Tuesday, January 30, 2007

Why are Costs Rising at the MTA? Is Collusion to Blame?

Industrial organization economists are some of our smartest, best trained researchers. Sometimes they focus on funny stuff such as yogurt, tuna fish or milk cartels. I'm wondering if today's New York Times offers a new target for these smart guys to focus on? With the Democrats taking over the House of Representatives, will we see a new set of big ticket urban infrastructure projects being funded? Will the lucky cities who receive these spending increases get quality services in return? Or, will your tax dollars leak out to high priced union labor and construction bosses? Is the Boston Big Dig a preview of the next round of "Mega-Projects"?
How can the public sector write incentive based performance standard contracts to increase the likelihood that taxpayers get their money's worth from these projects?

The Times here is a little bit naive in not digging deeper into why more companies aren't bidding on each contract. What is the "scarce" input here such that supply curves slope so steeply up? Could collusion be taking place such that the suppliers have a tacit agreement to not bid on each other's projects?

New York Times
January 31, 2007
Surging Costs Threaten New York Transit Projects

The Metropolitan Transportation Authority faces surging costs that could force it to eliminate or postpone badly needed projects less than halfway through a five-year, $21 billion program to expand and improve its transit system. By one estimate, the program is now $1.4 billion over budget.

Among the projects in that program are renovations to subway and commuter train stations, maintenance of antiquated signal systems, and the purchase of hundreds of buses and subway cars, and many of the projects may be affected, officials indicated.

Much of the problem has been caused by a rapid increase in the cost of construction in New York City, as a result of rising prices for materials and the large number of new projects, which gives contractors the leverage to charge more. In many cases, fewer companies are bidding on projects and offers are coming in much higher than expected.

Another problem is the weak dollar, which appears likely to raise the cost of a contract for subway cars with French and Japanese companies.

“There’s no question that there are serious financial issues confronting the M.T.A. with its current five-year capital program,” said Elliot G. Sander, who took over as executive director and chief executive of the authority this month. “We are particularly concerned about the increase that we are seeing in construction costs, and we have undertaken a comprehensive look at the issue.”

Mr. Sander said yesterday that it was “far too early” to predict whether the rising costs would affect fares.

The alarm was raised in December, when the president of New York City Transit, Lawrence G. Reuter, in a memo to senior staff members, warned of more than $1.4 billion in cost increases in the long-term spending plan and said rising costs were “seriously undermining our ability to proceed with major portions of our program.”

It is not the first time in the authority’s history that officials have warned about changing economic conditions leading to unfulfilled promises, but longtime watchers of the authority said the magnitude of the problem highlighted in Mr. Reuter’s memo was unsettling.

“That isn’t chipping away,” said Gene Russianoff, staff lawyer for the Straphangers Campaign, a group that advocates for the needs of transit riders. “That’s cleaving. It’s a huge hole.”

The five-year plan, known as the 2005-9 capital program, includes so-called mega projects, like the Second Avenue subway, a Long Island Rail Road link to Grand Central Terminal and an extension of the No. 7 subway line.

Mr. Russianoff said he was concerned that officials might push ahead with such high-profile undertakings while sacrificing some of the smaller projects needed to keep the transit system in good shape, like buying new subway and rail cars and making station repairs.

In his memo, Mr. Reuter said the cost increases put the transit agency’s basic goal of maintaining a state of good repair in the subway and bus system “in jeopardy” and could force it “to delay long overdue investments.”

Mr. Sander, however, said he would protect the system’s basic needs, calling them “the first priority of the M.T.A.”

Mr. Reuter’s memo dealt with the portion of the long-term spending program administered by New York City Transit, which runs the subways and buses. His agency accounts for more than half the authority’s overall capital program, with $11.2 billion in projects that involve things that riders see every day, like subway station renovations, and less visible matters, like track repair.

In his memo, Mr. Reuter warned that the agency’s estimate of cost increases could go much higher. Citing an inflation rate for large construction projects of 1 percent a month, he said that if that trend continued, “we stand to lose a full year or more of the current five-year program.” That could translate to cost increases of more than $2 billion.

Mr. Reuter, who is retiring next month after more than 10 years as head of New York City Transit, refused through a spokesman to be interviewed.

Officials at the authority said part of the problem they have encountered in recent months was that projects are attracting fewer bidders than they expected.

This is believed to be because some contractors already have all the work they can handle. But it may also be because the authority is in the process of seeking bids for the mega-projects, which are worth billions of dollars. Transit and industry officials say contractors may be refraining from bidding on smaller contracts because they hope to win at least part of a larger contract, perhaps as a subcontractor. Either way, when contracts attract fewer bidders, contractors feel less pressure to bid lower.

A prime example is a project for the renovation of a large subway car repair facility in Upper Manhattan, known as the 207th Street overhaul shop. Only one company bid, and its offer of $379 million was close to $100 million more than the cost estimated by transit officials. The bid was rejected and officials are considering whether to proceed.

The problems go well beyond subways and buses, however.

Tom Bach, the chief engineer for the authority’s bridges and tunnels division, said yesterday that it was “frightening” to open the bids in October from three established contractors for extensive work on the Cross Bay Veterans Memorial Bridge in Queens and find all the bids substantially over the estimate of about $55 million. The bids ranged from $74.9 million to $86.5 million.

As a result, the bids were set aside, and officials decided to split the project into two pieces. The authority will seek bids on one portion later this year and defer the rest of the work until after 2009. The Long Island Rail Road and Metro-North have also seen cost increases.

Mr. Bach said that his division had yet to award contracts for what had been estimated as $400 million worth of projects under the capital program, and that he now expected the work to cost $40 million more.

Mr. Sander said the authority would explore a number of ways to hold the spending plan together. That could include splitting more projects into smaller pieces in hopes of drawing more bidders into the process.

“We need to see if we can drive costs down,” Mr. Sander said. “We need to review the existing scope for these projects to make sure they’re not gold-plated, and we have to see if there are additional revenue sources to support any uncontrollable cost increases in these projects.”

With questions emerging over the long-term spending plan, Mr. Sander has assumed control of an authority that now appears to be facing a twofold financial quandary. The agency’s day-to-day operating budget — which is administered separately from the long-term financing — is expected to have a surplus this year, but projections call for large operating deficits beginning next year.

Glaeser on Urban Greeness

I am now convinced that the New York Times should rotate Paul Krugman and Ed Glaeser as weekly columnists. There are diminishing intellectual returns to allowing one columnist to have a monopoly on valuable real estate! If you need further proof of what we could learn if the Times allowed Glaeser to "rent" some of its space then please read this piece below. To be fair, all of the Times' editorial writers should be rotated. They are a predictable crew.

The Greenness of Cities
January 30, 2007
URL: http://www.nysun.com/article/47626

The patron saint of American environmentalism, Henry David Thoreau, was no fan of cities. At Walden Pond he became so "suddenly sensible of the sweet and beneficent society in Nature" that "the fancied advantages of human neighborhood" became "insignificant." Thoreau's like-minded heirs, including the urbanist, Lewis Mumford, praised the "parklike setting" of suburbs and denigrated the urban "deterioration of the environment."

Millions of Americans proclaimed their love of nature by moving to leafy suburbs while denigrating New Yorkers for living in the most man-made of places. In the eyes of the pseudo-environmentalist suburbanites, anyone who didn't care enough about nature to flee Manhattan's great glazed brick towers seemed worthy of both pity and disdain.

Now we know that the suburban environmentalists had it backwards. Manhattan, not suburbia, is the real friend of the environment. Those alleged nature lovers who live on multiacre estates surrounded by trees and lawn consume vast amounts of space and energy. If the environmental footprint of the average suburban home is a size 15 hiking boot, the environmental footprint of a New York apartment is a stiletto-heeled Jimmy Choo. Eight million New Yorkers use only 301 square miles, which comes to less than one-fortieth of an acre a person. Even supposedly green Portland, Ore., is using up more than six times as much land a person than New York.

New York's biggest environmental contribution lies in the fact that less than one-third of New Yorkers drive to work. Nationwide, more than seven out of eight commuters drive. More than one-third of all the public transportation commuters in America live in the five boroughs. The absence of cars leads Matthew Kahn, in his fascinating book, "Green Cities," to estimate that New York has by a wide margin the least gas usage per capita of all American metropolitan areas. The Department of Energy data confirm that New York State's energy consumption is next to last in the country because of New York City.

Is there any reason beyond civic pride to care that New Yorkers are true friends of the environment? I think so. Environmental benefits are one of the many good reasons that New York should grow. When Manhattan builds up, instead of Las Vegas building out, we are saving gas and protecting land. Every new skyscraper in Manhattan is a strike against global warming. Every new residential high rise means a few less barrels of oil bought from less than friendly nations belonging to the Organization of the Petroleum Exporting Countries.

Given how valuable development in New York is for the environment, one might think that environmentalists would be fighting the preservationists on Madison Avenue to ensure that New York builds taller buildings. But the ground troops of the environmental movement haven't yet got themselves around to being pro-development, even in places, like New York, where development makes the most environmental sense. All of those years of opposing new development have made many activists reflexively anti-growth. Almost every act of neighborhood anti-development Nimbyism, or Not In My Back Yard, gets wrapped up in a mantle of environmentalism.

The great problem with being reflexively anti-growth is that development in America is close to being a zero-sum game. New homes are going to be built to meet the needs of a growing population. If you stop development in some areas, you are ensuring more development elsewhere. A failure to develop New York means more homes on the exurban edges of America.

In the 1960s, an environmental anti-growth movement grew strong in California. This group proclaimed that it was saving the San Francisco Bay, and group members managed to shut off development in their region. Some bay counties have enacted 60-acre minimum lot sizes. The environmentalists did stop development in their own increasingly unaffordable back yards, but they did not stop development spreading to eastern California, Las Vegas, and Phoenix.

In many cases, development occurred in places that were less dense and that had less public transit than the older places that the environmentalists had protected. The environmental consequences of this kind of environmentalism are far clearer, since the net effect seems to redirect development to places where it would do more harm.

Good environmentalism requires a national perspective, not the narrow outlook of a single neighborhood trying to keep out builders. As a nation, we need to think clearly about where new housing causes the least environmental damage, and we need to make sure that our land-use policies help that happen. A local approach can do more harm than good because dense areas are rich in protesters who push new housing out to where there are fewer people to oppose it.

With this broader view, we see that Mayor Bloomberg's vision of an even bigger New York City is a great environmental vision. We also see that those preservationists who have arrogated to themselves the power to stunt New York's growth are not only enemies of affordable housing but also abettors of the environmental damage done by urban sprawl.

Mr. Glaeser is the Glimp professor of economics at Harvard, director of the Taubman Center for State and Local Government, and a senior fellow at the Manhattan Institute.

Saturday, January 27, 2007

The Boston Globe Publishes Gib Metcalf's Opinion Piece

Who says that only Harvard professors get to publish in leading newspapers? Today's Boston Globe includes a very nice piece by Gib Metcalf. What I like about this piece is that he conveys a number of important ideas using a crisp, clear writing style. There are many academics who could benefit from adopting this approach!

Which plan on climate change?

By Gilbert E. Metcalf | January 28, 2007

IN HIS STATE of the Union address, President George Bush announced changes to federal fuel-efficiency standards for vehicles and called for a boost in ethanol production. Then again, he has opposed mandatory limits on carbon emissions in the past, and he said nothing in his speech to change that position. But like Canute trying to hold back the tide, this president's stance seems increasingly irrelevant given the wave of congressional climate plans under discussion.

Senators Joseph Lieberman and John McCain, for example, would sharply cut carbon emissions by 2050. Senators Barbara Boxer and Bernard Sanders have a competing plan that cuts carbon even more. Over in the House, Speaker Nancy Pelosi has announced a new Select Committee on Energy Independence and Global Warming headed by Representative Edward Markey. Undoubtedly this committee will offer its own plans for reducing carbon emissions. Policymakers are also beginning to look more closely at a carbon tax.

The action doesn't stop at the federal level. Governor Arnold Schwarzenegger has an ambitious initiative to roll back carbon emissions in California. And Governor Deval Patrick signed up Massachusetts to join the Regional Greenhouse Gas Initiative, or RGGI , a multistate compact to reduce carbon emissions from power plants.

How should we sort through all these initiatives? These are the factors we should consider in evaluating these and other plans to combat climate change.

Administrative complexity. Is the plan in question easy to administer, or will it require heroic oversight efforts? At the national level, the first place to look is to see if the plan is an upstream or a downstream plan. An upstream plan would focus on producers of carbon; coal mines, refineries, natural gas wells, and the firms that import fuel into our ports would have to submit permits for their carbon . A downstream plan would focus on the companies that use fossil fuels.

At the national level, an upstream plan is better. Production of carbon-based energy is concentrated, and relatively few producers would have to be part of the system -- especially if we exempt small producers. For example, a plan with an exemption for mines with annual production levels below 225,000 short tons would capture 95 percent of domestically produced coal but require less than 30 percent of mines to be part of the system. Downstream implementation in contrast would require thousands of firms to participate. When a system is too complex, policymakers are likely to throw up their hands and leave crucial sectors out.

Coverage. Does the plan cover a large fraction of carbon emissions? If not, it unfairly burdens covered sectors while reducing the program's effectiveness. Consider the regional initiative, which covers only power plants. This means we cover one-third of the carbon emissions in Massachusetts and exclude carbon emissions from home heating oil, transportation fuels, and natural gas used in homes and businesses.

Give aways. Governor Patrick has broken the mold by deciding to auction RGGI carbon permits. In contrast, the European Union's carbon trading program gave them away. Not only did electric utilities in Europe receive permits worth millions of euros, but they also raised electric rates, arguing that it was now more costly to produce electricity since doing so required them to use their carbon permits!

Watch the debate over carbon cap-and-trade systems carefully. The number of carbon permits that are issued could well be based on the existing emissions levels. This could help explain why Texas utility TXU plans to build 11 coal-fired plants adding 78 million tons of carbon dioxide to the atmosphere annually. Better to build the plants before a carbon cap is put in place, the thinking goes, so you can argue for grandfathering them under the new rules.

Revenue use. If governments impose a carbon tax or auction off permits under a cap-and-trade system, what will they do with the money? Patrick promises to auction the RGGI permits and use the $25 million in revenue for energy efficiency and renewable programs. I'm a big fan of renewables and energy efficiency, but is this the best use of these funds? Spending programs should compete with other revenue needs. Should carbon revenues go for new efficiency programs or, say, to provide property tax relief?

The public has long understood the need to reduce carbon emissions, and it is exciting to see politicians catching up. But the details matter, and it's vital to figure out which bills are worth supporting and which ones are just more hot air.

Gilbert E. Metcalf is a professor of economics at Tufts University.

Los Angeles' Culver City becomes a Consumer City

The New York Times today implicitly applauds urban gentrification. Would Affordable Housing advocates favor turning back the clock to the 1970s for Culver City?

Note the "Consumer city" angle in this article. New restaurants are popping up in communities that used to be car dealerships. That sounds like progress to me. As I travel from UCLA to Rand once a week, I see a ton of areas in Eastern Santa Monica that would benefit from a touch of this "yuppie treatment". What interest group has a stake in preserving "urban ugly" on such valuable land?

January 28, 2007
Next Stop
In Culver City, Calif., Art and Food Turn a Nowhere Into a Somewhere

IT'S a warm weekend evening and it looks as if a hipster convention has descended upon Culver City. On La Cienega, the sidewalk teems with the spillover from the opening of a video installation at the LAXart gallery. At Mandrake, a bar a few doors down, the D.J. plays the White Stripes while artists in distressed denim ignore the Werner Herzog movie playing in the background.

Meanwhile, in the center of town, Ford's Filling Station is crammed with executive types from the Sony Pictures Studios lot who have come for a happy hour hefeweizen, and coiffed couples are wolfing down their smoked trout salad in order to make it across the street to the Kirk Douglas Theater before the curtain goes up.

Ask a resident of Culver City what this Los Angeles neighborhood was like just a few years ago, and you'll hear a list of depressing descriptors: “a wasteland,” “rough,” “old and rundown.” “It was desolation boulevard,” says Timothy Blum, whose Blum & Poe gallery opened here in 2003. “It was devoid of any kind of life — it was mostly known as Wheel Alley, a place where people came to get tires.”

Clearly, things have changed. Culver City, once considered a place to drive by on your way to somewhere else, has become Los Angeles's newest stylish neighborhood, a magnet for lovers of the arts, good food and culture. One part Hollywood nostalgia, one part modern design, the city-within-a-city now inspires expressions like “nascent Chelsea” and “L.A.'s new restaurant mecca.”

Culver City's primary appeal has always been that it's close to everything else: just east of Santa Monica and Venice, just south of Beverly Hills, just north of the Los Angeles airport. The only thing actually in Culver City, historically, was movie studios: the grandly colonnaded Ince Studios (which soon became MGM, and then, 70 years later, Sony) moved in not long after the city was founded by a developer in 1913. The Munchkins and bootleggers came next: “The Wizard of Oz” was filmed here in the 1930s, back when the area was still known for its gambling dens and Prohibition-era nightclubs.

But by the 1970s the city had gone into decline and vanished off the Los Angeles cultural map: a home to middle-class families, car dealerships and low-rent factories. It wasn't until the late 1990s, when a citywide redevelopment push began, that things turned around. Today, Culver City boasts kitschy new 1950s-style signs, which match the vintage architecture of downtown; the brand-new Kirk Douglas Theater and the Actor's Gang (Tim Robbins was a co-founder) are drawing significant plays; and even the historic Culver Hotel, where the Munchkins once slept, has had a makeover.

At the center of Culver City's turnaround is the Helms Furniture District — a blocklong Moderne monolith, once the famous Helms bakery, now (thanks to the developer Walter N. Marks III) home to a dozen furniture and design stores, a jazz club and two restaurants. At one end of the building is the acclaimed Asian-fusion small-plates restaurant Beacon; at the other is H. D. Buttercup, a 100,000-square-foot depot crammed with designer furnishings. Here, you can buy an antique Balinese Buddha, a Blu Dot storage console and a reproduction of Mies van der Rohe's famous Barcelona chairs in one dizzying go, and recover with a plate of moules marinières at Le Dijonaise, the bistro next door.

A few blocks away, where Washington Boulevard meets La Cienega, visitors can find the other reason for Culver City's renaissance: more than two dozen contemporary art galleries, every one of which has opened in the last four years. The respected Blum & Poe gallery was the first to arrive here, drawn by the airy (and inexpensive) old brick warehouses, and was quickly followed by galleries like Anna Helwing, sixspace and LAXart. The area has supplanted Chinatown and Bergamot Station as Los Angeles's center for cutting-edge and conceptual art; on weekends, the funky-spectacle crowd comes for the Sam Durant and Sharon Lockhart openings, and stays for drinks at Mandrake.

For years Culver City was on the culinary map only as the home of Surfas, the legendary restaurant supply store. But since 2004, nearly a dozen restaurants — most with an eye toward organic and casual fine cuisine — have opened in a neighborhood once known as a culinary no man's land.

At Ford's Filling Station, an industrial brick gastropub, the chef Benjamin Ford (son of Harrison) serves high-end pub fare like steak sandwiches and flatbread pizza with grilled shrimp and white bean hummus. Tender Greens, right next door, is a high-concept salad stop where the market greens are so fresh you can practically taste photosynthesis in action. Beacon and Wilson anchor the expensive end of the dining spectrum, and, to wash it all down, there's BottleRock, a wine bar and shop with a mind-boggling list of 800 vintages, a well-edited menu of charcuterie and small plates, and a clientele that packs the chrome stools every night of the week.

Down the road, there's even an affordable cooking school: the New School of Cooking, which offers instruction in everything from essential knife skills to Burmese cuisine. And a half-dozen new restaurants and wine bars — including an outpost of the Santa Monica burger institution Father's Office — are due to open in the coming year.

“Restaurants are spilling into Culver City because there's nowhere else to go,” says the chef Michael Wilson. He chose Culver City as the location of his new restaurant Wilson — Culver City's most ambitious endeavor, serving dishes like truffled pasta and slow-roasted pork with cherry sauce — over the tonier (and more crowded, competitive and pricey) neighborhoods of Beverly Hills or Santa Monica. “The rents are a lot lower so you can really get away without charging astronomical prices for good food,” he said. “In five or six years you won't even recognize Washington Boulevard — it will be the new little restaurant row.”

Wilson is wedged into the corner of Washington Boulevard's new MODAA building, a glowing, Lego-like yellow and gray box that houses live-work lofts, a design museum and an architecture firm. Architecture has quickly become another of Culver City's new calling cards: Some of Los Angeles's best-known architects, such as Pugh + Scarpa, are based here. South of Washington Boulevard, the Hayden Tract is perhaps the most unusual clutch of avant-garde buildings in all Los Angeles: a formerly derelict strip turned into eye-popping offices by the deconstructivist architect Eric Owen Moss, now housing advertising firms, a dance studio and the photography studio Smashbox Studios (home to Los Angeles's fashion week).

Despite the new growth, though, Culver City still doesn't feel much like a city: the boulevards are wide and the buildings low, streets are often empty of traffic (both car and pedestrian), and even on Friday night the restaurants stop seating at 10 p.m. If you're looking for a party, in other words, look elsewhere.

But that, say the new locals, is exactly why they are moving here. “There is a feeling of openness here,” says the New School of Cooking owner Anne Smith, a seven-year resident. “It's still a city on the verge. It still has character, which is what makes Culver City great. My personal hope is that it doesn't ever become Santa Monica.”



Wilson, 8631 Washington Boulevard, (310) 287-2093; www.wilsonfoodandwine.com. Dinner for two with wine, $110

Ford's Filling Station, 9531 Culver Boulevard, (310) 202-1470; www.fordsfillingstation.net. Dinner for two with beer, $50.

Tender Greens, 9523 Culver Boulevard, (310) 842-8300; www.tendergreensfood.com. Meal for two, $30.

Beacon, 3280 Helms Avenue, (310) 838-7500; www.beacon-la.com. Dinner for two with drinks, $80.

BottleRock, 3847 Main Street, (310) 836-9463; www.bottlerock.net.

Mandrake, 2692 South La Cienega Boulevard, (310) 837-3297; www.mandrakebar.com.


H. D. Buttercup, 3225 Helms Avenue, (310) 558-8900; www.hdbuttercup.com.

Surfas Restaurant Supply, 8777 West Washington Boulevard, (310) 559-4770; www.surfasonline.com.


Blum & Poe Gallery, 2754 South La Cienega Boulevard, (310) 836-2062; www.blumandpoe.com.

Anna Helwing, 2766 South La Cienega Boulevard, (310) 202-2213; www.annahelwinggallery.com.

LAXart, 2640 South La Cienega Boulevard, (310) 559-0166; www.laxart.org.


The Culver Hotel, 9400 Culver Boulevard, (310) 838-7963; www.culverhotel.com. This recently renovated establishment has antiques-filled rooms beginning at about $120 a night.

The Sofitel, 8555 Beverly Boulevard, Los Angeles; (310) 278-5444; www.sofitella.com may not be in Culver City, but it's only a short drive away, and offers more urban chic amenities. Rooms begin at $285 a night.

Los Angeles Commuters Comment on How They Would Solve Traffic Congestion

This webpage offers 500+ views on how to "solve" Los Angeles congestion woes. Everyone appears to have their own pet issue. Some people would raise the driver's minimum age (perhaps to 95?). Some would ban immigrants or everyone who moved to the U.S before 1812. Please look at http://latimesblogs.latimes.com/bottleneck/2007/01/welcome.html#comments

Relatively few people discuss pricing incentives to address peak demand. Is that surprising? Are there any neo-classical economists in Los Angeles? My wife and I are here to increase the supply of this scarce resource!

The vocal people who write in request more public transit investments. In the year 2000, 7% of LA metro area commuters got to work by public transit. It is true that this % increased from 5% in 1970 but still this looks like a relatively small group of commuters.

I do find letters to the editor to be the most interesting feature of newspapers each day. That and the weather report and sports page and obituary page --- so I salute the LA Times for helping to aggregate public opinion.

Maybe researchers should figure out how to use such data to think about how the public views such issues? While the sample of letter bloggers is not a representative sample, the talk is "less cheap" than what random survey respondents offer in a random dial survey. Do you disagree?

Wednesday, January 24, 2007

Should Some Academic Economists Run for President in 2008?

Have you noticed that there are some pretty serious barriers to entry if you seek to enter the market for being an elected politician in this country? It is mildly exciting to have new faces such as Hilary and Obama enter the race but in a nation of 300 million people are they and McCain, Rudy, Kerry, Gore etc really our best and brightest? Maybe.

Most economists are pro-competition but we've seen the downside of political competition when the democrats would have 15 guys standing their at their debates and Al Sharpton would "win" the debate and dominate the stage. I wonder if the College Football BCS system should be used rather than these goofy primaries. Has a good game theorist explained why Iowa's choices in 2007 help trigger a cascade such that a candidate has Big Momentum heading into "Super Tuesday" and this helps get the U.S an able, intelligent leader during these troubled times?

What are alternative systems for electing a President? Would "better" men and women serve if the election process were different? So my question is about selection. Would the guys who run Google be better than Obama? Would Jim Heckman be a better president than Hilary? Economics claims that markets lead to efficient outcomes but it appears that in political markets that there are fundamental misallocations of resources --- the wrong people are sitting in some important jobs.

Thinking quickly, what serious economists would make good Presidents?
Derek Neal could earn some votes in a variety of parts of the country. His ticket could be balanced with Casey Mulligan as his running mate.

I would vote for my colleague Gib Metcalf. He makes a lot of sense and certainly looks and sounds like a respectable young man.

Jeff Sachs could be the new Bobby Kennedy --- he would certainly earn some votes.

It is true that a number of us are bald and untelegenic. But there are compensating differentials. Maybe we need the radio to make a comeback as a communication mechanism?

On a slightly more serious note, what will Bill Clinton do all day if his wife is President?

The power of social networks seems to be growing over time. Can this claim be tested? If Hilary Clinton hadn't been first lady, would anyone be talking about her as President? Is marrying the right connected person the key to a successful career? In my case that has been true, but I'm not running for President!

This issue is arising again and again for example with Ivy League schools wondering whether "legacy" admits should remain. Is "social capital" as valuable as human capital and health capital?

Such social networks represent a barrier to entry for people outside of the loop and make it harder for some talented "nobody" to crack in and seize power in connected Washington. Anomie has its advantages.

Monday, January 22, 2007

Watching Watchdogs: The Case of Energy Blackouts

Under what conditions do tax payers enjoy high quality government services? Most economists would start to talk about competition and choice. The post office does look more spiffy and efficient now. What about other government functions?

This editorial today points an angry finger at New York State regulators. The editorial claims that Pataki made political appointments putting his friends in charge of agencies with serious responsibilities and that these folks were asleep at the wheel unable to do their job and the populace suffered because of this.

Taking all of this case study to be true, what is the big general lesson here? How would Al Gore "reinvent" this government? One answer is that more government regulators must fear being fired if a bad shock occurs during their reign. How could incentive contracts be written to encourage regulators to focus on actually doing their job versus just playing video games or being captured by the industry they are supposed to be regulating?

The muckraker press can help here with serving up "days of shame" but these are ex-post actions which will not help the people of Queens who suffered from the power blackout in the first place.

New York Times
January 23, 2007
Watching the Energy Watchdog

A scathing report from the state’s Public Service Commission about last summer’s electrical blackout in western Queens took some well-deserved shots at Consolidated Edison. The utility certainly failed spectacularly as it left 174,000 people sweltering in the dark for as long as nine days. But the report ignored a critical part of the problem: the commission itself, which has been incompetently monitoring the energy monopoly.

The commission’s draft report correctly blames Con Ed for a performance that was “unacceptable and a gross disservice” to its customers. The utility underestimated the problem and made bad decisions that prolonged the blackout. It compounded its shortcomings when it issued a 600-page report last fall that failed to acknowledge its own errors. For its poor performance, Con Ed should pay a hefty penalty, which should be charged to its shareholders, not its customers.

The bigger picture, though, is that Con Ed could not have been so mismanaged if the Public Service Commission had been doing its job. The commission is supposed to oversee the state’s utilities, but it somehow remained blissfully blasé about the problems in Queens, despite ample warnings. An earlier blackout in Washington Heights in Manhattan prompted Eliot Spitzer, then the state’s attorney general, to identify lurking trouble in the Queens network, where some components dated to the middle 1900s. Service quality reports from Con Ed should also have caused alarm.

The commission’s failure is, sadly, not surprising. The just-departed governor, George Pataki, treated this important body as a collection of plum six-figure sinecures, and he stacked it with cronies ill suited to the job, including, most recently, a former public relations executive, Cheryl Buley, whose husband has been a major Republican donor. Mr. Pataki may also have been trying to slant the commission in favor of the energy industry, which, according to Common Cause, gave him $316,000 in campaign contributions from 1999 to 2006.

The Public Service Commission is badly in need of reform. As governor, Mr. Spitzer now has the opportunity to make his first appointment to the five-member body. He should choose someone qualified and independent, with the determination to fight for safe, reliable and reasonably priced energy.

Saturday, January 20, 2007

Venice Beach in Los Angeles Needs a Make Over!

Gentrification sometimes seems like a dirty word. Today I walked through a community that needs this "treatment". Santa Monica is 3 miles east of UCLA. Venice is lies just south of Santa Monica on some terrific real estate that would be worth a fortune if it could be cleaned up.

Nothing personal to the wonderful people I met today, but Venice needs a make over. I saw a 15 to 20 year old's heaven today. Tons of people zonked out of their brains and having fun dancing, exercising, drinking, making music and smoking. Perhaps, I'm getting older but my "makeover" for the area would get rid of these "artists" and replace them with boring people who work and read.


It amazes me to see such valuable real estate thrown away to "erotica" stores and bong shops right on the beach front! It would interest me to learn what zoning fights have taken place. Have sane mature adults tried to reclaim Venice Beach and take advantage of its beauty? I realize the spirit of Jim Morrison lives on there but please; grow up. The power of the sun and beach outways the power of bad music and skateboarding.

Where in the constitution does it say that 15 to 20 year old hipsters are guaranteed a paradise? These folks should be studying and allow cranky dudes like me to enjoy a "natural" beach with access to upscale quiet shops!

I'm hoping some developers will help me achieve my cool vision for the beach!

Friday, January 19, 2007

Income Integration in Aspen Colorado

The New York Times takes the topic of income inequality very seriously. Perhaps, the middle class are more loyal readers of the Times than the rich because the former have a lower value of time? This travel article about Aspen provides an interesting case study of how the rich and not so rich coexist and trade with each other in a high amenity ski setting.

Clearly, Aspen Colorado offers wonderful consumer and recreational amenities. Midway through the article, the author gets upset that many people who work in Aspen cannot afford to buy homes there and must commute far from where they can afford to live to get to Aspen. The article provides some details about how private developers have had to provide some "set asides" promising to sell some new housing units to "middle class" people.

January 19, 2007
Ski Report
Beneath the Glitz, a Middle-Class Aspen

WHEN Don Bird is on vacation or traveling away from his Aspen home, if someone asks him where he lives, he will answer, “Colorado.” If pressed to be more specific, he might admit that he lives in the mountains, but he will do anything to keep from confessing that he lives in Aspen.

“Because then I have to justify it, explaining that I don’t have a limo or a $10 million chalet,” said Mr. Bird, a 36-year Aspen resident who is the town’s jail administrator and a part-time ski instructor. “I have to explain that there’s an Aspen reality and an Aspen myth. Aspen has a volunteer fire department, churches, an Elks Club and a lot of other things real towns have. But the celebrity mythmaking can be too strong to fight.

“So I say Colorado and hope they leave it at that. They may never know the truth about my town.”

It is a great oddity of every recent winter that one of the magnificent ski resorts in the world is subtly overlooked because it is too famous.

Aspen is far from ignored, of course, since its four distinct peaks (Aspen, Snowmass, Aspen Highlands and Buttermilk) drew nearly 1.5 million skiers and riders last season. But in snow-sports circles, and among those who vote in industry magazine rankings, there is a tendency to treat the Aspen celebrity sideshow as more pertinent to the place than all its authentic parts.

Aspen is often regarded as someplace not for the masses. Its annual skier visits have dropped since the late 1980s. Last winter, roughly a million more skiers visited Vail Valley.

Depending on your perspective, this is either a bad or a good thing. It’s a shame that so many people are missing a diverse, spectacular mountain experience. On the other hand, about three weeks ago, on Dec. 27, in the middle of what was the busiest week of the season, there was never a wait longer than a minute to board any upper-mountain lift on Aspen Mountain or on the adjacent Aspen Highlands.

Nor were there any lines longer than a minute two days earlier, Christmas Day, at Buttermilk, home to hundreds of acres of beginner terrain. And there were no lines at that mountain’s stunt-tastic superpipe, part of the annual Winter X Games. In the Buttermilk lodge, there wasn’t even a line to sit next to Christie Brinkley as she sipped her hot chocolate. (O.K., so anyone can succumb to stargazing once in a while.)

“People bring up Aspen/Snowmass and immediately start talking about the ritzy, glitzy, ditzy stuff, and it drives me crazy,” said Chris Davenport, a two-time world extreme skiing champion and a 14-year resident of the area. “It’s about the skiing, about the mountains, about a town that’s been there since the 1800s. It is the other stuff that is inconsequential.”

Now for a little perspective. Aspen’s glam and privileged reputation is not unearned. During Christmas week on the Aspen village streets, you can start to feel out of place if you’re not wearing a full-length fur and carrying a small dog. Some houses were renting for $245,000 for the week. The paparazzi got into a tussle, with one arrested on a charge of pulling a knife, as they grappled for the perfect snapshot of Seal snowboarding. A very small order of French fries at the tavern opposite the Aspen base gondola was $13.

“For three weeks, things are a little crazy,” said Mike Kaplan, the Aspen Skiing Company’s new chief executive. “The people-watching on the streets at this time of year can be fun, not unlike being on a Hollywood set. There are really three Aspens. The real town, the ski town and those three holiday weeks of celebrity town.”

If you want to come to Aspen during holiday weeks and stay at its finest hotels, you will pay for it. An online attempt to reserve a room at the slopeside Hyatt Grand Aspen for the week after Christmas 2007 revealed a studio available for $1,200 a night and a three-bedroom condo for a nightly rate of $4,000. Inexpensive flights in and out of Aspen at that time of year can be hard to come by, too. But the drive from Denver is a manageable four hours, or less, and there are van services that will do the driving for you.

But at other times in the winter, reasonably affordable, unpretentious lodging is offered for as low as $100 a night. There is no need for a car during your stay. There are plenty of restaurants for every budget.

“Every year I run into people who are amazed that they can come here and enjoy themselves on and off the mountain and not sacrifice a kid’s college education savings,” Mr. Bird said.

Even during Christmas week last month, a comfortable if unglamorous one-bedroom condo with a living room, kitchenette and loft with beds was $331 a night at the Shadow Mountain Lodge, a short walk from Aspen village. You can easily spend that much next weekend at a ski resort condominium in northern New England. Over at the Tyrolean Lodge on Main Street, rooms during Christmas week were going for $165 to $190 plus $15 for each room occupant exceeding two guests. This week, the basic room rate dropped to between $100 and $125 a night. There is no pool or hot tub at the Tyrolean, but it’s cozy and a local secret.

There are other tips from locals on how to experience Aspen on the budget of someone who goes to the movies instead of someone who stars in them. For example, many of the better restaurants in town, like Jimmy’s, offer bar menus with delightful food prepared from the same great kitchen and same chefs that prepare the food for the dining room. The difference can be a delicious dinner at $18 a person as opposed to one that is $60 a person.

YOU also don’t have to make your après-ski stop at the pricey hotels nearest the mountain. Take a two-block walk — some used to ski it — to the historic Red Onion bar, and your beer, wine or margarita won’t cost any more at this century-old spot than it would back home. A block away, there is a ski stand out front and a local crowd inside at the Cooper Street Bar and Restaurant, with an old-time shuffleboard game paralleling the crowded bar. As it says behind the Cooper Street bar, the atmosphere is about cheap beer and bad service, but only the former is true.

Another way to enjoy the authentic side of Aspen is to take advantage of its lengthy history. A mining town since the 19th century, Aspen has had plenty of time to pull together a startling variety of off-mountain activities — from the policy conferences and programs of the Aspen Institute to annual festivals dedicated to food, wine, various music genres, writing, comedy and physics. There are outdoor concerts (even in the winter), fabulous cross-country skiing and snowshoeing trails and, in the summer, biking, hiking and fly fishing.

“I think we’re busier in the summer than the winter,” said Richard Goldstein, a private investor who became a year-round Aspen resident after moving from Denver. “You don’t have to be a skier to appreciate Aspen.”

Carol Perry of the Chicago suburb of Wilmette, Ill., was riding the Ajax Express lift last month talking about how she has been coming to Aspen since 1960, “when the lift tickets were $6.” They are now about $80.

“I come for the full vacation experience,” Ms. Perry said. “Because I love the restaurants, because I know I won’t be in a cultural backwater, because the terrain will stretch my skiing abilities and because the cars will stop for you when you cross the street. They don’t do that in Chicago.”

Everything is far from ideal in Aspen, even for the proud Aspenites. Since real estate values have exploded, housing for middle-class workers in this town of about 6,000 has become more and more scarce. Hundreds of Aspen seasonal workers are forced to live an hour away by bus, and they might have been farther away had the Aspen Skiing Company not bought some local motels and converted them to employee lodging.

A local study estimated that the workforce living in Pitkin County, where Aspen is, had dropped to 44 percent of the total year-round population in 2004, a decline of nearly 30 percent from the mid-1980s. Civic leaders have responded by requiring developers of new multimillion-dollar homes in the area to also build less-expensive housing units that are strictly regulated by price and by how much they can accrue in value to keep them accessible to middle-class workers.

“You can call that artificially creating a middle class, but it’s significant that the town chose to do that,” said Molly Ireland, who is married to Don Bird, works at the Aspen library and lives with him and their two children in one of the homes set aside for local year-round residents.

“We were defining what we wanted the fabric of the town to be,” she said. “I think that has extended to the mountain leadership. They don’t want this to be a place visited by just the stereotypical Aspen visitor. They want a greater variety of people. I want people to come back here too. It’s too great a place to pass up.”

There are a few key developments that might shake Aspen into a new era of, or kind of, prosperity. One is the effect of the ESPN-sponsored Winter X Games, which will continue to be held in Aspen through 2010. Thousands of riders, free skiers, snowmobilers and all manner of alternative sport devotees now look to Aspen as the place to test themselves where the best also test themselves. That’s the young audience Aspen needs. It’s hard to believe that before 2001, snowboarding was banned on Aspen Mountain.

Meanwhile, over at Snowmass, there is also a massive base village development going in to match the massive, family-friendly terrain.

There is only one thing that Aspen cannot do to help itself. It cannot move 40 miles north to Colorado’s main ski corridor, I-70, nor can Aspen move another 40 miles closer to Denver in the vicinity of some of its chief competitors. Plain and simple, Aspen is farther away.

“Yeah, you have to want to get here,” Don Bird said. “It’s a little longer trip. Maybe that’s the way it should be. The people that come here know why they’re here. And a lot of the people who never come here don’t know what they’ve missed.”

Thursday, January 18, 2007

The Cost of Urban Growth: A Case Study from an Old Hippie Place Called Santa Cruz

I've been to UC Santa Cruz one time. The funny thing about this "environmentalist" campus is that it is so spread out that we couldn't walk it. This article suggests that an effort is underway to make it a more serious research place. Its Economics Department has certainly improved in recent years.

Like other California towns, a fight is brewing over how to achieve "smart growth". Cities with major universities seem to enjoy their "love/hate" relationship with them.

This may be the usual case of the "silent majority" not bothering to get involved and a small number of activists are leading a campaign.

Put yourselves in UC Santa Cruz's shoes. Quality of life is the major amenity that draws students and faculty to it. They have every incentive to protect their "golden goose". UCSC produces ideas and educated students not steel!

January 19, 2007
As College Grows, a City Is Asking, ‘Who Will Pay?’

SANTA CRUZ, Calif. — For most of the last 40 years, this eclectic seaside city and its University of California campus have lived in relative harmony. With its beaches, bistros and relaxed intellectual vibe, Santa Cruz has long held an allure for those seeking a mellower college experience, a place where hiking trails, yoga mats and surfboards are as common as backpacks filled with books.

Santa Cruz’s appeal has made it into one of the most popular of the University of California’s 10 campuses. But this, in turn, has recently led to a deep rift in the cozy relationship between the college and the city, with accusations of bad faith, voter referendums and nearly a dozen lawsuits pending or in the works.

At issue is an ambitious proposal for a campus expansion, approved by the university’s Board of Regents late last year. It promises to transform the landscape and image of Santa Cruz, 75 miles south of San Francisco, from a relatively small undergraduate university into an internationally known institution, with new graduate schools, an elite faculty and hefty research grants.

The plan calls for increasing enrollment over the next 14 years by 30 percent, to 19,500. The university also intends to add 1,500 faculty and staff members, and several new professional programs and research centers. Redwood trees would have to be cut down to make way for some of the construction.

“This plan allows us to continue the upward trajectory that has characterized U.C.S.C. over the past decade,” the acting chancellor, George Blumenthal, said in a written message to colleagues after the Regents approved the plan.

But local officials and residents in this city of 55,000 say campus growth has already changed the small-town feel of Santa Cruz, driving up housing costs, forcing out families and straining the infrastructure. Taxpayers often end up bearing the cost.

“The fact is, we don’t have the water, we don’t have the transport, we don’t have the housing,” said Don Stevens, 54, a graduate of the university who lives here and is a member of the Coalition for Limiting University Expansion, or CLUE, a plaintiff in several pending lawsuits. “If the university is going to grow, they should pay their way.”

University officials say campus growth is part of a legislative mandate to educate every eligible high school graduate in California. Some also point out that the university system is not obligated to answer to its host cities. Under the state Constitution, the University of California is deemed “entirely independent of all political and sectarian influence” and exempt from local land use controls and local taxes.

Campuses do pay for the services they use, like water and for on-campus repairs but not necessarily for building new infrastructure.

And the university’s tax-exempt status can be costly. For example, when Texas Instruments, which was paying $186,000 a year in taxes, shuttered its Santa Cruz division, the university later bought the space.

“The property tax went to zero,” said a member of the Santa Cruz City Council, Michael Rotkin, a Santa Cruz graduate. “It may mean paying jobs, but the city tax base is losing” money.

The university’s independent status has been a recurring theme in disputes between campuses and cities around the state. But a state legislative report released this month may foreshadow change. The report, by the nonpartisan Legislative Analyst’s Office, cited “a lack of accountability, standardization and clarity” in how the university deals with the effects of its growth throughout the system.

“We don’t object to university growth, per se,” said the Santa Cruz city attorney, John G. Barisone. “What we do object to is the university taking steps to grow without having mitigation measures in place to counter the impacts.”

The university has argued that it is each city’s responsibility to establish a plan for a campus to help pay for infrastructure costs associated with expansion. But the legislative report found that “no U.C. campus has been able to reach such an agreement with a neighboring jurisdiction,” and therefore no campus has made a fair share payment, the report said.

Santa Cruz officials said that despite dozens of meetings with the university about its growth plan, no agreement had been reached. So the Council decided to try a new tactic, placing two measures to limit the campus’s growth on the November ballot. Each was approved by more than 75 percent of the vote.

One of the measures requires the university to pay not just utility bills for city services, but also a contribution toward the cost of building infrastructure, like water or transit systems. The other one requires voter approval before the city can extend services to university buildings outside city boundaries, as is called for under the expansion plan.

Citizen groups, the city and the county have filed lawsuits to block the university’s expansion unless it provides specific solutions to possible problems acknowledged by the university. The university, in turn, has countersued, including a legal challenge to the validity of ballot measures developed by a city that, as the Constitution states, has no authority over the state campus. The suit, intended to block or invalidate the city measures, also claims the city would breach long-term water contracts if it withheld service.

University officials said they had made many concessions to the city, including a decrease in proposed enrollment, which had originally been set at 21,000 students, and cutbacks in construction. A lawyer for the university, Kelly Drumm, said it was not legally required to describe its plans further.

“We think our environmental report was prepared in a legally adequate manner,” Ms. Drumm said. “It adequately reflects the needs of campus and community.”

In interviews with about a dozen students, sentiment over a campus expansion was divided. Michael Fisher, 18, a freshman from Los Angeles, said he had voted for the November ballot measures.

“I came here because I liked that the campus was small,” Mr. Fisher said. “A lot more growth will change the nature of the campus. We already have too many students.”

But Bokhtar Ehsan, 21, a senior majoring in business, said the city had “no right to be mad” over university growth.

“None of the local people complain when they charge ridiculous rents or when we spend tons of money downtown,” Mr. Ehsan said.

City leaders in Santa Cruz have promised to fight until they win. They said they were heartened by the legislative report and by a California Supreme Court ruling last July in a case addressing similar conflicts between the City of Marina and the California State University at Monterey Bay, about 40 miles south of Santa Cruz. Reversing an earlier Court of Appeals decision, the high court ruled that the university was required to mitigate significant environmental effects of an expansion project and negotiate fair share agreements for the cost of infrastructure improvements.

“There is no way we are going to back down now,” said Mr. Rotkin, the Council member. “We can’t afford to walk away. Ironically, it’s cheaper to fight than to pay millions to remedy the negative impacts.”

New WSJ Econoblog on Traffic Congestion

I'm quite happy with how new econoblog in today's Online Wall Street Journal reads. Take a look at: Econoblog: Are London-Style Traffic Charges The Answer for U.S. Congestion? Wall Street Journal (Eastern edition). New York, N.Y.: Jan 17, 2007. p. n/a

The format for the "debate" works as follows; one person starts the debate by posting a 100 word entry. The other person is supposed to respond a couple of hours later. Each participant writes 4 entries and the whole assignment is completed within a day.

The interesting challenge is that both Peter and I were well aware that we were writing for a smart "general audience". So, boring footnotes and econometric detail was all sent to footnotes.

I'm in the middle of the writing a more academic paper for an upcoming urban agglomeration conference on the costs of congestion so this was a useful experience for getting my thoughts straight.

I may be wrong but it doesn't look to me like the large number of U.S cities are doing enough independent experimentation to try different anti-congestion policies and then to evaluate whether they have been beneficial in causing traffic congestion. Is this because it is difficult for center city mayors to co-ordinate traffic policies with suburban politicians? Are such mayors risk averse and don't want to be "tarred" as high taxers?

Tuesday, January 16, 2007

The Economics of Hurricanes

In Los Angeles, it is between 55 and 60 degrees each day but people are walking around in hats, scarves and winter coats. In my short sleeves shirt, I'm not fitting in. To change subjects, I wanted to talk about Nordhaus' work on hurricanes.

A key issue here is regional growth patterns. Jordan Rappaport and a man named Jeff Sachs have done some good work documenting the growth of economic activity in coastal counties. Intuitively, the same hurricane will cause more damage if more homes and people live in areas that get struck with such events. Now if climate change increases the frequency of these shocks or makes their impacts even more severe then the damage is even higher!

Clearly, insurance companies need to think through what prices they sell premiums for. If insurance companies set high premiums for dudes who build in risky places, then this would help mitigate some of the costs of hurricanes.

on an unrelated note, thursday will be a treat. The Wall Street Journal's Econoblog should be publishing my "congestion debate" with Peter Gordon. In my biased opinion, we managed to each some mildly interesting things but I will leave that verdict to you to decide.


The Economics of Hurricanes in the United States

William D. Nordhaus

NBER Working Paper No. 12813
Issued in December 2006
NBER Program(s): PE

---- Abstract -----

The year 2005 brought record numbers of hurricanes and storm damages to the United States. Was this a foretaste of increasingly destructive hurricanes in an era of global warming? This study examines the economic impacts of U.S. hurricanes. The major conclusions are the following: First, there appears to be an increase in the frequency and intensity of tropical cyclones in the North Atlantic. Second, there are substantial vulnerabilities to intense hurricanes in the Atlantic coastal United States. Damages appear to rise with the eighth power of maximum wind speed. Third, greenhouse warming is likely to lead to stronger hurricanes, but the evidence on hurricane frequency is unclear. We estimate that the average annual U.S. hurricane damages will increase by $8 billion at 2005 incomes (0.06 percent of GDP) due to global warming. However, this number may be underestimated by current storm models. Fourth, 2005 appears to have been a quadruple outlier, involving a record number of North Atlantic tropical cyclones, a large fraction of intense storms, a large fraction of the intense storms making landfall in the United States, and an intense storm hitting the most vulnerable high-value region in the country.

Sunday, January 14, 2007

Celebrities Near UCLA

Unlike most economists, I subscribe to People Magazine. Fame interests me. Several of my papers (joint with Dora Costa) are about non-market social interactions. Someone is famous if many people agree that this person is an "important" person but what does the word "important" mean? It is possible that every person in the U.S could have a different ranking of who is "important" and who isn't. In this "horizontal" case, everyone one be "famous" and "nobody" would be famous. In the real world, people's rankings of who is "important" are highly positively correlated. Many people seem to genuinely care about what Paris Hilton is up to. Do you care? Why do you care?

I don't know the answer to that deep question but I wanted to offer a few celebrity sitings near UCLA. I missed Britney Spears recently partying at the nearby W Hotel.

But, just now I can verify a Rick Fox siting. Do you remember this solid NBA player who was married to a Miss Universe? (see http://www.nba.com/playerfile/rick_fox/)

I was just at a nice restaurant in Westwood watching the Patriots/Chargers game at the bar when Rick Fox and another dude sat next to me at the bar. He was wearing a Tom Brady jersey and wasn't happy that Brady wasn't playing well. We chatted about why Payton Manning is having a bad playoffs.

I can't say that during my years in Cambridge that I spotted many celebrities. If you count Steven Jay Gould and his type then maybe yes but that gets into what is your definition of fame!

Saturday, January 13, 2007

Consumer City and Santa Monica's Farmer's Market

A few years ago, Ed Glaeser, Jed Koko and Albert Saiz wrote a very nice paper called "Consumer City" (see econweb.fas.harvard.edu/hier/2000papers/HIER1901.pdf). They argued that urban economists had devoted too much attention to the productivity benefits of living in cities. They pushed economists to think through the consumption benefits of living in cities. Today, I did some field work at the Santa Monica Farmer's Market and I can serve as a witness supporting the Glaeser et. al. claims. My travel cost to this market is low. Santa Monica lies 3 miles west of my apartment in Westwood.

Even though it is mid-January, this market featured amazing diversity with multiple types of fruits and veggies. Quality adjusted, the prices were very very low.

Fresh produce sellers know that the typical buyer at the Santa Monica market is a "green" and has some money. This self selects high quality, healthy stuff to be sold. On the demand side, new LA residents such as myself have heard by word of mouth that this is a great market and this attracts dudes like me. See how this creates a virtuous cycle? The cops were out in force at the market to make sure that nobody felt threatened by Santa Monica's bum population.

Putting on my urban economics hat, if I was the only buyer of produce at the market --- I doubt that I would have had the vast variety to choose from. Santa Monica is a classic "consumer city". The sunshine, clean air and beach views only increase my urge to go there every saturday to shop again!


All four Santa Monica markets are Certified Farmers' Markets (CFMs). They are organized and managed by the city for the mutual benefit of all who enjoy them. An estimated 900,000 shoppers visit the markets every year. Collectively, they provide their customers year-round with a selection of fresh, seasonal produce that is pre-eminent among market programs in the state.

Certified Farmers' Markets were established in 1978, when then-governor Jerry Brown signed legislation known as the Direct Marketing Act. This enabled California farmers to sell their own produce directly to consumers at locations designated by the Department of Agriculture.

There are three basic criteria for CFMs: (1) they must consist of farmers who possess a current Certified Producer's Certificate issued to them by their county's agricultural commissioner; (2) they must be non-profit entities, sponsored by the farmers themselves, a non-profit organization or a municipality; and (3) all produce and products sold at a California farmers' market must be grown or made in California. These simple guidelines help to ensure that CFMs continue to exist for the benefit of the communities they serve.

In 1979, the first Los Angeles County farmers' market opened in Gardena. It was a Saturday morning market consisting of four stands. Interfaith Hunger Coalition sponsored the market in the parking lot of a local church.

Today there are over 300 Certified Farmers' Markets in California. The high quality of produce and the open-air experience top the list of patrons' reasons for shopping at their local CFM. Those who haven't ventured outside the walls of commercial supermarkets to experience the exhilaration of shopping amid the diversity of produce and people at farmers' markets are often the same who charge them with being inconvenient. But enter once, twice, three times the exciting culture of open-air farmers' markets, and soon you find it's terribly inconvenient not to have them around. Here you'll find the freshest and best tasting produce money can buy; here you'll meet new and interesting people without even trying.

In addition to the many social and economic benefits that accrue to the communities in which they occur, farmers' markets give farmers a chance to experiment with new and old-fashioned varieties of fruits and vegetables not grown commercially. Moreover, farmers can afford to wait until the produce is tree-ripened, before picking and bringing it to the market. A ripe peach is unacceptable to commercial produce-brokers, because it won't withstand the stresses of shipping and storage, as it passes through commercial marketing channels.

A guiding principle of Santa Monica Farmers' Markets is to accommodate as many California farmers as possible. This ensures the greatest variety of seasonal produce grown in the state. Three of the four markets are located in bustling retail-restaurant districts, where local businesses offer an exciting mix of merchandise, services and food. The Santa Monica markets stand out for their unmatched selection of top quality produce from season to season.

In this context, a rich diversity of cultures and crops allows for a fascinating exchange of ideas, customs and recipes each week. Holidays are marked by extra sales of Asian pears for the Chinese New Year or specialty herbs for the week-long Iranian New Year, as well as the more familiar American holiday traditions.

A happy woman holding a handful of pumpkins from the Farmers' Market in Santa MonicaThe markets host a variety of special and educational events year-round. The "Lunch with a Chef Program" features weekly cooking demonstrations by chefs from some of the area's finest restaurants. Groups of local school children visit throughout the year on field-trips. During presentations of market produce, they have a chance to smell, touch and taste both the common and the uncommon. Seasonal festivals include Cinco de Mayo, Melon Mania in July and the All-You-Can-Carry Pumpkin Patch in October. Farmers' markets, of course, are requisite shopping for local chefs, not to mention the site of numerous cookbook book-signings, anniversary events, and a popular tourist destination throughout the year.

Every Saturday morning at 11 am, KCRW-FM 89.9 broadcasts the Market Report on the Good Food Program hosted by Chef Evan Kleiman of Angeli Caffe on Melrose Avenue. In the Market Report, Laura Avery, supervisor of Santa Monica Farmers' Markets and manager of the Wednesday Market, reviews the week's produce and provides the listener with tips and insights on the best and freshest of what's in season. Tune in, turn on, and have a peach of a day at any one of Santa Monica's four markets!

Thursday, January 11, 2007

How Do Celebrities Respond to Natural Disasters? The Case of the Malibu Fire

I am happy to report that the Rand Institute is a great place to get work done. Malibu is located just a few miles Northwest of Santa Monica. Malibu offers the rich a mixed bag. Beautiful views of the Ocean, great climate and clean air but bundled with this is fire risk. This New York Times article highlights what can happen to the famous when they build homes in risky places. I guess this article allowed the Times to name drop and to offer people with an envious personality the opportunity to "feel sorry" for famous people.

The larger "Green City" issue here is urban development in risky to build areas. We see this issue popping up again and again in hurricane zones and coastal areas that flood. Do home buyers face the right incentives when choosing whether to build or not in a risky place? Do home buyer subjective risk assessments match actuarial risks?

January 10, 2007
Investigators Start Work After Malibu Fire

LOS ANGELES, Jan. 9 — Investigators inspected the wreckage of five oceanfront homes in Malibu on Tuesday trying to determine the cause of a fast-moving fire the night before that destroyed them and damaged several others.

The actress Suzanne Somers, best known for her role as Chrissy in the 1970’s sitcom “Three’s Company” and as a promoter of health and exercise products on cable television, was among the people who lost their homes in the fire.

“I really think that we’ll learn something great from this,” Ms. Somers told reporters on a visit to the remains of her house on Tuesday morning. “What else can you do with a tragedy, but look for the opportunity to grow spiritually and emotionally? And I know that we’ll learn something great. It was a beautiful house. It was a beautiful place to live.”

She said she planned to rebuild.

Ms. Somers and her husband and manager, Alan Hamel, were not home at the time of the fire, which began about 5 p.m. Monday in nearby Malibu Bluffs State Park, off Malibu Road. About 300 firefighters using 40 trucks and a few water-dropping helicopters brought it under control by 8 p.m.

No one was seriously injured.

The fire had spread quickly. It began as a relatively minor brush fire, but, whipped by winds gusting to more than 30 miles per hour, it consumed the houses and 20 acres within a half-hour.

“There was very little warning,” said Ron Harelson, a spokesman for the Los Angeles County Fire Department. “It was a miracle no other homes were lost or civilians were killed.”

Inspector Sam Padilla of the Fire Department said the cause had not been determined.

Neighborhood residents, whose homes sit in close proximity to one another, dashed to save their property on Monday. The actress Victoria Principal was seen watering down her property with a garden hose.

The identities of the owners of the destroyed houses and the six that were damaged were not released.

Chief P. Michael Freeman of the Fire Department initially estimated damage at $60 million, but officials later said the figure was being reassessed.

Malibu, where the rich and famous live along choice beaches and rugged hills, has periodic disastrous fires, floods and mudslides. A fire in November 1993 near the same area as Monday’s killed three people and destroyed a few hundred homes.

Ron Soble contributed reporting from Malibu.

Tuesday, January 09, 2007

Bad Smells in Big Dense Cities: The Case for Sprawl?

Ed Glaeser is organizing a NBER urban economics conference on the costs and benefits of urban agglomeration. I believe that I'm the only person writing a "costs" paper. Until I read today's New York Times, I thought that I was focusing on congestion and air pollution and perhaps crime as the major social costs of living in a big city. This article below stresses the importance of strange odors in big cities.

Odors used to be a bigger deal a century ago in big cities with horse poop, garbage, and slaughter houses. Still, this article hints at an important cost of urban density. My paper for the NBER conference will focus partially on the "moat effect". When people suburbanize, they put themselves at further distance from noxious urban disamenities, this reduces their exposure to these things so the "costs of urbanization" are lower than if the same population (say 2 million people) lived at a much higher population density. When transportation costs were higher (pre-good roads and cars), people lived at much higher density and couldn't "moat".

On an unrelated note, Peter Gordon and I may appear in the friday Wall Street Journal online --- more details soon!

January 9, 2007
A Rotten Smell Raises Alarms and Questions

It was the odor associated with natural gas — the telltale, unpleasant sulfur scent that typically signals a gas leak. But this time, it was lingering in many areas of Manhattan and northeastern New Jersey, coursing through buildings and leading to fears that it could ignite or that a dangerous chemical had been deliberately released.

Schools and office buildings were evacuated. A subway station was shut, and commuter trains were rerouted. Government security officials were put on alert. Fire trucks raced through the streets, while Coast Guard vessels patrolled New York Harbor, communicating with tugboats and container ships. Twelve people with complaints of minor illnesses or injuries were taken to hospitals.

The source of the odor? As of last night, city officials still did not know. But it lingered for an hour after first being reported around 9 a.m., leaving New York with another mystery on its hands and more than a few conspiracy theories to sort through.

With anxieties about gas leaks rattling the nerves of the city, Mayor Michael R. Bloomberg held a press conference to assure residents that the city’s air-quality detectors had found no cause for alarm. He hypothesized that the odor could have been caused by the release of mercaptan, a compound that smells like rotting eggs and is added to natural gas so people can detect and report leaks.

Throughout the day, possible culprits — among them a minor gas leak in Greenwich Village and natural-gas pipelines in northeastern New Jersey — were considered and ruled out.

The olfactory mystery in the New York region was matched by strange activity elsewhere. In Austin, Tex., police cordoned off 10 blocks of the downtown business district early yesterday after more than 60 birds were found dead overnight along Congress Avenue, which leads to the State Capitol. Air testing there failed to find a cause, but preliminary results determined that people were not at risk.

In New York, the piercing odor was the talk of Manhattan, and it called to mind another mystery: the maple syrup odor that people reported smelling on separate days in late 2005 and whose source has never been established. In yesterday’s case, several people said they were overcome by the odor.

“I feel faint,” said Ivolett Bredwood, a legal assistant who noticed the odor once she stepped off a New Jersey Transit train at Pennsylvania Station around 8:45 a.m. The smell trailed her as she walked to her office, at 99 Park Avenue, which was briefly evacuated. “It’s an awful, nasty smell.”

The widespread uncertainty and potential for danger led the authorities to take numerous precautions as thousands of reports of the odor flooded into 911 and utility hot lines.

The Metropolitan Transportation Authority briefly closed the subway station at 23rd Street and Avenue of the Americas, as well as a control tower at West Fourth Street. Service was temporarily halted on PATH lines terminating at 33rd Street.

The major gas utilities — Consolidated Edison in New York and Public Service Electric and Gas in New Jersey — checked their transmission lines and reported no leaks, changes in pressure or other abnormalities.

The city’s Department of Environmental Protection dispatched a mobile laboratory to the West Side with meters to test for ammonia, chloride, cyanide, methane, carbon monoxide, hydrogen sulfide and volatile organic compounds. “That’s the hardest part, finding the source,” said Christopher Haas, a department specialist in hazardous materials. “Air is very dynamic.”

Officials were reluctant to discuss terrorism precautions in great detail, but they said that the city regularly monitors the air with machines that can detect the presence of chemical, biological or radiological substances.

At the Port Authority Bus Terminal, some alarmed passengers thought that their buses had problems. And at the Equitable Center, on Seventh Avenue between 51st and 52nd Streets, air vents were closed to keep the odor out. Two schools were evacuated. Norman Thomas High School in Midtown was emptied for about 50 minutes beginning at 9:30 a.m., while students at Public School 11 in Chelsea were taken to Public School 33 nearby.

Jeremy Fleishman, a worker at a computer repair shop in Chelsea, said it smelled as if “somebody left the Bunsen burner on” in chemistry class. By 10:30 a.m., he said, “it mostly dissipated — or maybe we just got used to it.”

At 980 Avenue of the Americas, a building that was briefly evacuated, a guard, Ralph Supino of Secaucus, N.J., said he called Con Edison but reached only recorded messages. “They were overwhelmed,” he said.

For some, it seemed logical that the odor was tied to some sort of terrorist plot. At 1250 Broadway, which was also briefly closed, a guard, Miguel Contreras of Irvington, N.J., said that thought raced through his mind when he noticed the smell upon arriving at the bus terminal on his way to work.

“You pray to God that everything is fine and it’s just a leak somewhere,” he said.

Adding to the alarm was the strength and duration of the odor, which may have been aggravated by a weather phenomenon known as a temperature inversion. Inversions, which often occur when a warm front moves over a cooler, denser air mass, cause the temperature closer to the ground to be cooler and the air higher up to be warmer — a reversal of the usual pattern. Inversions can trap pollutants and odors, preventing them from being dispersed upward.

David Wally, a meteorologist at the National Weather Service’s forecast office in Upton, N.Y., said a warm front approached the city between 7 and 8 a.m., making it “very possible” that an inversion trapped the pollutants and gaseous odor closer to the ground. The inversion eroded later in the morning, he said.

The city recorded 4,500 more 911 calls than usual between 9 and 11 a.m., with most of the increase in Manhattan. The Fire Department responded to 450 calls, 41 of them for emergency medical assistance.

Dr. Kristin E. Harkin, an emergency-medicine physician at NewYork-Presbyterian Hospital/Weill Cornell Medical Center, said that strong odors can worsen the symptoms of people with chronic respiratory ailments like asthma and emphysema.

Some suspicion fell on New Jersey, given the path of the prevailing winds and the prevalence of chemical and petroleum facilities in the state. Calls about the smell were received in West New York,Weehawken and other places.

In Hoboken, the downtown police headquarters and several office buildings were briefly evacuated, according to Mayor David Roberts, who said he took an anxious call about the smell from his wife.

Jack Burns, coordinator of the Hudson County Office of Emergency Management, in Secaucus, said that officials had ruled out the possibility of a mercaptan spill there. He added, “If it’s in New York and people can smell it in western Hudson County, that’s a lot of it, whatever it is.”

Michael Williams, an accountant in Jersey City, said he delayed taking a smoking break for more than an hour because the odor was so intense. “I didn’t want to spark an explosion or anything,” he said.

Reporting was contributed by Carla Baranauckas, Ken Belson, Thayer Evans, Cassi Feldman, Kate Hammer, Christine Hauser, David M. Herszenhorn, John Holl, Patrick LaForge, Colin Moynihan, William Neuman, Andy Newman and Ronald Smothers.

Sunday, January 07, 2007

Car Growth in European Cities: Income Effects versus Price Effects

This New York Times article today echoes several themes of Chapter 7 of my Green Cities book. Suburban growth in Dublin and other cities increases the likelihood that people commute by car rather than by foot or public transit. The article does not appear to discuss road pricing and congestion charges as a means to mitigate road congestion.

Transportation economists such as John Kain have argued that the world income elasticity of vehicle ownership equals 1. So, a 10% increase in per-capita income increases a nation's vehicle ownership rate by 10%. That can add up over time! How many vehicles will there be in Beijing in 2050? Will Ford have built any of them?

January 7, 2007
Car Boom Puts Europe on Road to a Smoggy Future

DUBLIN — Rebecca and Emmet O’Connell swear that they are not car people and that they worry about global warming. Indeed, they looked miserable one recent evening as they drove home to suburban Lucan from central Dublin, a crawling 8.5-mile journey that took an hour.

But in this booming city, where the number of cars has doubled in the last 15 years, there is little choice, they said. “Believe me — if there was an alternative we would use it,” said Ms. O’Connell, 40, a textile designer. “We care about the environment. It’s just hard to follow through here.”

No trains run to the new suburbs where hundreds of thousands of Dubliners now live, and the few buses going there overflow with people. So nearly everyone drives — to work, to shop, to take their children to school — in what seems like a constant smoggy, traffic jam. Since 1990, emissions from transportation in Ireland have risen about 140 percent, the most in Europe. But Ireland is not alone.

Vehicular emissions are rising in nearly every European country, and across the globe. Because of increasing car and truck use, greenhouse-gas emissions are increasing even where pollution from industry is waning.

The 23 percent growth in vehicular emissions in Europe since 1990 has “offset” the effect of cleaner factories, according to a recent report by the European Environment Agency. The growth has occurred despite the invention of far more environmentally friendly fuels and cars.

“What we gain by hybrid cars and ethanol buses, we more than lose because of sheer numbers of vehicles,” said Ronan Uhel, a senior scientist with the European Environment Agency, which is based in Copenhagen. Vehicles, mostly cars, create more than one-fifth of the greenhouse-gas emissions in Europe, where the problem has been extensively studied.

The few places that have aggressively sought to fight the trend have taken sometimes draconian measures. Denmark, for example, treats cars the way it treats yachts — as luxury items — imposing purchase taxes that are sometimes 200 percent of the cost of the vehicle. A simple Czech-made Skoda car that costs $18,400 in Italy or Sweden costs more than $34,000 in Denmark.

The number of bicycles on Danish streets has increased in recent years, and few people under the age of 30 own cars. Many families have turned to elaborate three-wheeled contraptions. (Beijing, meanwhile, has restricted the use of traditional three-wheeled bikes.)

On a recent morning in Copenhagen — which is flat, and has bike lanes — Cristian Eskelund, 35, a government lobbyist, hopped on a clunky bicycle with a big wooden cart attached to the front. The day before, he had used the vehicle, a local contraption called a Christiania bike, to carry a Christmas tree he had bought. This day, he was taking his two children to school, then heading to the hospital, where his wife was in labor.

“How many children do I have?” Mr. Eskelund said. “Two, perhaps three.”

There are high-end options, too. At $2,800, a three-wheeled Nihola bike costs as much as a used car, but many people insist it is far more practical. Sleek, lightweight, with a streamlined enclosed bubble in front, it is good for transporting groceries and children.

High taxes on cars or gasoline of the type levied in Copenhagen are effective in curbing traffic, experts say, but they scare voters, making even environmentalist politicians unlikely to propose them. When Britain’s chancellor of the exchequer, Gordon Brown, revealed his “green” budget proposal, it included an increase in gas taxes of less than two and a half cents per quart.

Other cities have tried variations that require fewer absolute sacrifices from motorists. Rome allows only cars with low emissions ratings into its historic center. In London and Stockholm, drivers must pay a congestion charge to enter the city center. Such programs do reduce traffic and pollution at a city’s core, but evidence suggests that car use simply moves to the suburbs.

But Dublin is more typical of cities around the world, from Asia to Latin America, where road transport volumes are increasing in tandem with economic growth. Since 1997, Beijing has built a new ring road every two years, each new concentric superhighway giving rise to a host of malls and housing compounds.

In Ireland, car ownership has more than doubled since 1990 and car engines have grown steadily larger. Meanwhile, new environmental laws have meant that emissions from electrical plants, a major polluter, have been decreasing since 2001.

Urban sprawl and cars are the chicken and egg of the environmental debate. Cars make it easier for people to live and shop outside the center city. As traffic increases, governments build more roads, encouraging people to buy more cars and move yet farther away. In Europe alone, 6,200 miles of motorways were built from 1990 to 2003 and, with the European Union’s enlargement, 7,500 more are planned. Government enthusiasm for spending on public transportation, which is costly and takes years to build, generally lags far behind.

For instance, Dublin and Beijing are building trams and subways, but they will not reach out to the new commuter communities where so many people now live.

The trend is strongest in newly rich societies, where cars are “caught up in the aspirations of the 21st century,” said Peder Jensen, lead author of the European Environmental Agency report on traffic.

Peter Daley, a Dublin retiree who has five children, said: “We used to be a poor country and all the kids used to leave to find work. Now they stay and they need a car when they’re 17. So families that would have had one car 15 years ago, now have three or four.”

As a result, traffic limps around Dublin’s glorious St. Stephen’s Green. Just as skiers can check out the snow at St. Moritz on the Internet, drivers can monitor Dublin’s traffic through the City Council home page.

In the past two years, the city has completed two light-rail lines. During the holidays, the police provide extra officers to direct traffic at all major junctions. But nothing helps much.

When the O’Connells returned from London four years ago, and could not afford the prices of Dublin’s city center, they bought a wood and brick semi-detached house in one of hundreds of new developments. Today, it seems that every home has two or three cars out front.

“No one thought, ‘How will all these people get home from work?’ ” said Mr. O’Connell, an architectural technician, who said the commute took just 20 minutes at first. Ms. O’Connell’s job at the National College of Art and Design in downtown Dublin comes with a parking space. So their gray Toyota Yaris is their lifeline.

One day a week, Mr. O’Connell does take the bus. But if he does not leave home by 7:30 a.m., the buses are all full and simply speed by his stop. On a recent evening, their 18-year-old daughter, Imogen, missed her art class in town because the bus ride took two hours; when she tried to get home, all the buses were full, leaving her stranded.

So they drive. “I complain and I moan, but we continue,” Ms. O’Connell said. “I suppose if petrol got really expensive or I lost my free parking, we’d face up to the fact that we shouldn’t be driving so much, and try to figure something else out.”

John MacClain, a cabdriver in Dublin for 20 years, said that on a recent trip to Prague, he liked the architecture just fine. But what really impressed him, he said, was “the tram system.”

“Now that was beautiful,” he said. “I could get everywhere with ease.”

Thursday, January 04, 2007

Housing Supply Limitations in San Francisco

I am not at the 2007 ASSA meetings in Chicago. While I'll miss seeing many of my old friends, they know where to find me. My UCLA phone # is public information and I return some phone calls!

Tomorrow is my first day at UCLA and my son starts kindergarten on monday. So, there is a lot going on. Now that my Green Cities book has been published, I would have enjoyed sitting near the Brookings Institution booth at the Economics meetings and trying to convince people who walk by, and are browsing for books, to buy my book and better yet --- adopt it for their environmental economics and/or urban economics courses. At $12 a book, the ideas per $ spent is high relative to many other books!

At Starbucks today, I read an interesting article in the S.F Chronicle on subtle housing supply limitations . In this article below, note that the real estate developer thought he had a deal but two urban politicians are implicitly voiding the original deal and demanding more "affordable" housing to be set aside before they sign off on changes to the zoning code.

It appears that the politicians are raising the effective tax on the project, discouraging developers from developing new housing in this expensive city.
Such developers may respond by sprawling into the less regulated suburbs.

Trinity deal hits a snag
Some supervisors want more units at a rate below market
- Robert Selna, Chronicle Staff Writer
Thursday, January 4, 2007

When 82-year-old Angelo Sangiacomo peers out the large windows of his penthouse offices above Market Street, he can survey a vast real estate empire amassed through decades of investing in apartment buildings.

But just a few steps from Sangiacomo's office near the corner of Eighth and Market streets, is Trinity Plaza -- a notable blemish on his record of profits and growth.

The converted motel with 360 rent-controlled apartments occupies a piece of land that Sangiacomo and others say is suitable for a bigger, grander residential development.

Earlier this year, Sangiacomo believed he had finally struck a political deal to end 20 years of opposition from politicians and tenants advocates over the fate of Trinity Plaza and its mostly lower-income occupants.

In exchange for the city allowing him to construct three towers that would be taller and larger than what is permitted in the mid-Market neighborhood, Sangiacomo would not only set aside 12 percent of the project to be leased at below-market rates, but also permit current occupants of Trinity Plaza to remain, without paying more, in apartments that would continue to be covered by the city's rent-control law.

But as the agreement comes back before the Planning Commission and the Board of Supervisors early this year for what were expected to be routine approvals, a deal once celebrated by both the developer and tenants in a city with a continuing affordable-housing shortage now appears to be in trouble.

"This is agony," Sangiacomo said in a recent interview, using an expletive to describe unspecified officials now arguing that the city is not demanding enough affordable housing from of one of San Francisco's wealthiest landlords. "What can you do with them? They're beyond reproach. They should be building a bronze statute out on that corner for me -- instead they want more."

Sangiacomo is called the father of rent control in San Francisco because his steep rent increases in the 1970s helped inspire a public response to protect tenants. Property records indicate that Sangiacomo and his numerous business entities own hundreds of properties in California, the bulk of which are in Sonoma and San Francisco.

Under city rent control, the San Francisco Rent Board sets the allowable annual rent increases at apartment buildings constructed before 1979, the year the law went into effect. When an apartment covered by rent control is vacated, the landlord can raise the rent to whatever the market will bear, but future yearly increases are again set by the Rent Board -- typically lower than market rates -- until the apartment is once again vacated.

Sangiacomo bought Trinity Plaza, a former Del Webb's Townhouse motor lodge, in 1977 and converted it to apartments.

His original plan, to raze the former motel and develop the property, has consistently been thwarted by officials and tenant advocates because a rebuilt Trinity Plaza wouldn't be covered by the city's rent-control laws.

Through talks with Supervisor Chris Daly, whose district includes Trinity Plaza, and who had stood in the way of demolition of the old Trinity Plaza building, Sangiacomo thought he had resolved that issue in late 2004, by agreeing to a unique arrangement: The 360 rent-controlled apartments would be replaced by the same number of brand new units to be grandfathered in under the rent control law, ensuring that current Trinity Plaza tenants would have low rents for life.

Also, as required of developers of all new residential projects at the time, 12 percent of the new non-rent-control units would be made available at lower-than-market rates.

Another benefit to the city, according to some observers, was that Sangiacomo said he'd rent all of the new units as apartments rather than offer some for sale as condominiums -- a rare scenario in San Francisco, where rental housing for people who can't afford down payments is at a premium in part because developers typically earn a higher rate of return on condominiums.

For Sangiacomo, the deal made good business sense, allowing him to build a large, mostly market-rate housing development on land that had sat underutilized for decades.

In August of 2006, the city Planning Commission signed off on the deal -- agreeing to let Sangiacomo add 500 units to the project, bringing the total to 1,900 units. Twelve percent, or 185 of the non-rent-control units, would still be rented at more affordable below-market rates. When completed, the apartments would house more than 3,000 tenants.

Daly, the former advocate for affordable housing who was running for re-election as supervisor earlier this year, hailed the agreement as a political win for all involved.

But on Nov. 7, to the surprise of Sangiacomo and Daly, two members of the Board of Supervisors, Jake McGoldrick and Sophie Maxwell, succeeded in persuading some of their board colleagues, at least temporarily, to block height and density amendments to the city's general zoning and development plan that would have allowed the project to go forward.

They said they needed more time to study the Trinity Plaza proposal, and both have tried to get a better deal out of Sangiacomo.

"They're (Sangiacomo) asking for an extraordinary, unheard-of level of density," said McGoldrick. "I say, 'Fine, take it, but give us more units that are below market rate.' ... If they can't do more, then maybe they shouldn't be getting more density."

Part of what emboldened McGoldrick and Maxwell to ask for more is that the week before the Planning Commission signed off on the deal, the Board of Supervisors passed legislation amending the city's so-called Inclusionary-housing law, raising to 15 percent the share of units in new developments that must be leased or sold at below-market rates.

Daly and others who have worked behind the scenes to help broker the deal with Sangiacomo have made it clear that they are frustrated by what they consider 11th-hour interloping by McGoldrick and Maxwell, which threatens to interfere with what they believe is a good bargain for the city.

Daly said he is fully prepared on his own to ensure that Sangiacomo meets the higher 15 percent affordable-housing standard without help from McGoldrick and Maxwell.

"They'll agree to the 15 percent," Daly said of Sangiacomo. "I don't need to hear that from them."

But Sangiacomo, who said that he would lose money on the rent-controlled tenants and that he has already spent millions on environmental studies, consultants and other issues related to Trinity Plaza, said he is on the verge of giving up on his plans for Trinity Plaza.

"I've learned that sometimes the best deals are the ones you walk away from," Sangiacomo said. "I've had it ... I'm trying to do something good for the city and keeping my word, and they're making it impossible to do anything."

Kate White, Bay Area Director of the Urban Land Institute, a developer group, said if Sangiacomo does walk away, it would amount to a lost opportunity for the city to get some much-needed new rental housing.

White said the critics' push for more affordable units is reasonable, given how big the project would be. The rent-controlled units do not represent long-term affordable housing because they revert to market rate when vacated, she said.

"This is such a huge increase in density at a great location; it will be very profitable, assuming that it ever gets built," White said. "It could be a fabulous thing for the city and for that mid-Market area."

Ken Werner, chairman of the Trinity Plaza Tenants Association, said he believes the new apartments will be built despite the current problems. He said the agreement in which Sangiacomo pledged to preserve the rent-controlled units was the first time in San Francisco that a tenants association and a landlord worked together to find such a solution.

"I think Mr. Sangiacomo will continue to work with us," said Werner, 58, who has lived at Trinity Plaza for more than 13 years. "We need rental housing in this city. ... This agreement will protect rent-controlled apartments and increase the stock of rental housing in San Francisco."

E-mail Robert Selna at rselna@sfchronicle.com.

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URL: http://sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/01/04/BAG31NCDR51.DTL