Obama has been trending upward in national

polling and in many state level polls since then and this survey reflects that pattern.

A 28 point swing in two weeks is amazing and unbelievable  Hillary Clinton has not eaten the head of a three legged kitten on national television nor has Barack Obama begun sweating healing the sick with his uplifting rhetoric or horrendous bowling abilities.  I'll be voting for Obama in three weeks, I just don't believe these numbers as no one else is picking up that type of swing, and the type of events that could typically cause that type of swing have not occurred --- neither candidate is picking up prostitutes, barbecuing babies or snorting coke at a bestial bacchanal.   

April 01, 2008

2 New Pennsylvania Polls

By Fester

I have long expected the Pennsylvania race to become more competive as I assume that campaigns will have some impact, especially when the policy profiles of the competing candidates are not wildly divergent and thus not immediately polarizing. The dynamic I expect in the state is for Obama to close and close hard, but to fall short by a couple of points at the end as he will have had to have closed a twenty point gap in six weeks.  I  think that the basic demographics in the state still favor Hillary Clinton but not by a whole lot. 

The first notable area of change in the race has been the increased size of the Democratic electorate universe.  Democrats have added roughly 5% to their rolls since January 1, 2008. The campaigns have been targetting new voters in high propensity to support their respective candidates demographics and also encouraging re-registrations of unaffiliated voters and marginal Republicans.  I would believe that since both campaigns have very good contact information on these voters and these voters have already been motivated to take the political action of registering/converting, these voters will come out at a higher proportional rate than the rest of the Democratic primary electorate. 

And we are starting to see the Obama close in two polls.  First, the reliable Survey USA poll has Hillary Clinton up by 12 points as of this weekend.  The previous poll, conducted a month ago had her up by 19 points.  The demographic groups are starting to resort themselves along the lines we expect --- women still strong for Clinton, men starting to shift towards Obama, Obama consolidating his lead among the African American voters, especially in SE PA, and the age gaps that we have previously seen.

Rasmussan came out with a much tighter poll showing Clinton up by 5 [h/t Balloon Juice] Their trend has been Obama closing by a couple of points per week over the past month.  They have not had a good primary season, so I am discounting this poll a little bit.  It also is not jibing with what I am hearing on the ground in SW PA. I am hearing movemement towards Obama, but SW PA is still a generically pro-Clinton electorate. 

So what will we see --- I think we'll see most polls showing a tightening race with either Rasmussan or Zogby showing a surprising Obama lead at the end, and then a tight Clinton victory on election night.  The one or two outlier polls will be spun as Clinton beating expectations and staging a dramatic come-back and then onto Indiana and North Carolina.  I still feel very comfortable with my prediction of 52:46 for Clinton. 

March 28, 2008

Surprising Casey Endorsement

Senator Bob Casey endorsed Barrack Obama for President this morning and I am very surprised on a couple of fronts as I would have thought that he was a more natural fit for Hillary Clinton's base of support and agenda.  Casey is the ultimate Blue Collar Democrat and the 2006 field was cleared for him on the theory that he could do very well (for a Democrat) in the mountainous regions of the state which is the base Republican areas.  And he did that, but I still have the question of a counterfactual that any Democrat with a pulse and no necrophiliac tendencies could have done well in 2006 versus Santorum, but that is an argument for another day. 

Mike Tedesco of Comments from Left Field, who did a lot of work for Chuck Pennachio (I did some policy writing for Chuck, but Mike worked his tail off), Casey's much more liberal primary challenger in 2006,  has a great piece of analysis on the Casey endorsement and some history.

If you are a long time reader of Comments you will recall that Bob Casey played the role of DSCC insider in the 2006 Pennsylvania Senate primary to choose a Democratic candidate to unseat Rick Santorum He was pitted against an unknown insurgent liberal party outsider (and my candidate) Chuck Pennacchio. At the time the struggle I faced was in convincing my party-insider friends that Chuck was a viable candidate. Sadly, it was not to be mainly because of the huge support Casey received from the Pennsylvania Democratic party establishment in the form of Governor Ed Rendell, Senator Chuck Schumer and all the hundreds of committee people spread across the state who vote their loyalties.

Today, that same party establishment is now split with Schumer and Rendell riding on Clinton’s bandwagon and their golden boy, the man they called the future of the Democratic Party in Pennsylvania, Bob Casey coming out for Obama.

At minimum, this will allow some party insiders who may have wanted to support Obama but had no self-serving (self preserving) reason to do so in the form of party support to now take that leap of faith. It also says to to my old friends in PA, those folks that make up the PUMP Democrats, who are you going to support the old guard, or the new?

Casey's endorsement is a surprise and is very valuable to Obama because he can serve as a validator for conservative Democrats in the central part of the state that Obama is okay.  If Casey appears at Obama's side and says he is a going to be a good president willing to listen to conservative Democrats, this is a very credible and valuable validation.  It will not allow Obama to win central state congressional districts as Casey does not have much of an organization still on the ground, but it will help Obama keep the margins and thus the delegate counts close. 


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