Alfidi Capital at 8th Annual Mineta National Transportation Finance Summit

I showed up at the Commonwealth Club in June 2017 for the Mineta Transportation Institute's annual National Transportation Finance Summit. It's the eighth annual event but I lost count a couple of years back. Mr. Norman Mineta himself was absent this year so there must have been something more important on his calendar that day. Transportation addicts can get their fix of public policy downloads on the MTI website. You folks did not come to the Alfidi Capital Blog for any verbatim recaps of speaker comments. No way, you came here for my original free-form genius. Brace yourselves.

MTI 8th Annual finance summit 2017 in San Francisco.

The federal gasoline tax has not been raised since the Clinton Administration, so it has not kept up with inflation. The tax's funding for repair of federally-owned roadways has thus not kept pace with road repair needs. The coming onslaught of zero-emission vehicles (like that new model Tesla is rolling out so it can actually make a profit) will further strain roads with their heavier drive trains while their owners avoid paying the gas tax, so California is preparing to assess its own annual fee on these vehicles.

I agree with one of the summit's speakers that municipal bond issues should fund initial road construction (capex) and not regular repair (opex). The Federal Highway Administration has a helpful life-cycle cost analysis (LCCA) guide for road repair. States that spend public money wisely will do the math before asking voters to approve now bond issues. California's DOT has its own LCCA because we are the best state ever.

I wonder what the California state transportation sector thinks of Sacramento's cap-and-trade carbon control regime. It matters because the California EPA Air Resources Board has a slew of programs covering emissions from transportation activities. The transportation sector needs to check out the state's low carbon fuel standards.

One speaker mentioned some Harvard study supporting his idea that spending on transportation connectivity provides access to jobs. I'll guess that he meant this 2015 Harvard study "The Impacts of Neighborhoods on Intergenerational Mobility" because I couldn't find anything else in public sources that fit the description. The larger point is that public spending to promote employment also requires spending to enable people to get to their jobs.

The Federal Transit Administration has committed capital investment grants to help mass transit projects. It's a boon for Bay Area programs like BART that want to extend line service. We still don't know the full details of this Administration's infrastructure plan. If it remains focused on tax incentives for developers, it may change the scope of the federal government's grant programs or bypass them altogether. It will also force local funding programs like the Metropolitan Transportation Commission's (MTC) One Bay Area Grant (OBAG) to align with local developers' interests. Aligning public and private interests can be a good thing if transit spending is linked to development planning and job creation.

I went to this summit for the free snacks and stayed for the talks. You all know that I never let free food get in the way of acquiring financial knowledge. The free brochures go into my archives and the free thinking goes into my brain. The bottom line for the financial services sector is that demand for infrastructure, including public transportation linked to private development, is slated for multi-year growth. Bonds and other instruments funding infrastructure are coming down the road.

The Haiku of Finance for 01/28/16

Safely transport oil
Pipelines are still the best way
Railcars come second

The Limerick of Finance for 10/18/15

China likes California's train deal
Early bid shows competitive zeal
State must still raise more cash
So the project won't crash
Major money will make the plan real

The Haiku of Finance for 06/30/15

Road upkeep funding
Many assessment sources
Pay repair backlog

Hanging Out at MTI Transportation Finance Summit 2015

The Mineta Transportation Institute (MTI) holds frequent conclaves at the Commonwealth Club of California.  I have attended several of their events, so of course I had to attend this month's Transportation Finance Summit.  Checking CalTrans for transportation financing data matters for engineers and urban planners who must spend tax dollars wisely.

The keynote speaker described the enormous backlog in the state's highway maintenance schedule.  County governments have an even larger backlog for local road maintenance.  I do not believe the state should play any role in funding or controlling local road development.  It is uneconomical to commit state funds to streets in municipalities that are not economically viable.  Vallejo, Stockton, and other places have overbuilt their suburbs.  Overgrown towns will eventually unbuild what they cannot sustain, just like Detroit.  Urban planning drives transit policy.  Too much uncontrolled growth gets us roads and bridges to uninhabited areas.

The latest MTI survey of public attitudes toward transit funding reveals nuances that policymakers should recognize.  The conventional wisdom that transportation taxes are unpopular breaks down as the public entertains options that commit funds to wise use.  Variations on specific uses of revenues get progressively higher support if policymakers address pollution, modern tech, and safety.

The expert panel revealed much about policy planning iterations.  Inflation-linked gas taxes may work but they are not a complete solution for fully funding road maintenance as gasoline use declines over the long term.  Big Data from in-car solutions offers a trove of insights into how daily car habits impact road use.  I think industry will easily share that data with regulators and drivers won't object.  The California Transportation Commission has a voice in the process if citizens want to air their privacy concerns about shared data.

The rural California counties that are too poor to raise revenue and too sparsely populated for efficient mass transit have unique planning challenges.  The obvious policy default is to orient their economies toward agriculture and encourage high residential density around a core that has exactly one rail link to the rest of the state.  Our ancestors had the answers generations ago, when rural folk did not expect to have urban lifestyles.

Sales taxes typically support local transit funding, without user fees that assess those who more heavily use infrastructure.  The panelists note that government planners are willing to explore assessments on ton-miles, vehicle weight, axle weight, and other metrics that require heavier vehicles to contribute more revenue for their extra burden on highway upkeep.  If axle count is in play, then I say hybrid cars are also in play for special assessments because their drive trains are heavier than internal combustion engines.

I had way more fun than most laypeople at this Transportation Finance Summit.  One participant even gave me some hints about supporting the Transportation Research Board (TRB) of the National Academy of Sciences.  I have subscribed to the TRB's email feed for years.  The board could benefit from finance types like me who contribute expertise on cost estimates and revenue options for a given policy mix.  I might just pay them a visit the next time I'm in Washington, DC.  

The Haiku of Finance for 03/31/15

Transit governance
Stable funding for cheap fares
Car drivers will pay

Financial Implications Of The Regional Transit Governance Seminar 2015

I attended today's Regional Transit Governance Seminar at the Commonwealth Club.  The theme of "Empowering Bay Area Transit" would be a whole lot easier to do without so many transit agencies to coordinate in the nine county Bay Area.  The Mineta Transportation Institute (MTI) introduced recent studies from the Eno Center for Transportation and SPUR showing how bass-ackwards our local transit governance has become.

Eno's "Getting to the Route of It" report devotes nine of its 89 pages to the Bay Area's transit governance.  The Bay Area system succeeds in spite of itself.  SF Muni does much of the heavy lifting by regulating multiple modes within its jurisdiction.  SPUR's "Seamless Transit" report notes that riders encounter cost penalties in transferring from one local system to another.  A single fare for a multi-leg trip would reduce rider friction, as would a unified route map.  Read the reports yourselves for the details.

The policy analysts joined the panel of local transit big-shots to entertain plans for fixing the mess.  I was impressed that the top honchos of the major regional transit providers came for this seminar.  I was even more impressed that the often whiny Commonwealth Club members submitted questions that avoided grandstanding on pet projects.  Way to go, San Francisco.  The City is demonstrating adult responsibility.  I like to think that the radiance of my genius in the room has something to do with this maturation.

The panelists noted a few common themes that are very germane to the financial subjects found here on the Alfidi Capital Blog.  Someone claimed that BART fares respond to the Consumer Price Index (CPI) minus 0.5%.  State and federal transit subsidies allow BART the luxury of such a simplistic pricing scheme.  True fares cannot be that simple because they must somehow account for operating costs.  Spikes in electricity demand drive prices up during the day, particularly summer.  BART's financials may shed some light on their costs.

Transit officials know that subsidies from revenue sources other than fares maintain their systems.  In a perfect world, the annual farebox recovery ratio for municipal transit providers would be very close to 100%.  American taxpayers should insist that their transit agencies aim to be as financially efficient as the ones exceeding 100% in Asian metropolises.  The Federal Transit Administration's National Transit Database collates operating costs and farebox recoveries from transit agencies across this great land of ours.  APTA cited that database's 2010 report to show that US rail systems have farebox recovery ratios of 20-40% and operating costs of $200-350/hour.  Slide 21 of that summary shows BART and Muni with costs pretty close together, but BART's farebox recovery ratio is much higher (over 70%) than Muni (over 20%).  Muni has some explaining to do if they haven't improved that ratio since 2010.

It's obvious that technical solutions like the Bay Area's Clipper Card are easier for policymakers to push than political solutions.  The State of California's Strategic Growth Council is supposed to provide guidance for local development that supports statewide infrastructure spending.  Plan Bay Area is this region's answer to the state's sustainability challenge.  The value of these state and local efforts is their preference for development that maximizes mass transit use.  The clear implication for investors is that property values will be permanently higher for high-density development around multimodal transportation nodes.  Property appraisal, municipal bond valuation, and investment decisions will all revolve around this integrated land-use focus for generations.  That's the bottom line for Alfidi Capital.

Here's my own contribution to smart planning.  Bay Area transit systems can't get their farebox recoveries to Asian levels because too many people in this region are still moving around by automobile.  Making passenger care use prohibitively expensive will get more cars off the road.  I say San Francisco should require all passenger car owners to register their cars and pay an annual fee to operate them.  Start it small, say $100 per car, and then raise it every year until the poor and lower middle classes are weaned from car ownership.  People on limited incomes will quickly get rid of their cars and switch to mass transit.  Owning a car is not a human right.  Urban space is at a premium and using it for private transit should carry a premium price.  You have to love these Alfidi Capital solutions.

I cannot solve all of our transit agencies' financial problems with such an elegant move.  The panelists noted that housing development property taxes paid to the state under Prop 13 offer less financial benefit to local transit agencies than commercial developments that pay local sales taxes.  Waving the magic wand over development should tell planning commissions to combine mixed-use development near transit nodes with higher gasoline taxes and parking fees that will be useful subsidies for transit agencies.  I totally grok the panel's point that countercyclical funding sources will stabilize revenue sources vulnerable to recessions, when sales taxes and fares from ridership both drop.

I would very much like to solve the agencies' labor cost problems by decertifying their unions and drastically curtailing expensive work rules.  Alas, labor problems turn bipartisan support for transit programs into partisan food fights over pension benefits and votes.  It was good to hear the panelists express support for private transit options like Google buses.  I doubt those are run by union thugs.

Smart people want local transit to run better.  Transit boards have the technical skill to work around hard political problems.  The politicians supporting them will listen to polls over research data, but they will also listen to financial elites before anyone else.  Finance will lead the way to more valuable land use when investments around transit infrastructure are at stake.  Elites can count on Alfidi Capital to fill in the analytical holes in the road.

Full disclosure:  I take SF Muni to events at the Commonwealth Club.

The Haiku of Finance for 12/15/14

Taxi app pricing
Charge extra in a crisis
Really price gouging

The Haiku of Finance for 07/01/14

Transit user fee
Adjust for high inflation
Fare by the minute

Alfidi Capital Checks Out Mineta Transportation Institute National Policy Summit 2014

I attended the Mineta National Policy Summit for 2014 at the Commonwealth Club a few days ago.  More policymakers should follow the Mineta Transportation Institute's work on funding transit infrastructure.  Lobbying organizations for the transportation industry certainly pay attention, and that's why lobbyists' legislative agendas are enacted into federal appropriations.  I never turn down a free breakfast and the Mineta people paid for enough banana nut bread and coffee cake to incentivize my attendance.

The head of DOT's Federal Transit Administration spoke on federal policy and the status of the Highway Trust Fund.  I've read plenty of commentary about the Fund's stresses from lapses in funding, and the transportation sector is very willing to accept higher fuel taxes.  Trucking operators know the federal highway system's disrepair better than anyone.  The FTA adapted its MAP-21 program to incorporate the New Start / Small Start Capital Grant Investment Program.  Making a long story short means there's federal money available for municipalities to upgrade transit infrastructure.  My only concern about such spending is that the federal government should not fund transit projects that do not connect to national infrastructure.  I can understand a new light rail line that connects an urban core to a major airport, because that airport connects to the rest of the US.  I do not agree with federal funding for a local line from one end of a waterfront to another, or to a ballpark.  That's an issue for local voters to decide.  There's too much room for local boondoggles and politicking in those projects that is impenetrable to federal review.  She mentioned that the Grow America Act is supposed to fix a long backlog of infrastructure and workforce development projects.  It's good to know that this Administration is getting serious about fixing the failing grades in the ASCE Report Card for America's Infrastructure.

Mineta analysts published the results of their MTI Project 1328 survey linking tax options to transit funding.  Americans are more likely to cough up dough for safety and maintenance than for global warming.  The climate change alternative religion IMHO hasn't convinced everyone just yet.  The Mineta panelists noted that Americans' views of transportation funding have remained consistent throughout changing economic cycles, which is no surprise for a topic typically off the low-information voter's radar.  I support the Obama Administration's proposed repeal of the ban on interstate tolling, because travelers who use our national infrastructure should pay for it as they go in addition to paying fuel taxes.  The panelists mentioned the recent APTA 2014 International Practicum on Innovative Transit Funding & Financing in Montreal, where experts presented case studies on how transit enhances property values.  That is the kind of data-driven analysis that urban planners need when municipal finance offices assemble bond issues for projects.

The various presenters made good points that lead me to ponder some untouched issues.  The sharing economy is just taking off and it will eliminate demand for parking garages and lots at airports and other nodes.  Those lots will become excess infrastructure we don't have to repair or expand.  I predict major public policy moves in favor of infill development of unused parking lots.  There is still unresolved tension between car advocates who think reduced metering increases retail commerce and transit advocates who think smart metering (changing fares by hour, congestion, and vehicle emission standards) enhances commerce.  Let's put the data from each side up for comparison, for crying out loud.  I would also like to see transit advocates address the GAO's reviews of DOT's recent results.  The GAO-14-628R report from May 2014 found that DOT's documentation and internal controls for TIGER grants were inadequate.  It is very disturbing to think that billions of dollars in grant money have been wasted on unneeded projects for expedient reasons.  I have already revealed my bias against federal funding of transportation projects that have only local impacts.  Such projects contribute to overbuilt suburbs and unsustainable communities.  The last thing the federal government needs in an innovative transportation funding program is a repeat of the DOE's politically connected solar loan program debacle.  The US still needs a National Infrastructure Reinvestment Bank to help vet these projects, because more transparency and review from the financial markets will help reduce the influence of political cronyism in infrastructure funding.

I attended the Mineta summit in 2013.  Compare my analysis at that link from last year to the article you're reading now.  The question I posed last year about whether California can sustain muni bond issuance in a difficult economic environment may soon find its answer in the markets.  I have recently noted the exit fees bond fund investors will likely face before the bond market collapses.  Muni bond fund investors will not escape their positions in advance of a bond market crisis.  Infrastructure awaiting funding will have to wait even longer while the bond market returns to historically normal conditions.  I think both the DOT and Mineta analysts should plan for transportation funding mechanisms that will survive a prolonged hyperinflationary depression.  Maybe user fees and gas taxes will have to adjust by the hour to keep up with inflation in a crisis.  I'll look for their solutions at next year's summit.  

Bad Infrastructure Grades Include Pipelines And Electricity Transmission Lines

It is very depressing to read the poor grades the ASCE gives to America's infrastructure.  The organization's Infrastructure Report Card for 2013 shows that most of this country's public facilities earn D's.  That is embarrassing.  It's also a serious disconnect from the World Bank's LPI, which rates America's transportation infrastructure as having the 9th best infrastructure worldwide in 2012.

The LPI ranking is a more comprehensive score that includes human competencies in processing and tracking movements.  The ASCE's report card addresses only the physical quality of infrastructure, but this does not explain its mismatch with the World Bank's data.  Adjusting the LPI rankings so that the "Infrastructure" column achieves primacy elevates the US to the fourth-highest overall score just for that category.  That is an even more severe divergence from the ASCE's opinions.  This disconnect's underlying cause becomes apparent once we delve into the World Bank's "Domestic LPI" data.  Clicking the "Infrastructure" link there shows that the LPI scores are based on self-reported assessments from respondents.  Compare this with the ASCE's more scientific assessment of physical deficiencies.  The ASCE's report card assesses investment need while the World Bank's surveys assess operating capacity.  The Alfidi Capital conclusion is that the US economy can continue to perform at the high proficiency that the LPI scores indicate, right up to the point everything falls apart if the US does not correct the glaring deficiencies the ASCE noted.

The ASCE report card thankfully addresses energy infrastructure.  Pipelines and electricity transmission lines are significant infrastructure categories, and many of these assets are privately owned.  USDOE's EIA tracks the natural gas pipeline grid but regulatory oversight for new investment is distributed among several federal agencies.  USDOT maintains the National Pipeline Mapping System for the most complete picture of the network's physical layout.  FERC has the most regulatory control over the pipeline operating companies when they address markets.  The AOPL's industry facts and policy issues do not address the overall physical condition of the nation's network.  Assessing the sectors' investment needs means examining the annual reports of the major pipeline operators.

FERC completed a comprehensive study of the electricity transmission grid in 2002.  The most important takeaway from any study of the nation's electric grid is that there is little connectivity between the east and west halves of the country.  The next most important takeaway is that there is little connectivity to the most promising undeveloped sites for wind farms in the north-central US.  The Edison Electric Institute tracks investments in the electric transmission grid.  The US Bureau of Land Management has a plan to accelerate permitting on land designated as corridors for transmission lines.  The need for additional investment is as obvious as the need for multi-jurisdictional regulatory coordination.

The US clearly needs to upgrade its physical infrastructure.  The ASCE's estimated bill for $3.6T could probably have been paid with the cost of our wars in Iraq and Afghanistan plus the Wall Street TARP bailout.  America instead chose to delay urgent investments in its public commons.  This huge bill for infrastructure must now compete with middle class entitlements that the Bowles-Simpson NCFRR report determined to be unsustainable.  America is in for a hard core wake-up.  The bill for infrastructure is due now.  

TRB's TED And TCAPP For Transportation And Economic Planning

I sort through my social media feeds for interesting events to attend.  I'll have to miss the I-TED 2014 International Transportation Economic Development Conference due to a schedule conflict but reading about it got me thinking about the connections between infrastructure and economic growth.

I track the Transportation Research Board's publications.  I can't use their technical reports but the board publishes an extensive array of economic research useful to the finance community.  The TRB's Transportation and Economic Development Committee is of particular interest.  I noticed that this TED Committee publishes its research needs online and anyone can sign up for its newsletter.

I sort through feeds like this to find the handful of actionable logistics information that the finance community needs to see how infrastructure drives investment.  One cool tool I discovered today is the Transportation for Communities - Advancing Projects through Partnerships (TCAPP) program.  TRB developed a handy-dandy executive guide for multiagency planning using TCAPP.  The Federal Highway Administration already uses TCAPP.  I believe that finance professionals who specialize in the transportation sector can use this tool as background research for project costs and ROIs.

I would be intrigued to see how municipal bond underwriters use collaborative tools to estimate the viability of infrastructure bond issues.  That may be asking too much of finance types.  My experience with a few investment bankers is that they are too intellectually lazy to do their own project work but will quickly steal someone else's analysis if they think it will enhance their sales pitch.  I prefer to do my own homework, and that's why I prowl the Web for tools like TCAPP.  

Could FedEx Really Be This Clueless On Coupons?

The only vendor I have ever used for business cards is FedEx.  They aren't the cheapest in town compared to some locally-owned print shops but they are fast, reliable, and convenient.  I've never had a problem with their products.  Their promotions, however, leave me wondering.

I picked up some new business cards today.  They look quite snazzy with the minimalist layout I designed myself, thank you very much.  The courteous FedEx employees behind the counter were so grateful for my business at the FedEx Office store on Sloat Blvd. in San Francisco that they handed me a coupon.  They are efficient and they have always been helpful to me.  I checked out the coupon when I got home because I'm one of those guys who always reads the fine print.  I'd like to share my discovery with all of you.

The first picture above is from the left side of this coupon.  Note the "order by" date of 12/31/2013 on the bottom.

The second picture above shows what puzzled me about two thirds of the way down the fine print.  The expiration dates says "11/31/2013" to my surprise.  I don't know about you folks, but I've never lived in a calendar year when November had a 31st day.  Even if they meant to print that final expiration date as "11/30/2013," that would make the expiration today.  Oh BTW, it conflicts with the "order by" date of 12/31/2013 in the first photo.

I don't get it, FedEx.  You want me to cough up another order on the nonexistent day of a month when the offer expires even though you tease me by saying I have until until the end of next month to place the order.

The four P's of the marketing mix have always been product, price, place (or placement), and promotion.  Like I said at the top, FedEx has all the product I ever need in the right place even if the price is a little extra.  This particular promotion just makes me LOL.  Thanks to FedEx for supporting my small business, Alfidi Capital, on this fine Saturday.  

Arrest Striking BART Workers, Indict BART Unions, Replace with Symphony Losers

I am sick and tired of stupid losers ruining the Bay Area's economy.  BART's unionized pea-brain workers have shut down the region's train system for the second time this year.  They demanded pay increases that exceed the CPI, pension plan contributions lower than what the rest of us pay into social Security, and health insurance premiums lower than what subsidized low-income earners would pay under the ACA exchanges.  I am totally disgusted with the arrogance of semi-literate button pushers and ticket takers who believe they are indispensable.  They are no such thing.  They are instead leeches and parasites who hold productive citizens hostage.  This demands a legal remedy.  Our elected leaders are too cowardly to do anything other than run their mouths.  I have a much more robust action plan in mind.

BART management should petition the federal court system to issue a back-to-work order.  If the striking union idiots refuse the order, management should immediately terminate them for insubordination.  Terminated employees lose the right to loiter on their employers' property, so BART management should have their police arrest any union slobs still picketing at BART stations.  Management should continue their campaign for justice by turning over all of the negotiation materials they received from the union reps to federal prosecutors.  I believe a case exists under the RICO Act to indict, convict, and shutter all of the BART employee unions that have obstructed productive negotiations and sought extortionate concessions from BART.  I'm pretty sure the NLRB would be cool with this action.  Remember that a "racket" is a fraudulent solution to a nonexistent problem.  Demanding high pay for low-value labor IMHO constitutes a racket.  Remember also that BART is a publicly-chartered institution and is supported by both ridership revenues and tax revenues.  Every work stoppage that delays scheduled maintenance puts the taxpayer on the hook for costs that rider revenues can't cover while trains aren't running.

This mass termination and prosecution would demand a new workforce.  I have the perfect candidates in mind.  The San Francisco Symphony losers in AFM Musicians Union Local Six went on strike earlier this year and were forced to back down when they realized they had zero public support and no realistic chance of obtaining their demands.  The stupidity they exhibited makes them perfect candidates for employees in public transit.  Union musicians can presumably follow simple instructions and show up on time, which is all that is required of menial labor.  Since classical musicians are so upset with what are already extremely high compensation levels, they should jump at the chance to pocket some extra coin during daylight hours from a real job.  They might even gain some appreciation for the livelihoods of people who work for a living.  Read my outstanding analysis of the San Francisco Symphony union losers from March 2013 to discover how much they need to learn.

Replacing BART workers with classical musicians will not help the system's long-term performance but it will at least take lots of snobs down a few pegs in both groups.  These stinking union bottom-feeders have no idea how good they have it, and how little they deserve for what they do.  

Venture Capital and Private Equity Around the Glorious Roundtable

I get invited to the most mind-blowing events.  My definition of "mind-blowing" is highly intellectual and does not involve anything illegal or unethical, so most human beings probably won't want to hang out with me.  That's okay.  They'd cramp my style anyway.  Check out how I roll.  Yo!  I attended a Silicon Valley roundtable event last Friday that must remain nameless because it was organized by private parties who do not seek publicity.  There wasn't even a round table in the room.  Several entrepreneurs and investors attended by invitation only and the organizer allowed me to attend as a guest.  Wonderful topics lined the agenda and I shall discuss them in oblique terms.  Prepare to be entertained.

Flying cars have been on the dream list of inventors since the Jetsons were on TV.  I got to examine real working prototypes of flying cars at the US Army Transportation Museum in 1995.  None of them ever had serious capabilities.  Entrepreneurs are now developing flying cars that convert from ground mode to airborne capability.  Modern contraptions remind me of the Bell-Boeing V-22 Osprey program with propellers to switch from VTOL to horizontal flight.  Rotary wing aircraft can autorotate into the ground in the event of a mechanical failure, which saves lives but isn't pretty to experience.  Twin-rotor aircraft have no such option if something fails while hovering during a VTOL event.  A ballistic parachute that deploys automatically upon engine failure may solve the problem.

I no longer believe the bull story for further miraculous economic growth in China.  Many others still do and that's okay.  Someone needs to be long in case I ever go short.  China joined the WTO in 2001 and is now inextricably linked to the world market.  Its role as the world's factory is ending because its increasing wages have priced it out of low-cost manufacturing.  China needs to pay more attention to WIPO if it wants credibility.  San Francisco may become the first renminbi trading hub in North America once China makes its currency fully convertible.  Western investment banks are opening offices in Shanghai and that city is the first in mainland China to have a free trade zone.  My MBA alma mater USF has a strong interest in China and it is hosting a conference on China's financial reform in a couple of weeks.  I have already registered to attend because I love learning stuff.  The conference is free to USF-affiliated people.  Stolen Valor frauds who prey on veterans will not be allowed to enter the event.  You know who you are, and so do I.

There are such things as credentials in business valuation.  NAVCA offers certification in business valuation and appraisal.  This knowledge comes in handy for business brokers who buy and sell privately owned businesses.  I think it also comes in handy for fraud investigators.  I'm not saying there's any fraud in Silicon Valley.  No sir-ee-bub, not me.

Santa Clara University has a Global Social Benefit Incubator (GSBI) that launches non-profits.  One such non-profit is Literacy Bridge.  They distribute single-touch audio books loaded with knowledge of agribusiness and sanitation in developing countries with low literacy levels.  The device is meant to be shared via a local subscription.  Literacy Bridge collects use case data on the number of activations, volume level, and playback times from each audio book.  This proves that big Data can reach rural areas that do not have WiFi or landline telecom infrastructure.  Societies with oral traditions have different connectivity speeds.

Executives from large publicly-traded companies will share their growth lessons with pre-revenue stage startups.  Non-dilutive financing options include licensing and royalties, but my readers have heard me mention that in other blog posts.  The caveat is that non-dilutive financing takes longer to grow a company.  The IPO must have a good rationale; it can't be just to return capital to early investors.  Entrepreneurs must tell early investors that growth takes a long time, to set their expectations for a realistic timeline.

Freedom House near San Francisco provides a refuge for victims of human trafficking.  Poverty is a supply-side problem driving women into servitude and exploitation.  California law now recognizes underage solicitors as victims rather than criminals.  Freedom House's aftercare referrals come from law enforcement.  They do important work.  I believe Somaly Mam would approve.

Space . . . the final frontier.  It won't be that way for long.  Space Tango is an incubator for space-oriented startups, although it's quite a ways from where I hang out in NorCal.  The Silicon Valley Space Center is hosting a conference on "Launching Commercial Space Enterprises" this coming weekend.  I can't attend due to prior commitments and I don't normally pay entrance costs higher than zero.  It's probably worth the time of some VCs.

I would like Venture Capital Journal to publish more stories on the unfulfilled promise of the mobile / Big Data / cloud trifecta.  If they don't, I certainly will.  My theory as of today is that the Holy Grail of Big Data remains unrealized because too few IT practitioners have applied ROI-type metrics to compare their investments in Big Iron and the cloud.  It's like my experience with portfolio managers in finance.  Almost all of them rely on folk wisdom, unguided guesswork, and rumor instead of applying the metrics I read in Buffettology books on Warren Buffett's deep value investing.  I think the IT crowd is the same way.  IT pros rely on their subjective preferences for technology instead of the hard metrics of Cloudonomics.  Buffettology and Cloudonomics are often cited, sometimes read, and rarely implemented.  That's why Wall Street holds as much unfulfilled promise as mobile Big Data in the cloud.  That's also why the few people who do read those books can win in life.

These topics appear to be unrelated.  Entrepreneurs and their investors can track them all and make sense out of unrelated matters.  That's just how we think.  Great minds are divergent and polyphasic.  Genius investors in venture capital and private equity discuss these things all the time, even when we're not around a glorious roundtable.  

All Aboard For UN Agenda 21 In America

Agenda 21 is the United Nations' suggested policy architecture for sustainable development.  I completely endorse both its spirit and details.  I'll leave aside the straw man arguments charging its proponents with socialism.  You'll read those vituperative objections all over the right-wing blogosphere and they just don't hold water.  Agenda 21 is not a treaty and does not have the force of law in the United States.  It is a framework for solving development problems that local communities may implement as they see fit.  American communities are in sore need of some best practices to mitigate suburban sprawl.

The American preference for suburbia is a unique cultural pattern. The rural configuration of unused but fertile cropland (aka lawn space ) transplanted into an urban setting is a high-entropy lifestyle that encourages waste.  Dense living is common in Asia and parts of Europe.  It has been overdue here ever since the frontier closed, specifically the admission to statehood of those territories West of the Rockies.

I have lived in and visited major Asian cities.  They work just fine with robust mass transit and realistic expectations about livable space.  I lived in the greater metropolitan area of Seoul for a total of over two years.  Air pollution only became a serious problem there once South Koreans began to adopt the American car-centric culture.  Speaking of which, dense urbanism was reality in American cities until the postwar era when automakers and oil companies funded campaigns to remove urban light rail and bus service all across the US.  Check out the exhibits at the Western Railway Museum in Suisun City, California if you question my facts.

The preference for big cars, suburban homes, and random driving excuses is a lifestyle enabled by several factors:  two generations of Detroit's ad campaigns (thank GM's employment of Bernays' techniques) and large discoveries of light sweet crude in the US and Saudi Arabia.  Well, Detroit is bankrupt because the US middle class can't afford its gas guzzlers anymore and the US's oil shale boom isn't reducing gas prices at the pump. That golden age is over.  Feel free to do the math on how to sustain a suburb-centric civilization at a time when the disposable incomes of the suburban middle class are declining.  Yes, I'm serious.

Hybrid-electric cars for everyone in the suburbs are not a completely sustainable solution.  Think how much heavier the drive trains are on hybrids and electric cars than the drive trains of internal combustion cars.  Heavier cars wear out roads faster and their drivers don't pay the gasoline taxes that fund the Federal Highway Trust Fund.  Widespread hybrid adoption to maintain the suburban lifestyle fantasy will accelerate road degradation!  The Mineta Transportation Institute and other policy think tanks have done the math.

Government already has the authority to determine land use.  It's called zoning.  I'm not allowed to build a single family home at One Market Street because it's zoned for commerce.  Nor can I develop a 30-story office skyscraper here in the Outer Sunset on my block because it's zoned for residences.  Government can and does determine what can be built where because development drives the public infrastructure that our taxes must fund to enable said development.  Please compare the per-mile maintenance cost of light rail versus asphalt road and then state which is more cost-effective for our taxes to maintain.  Dense development is better for taxpayers because municipalities can build and maintain public infrastructure more efficiently.

The ugliness of uncontrolled urbanization is evident all around Northern California.  My hometown of Sacramento is now a greater metropolitan area that has absorbed the farm towns that used to be geographically distinct.  I could never tell where Rancho Cordova ended and Citrus Heights began whenever I drove from Folsom Boulevard to Sunrise Avenue.  The East Bay is just as bad; Walnut Creek, Lafayette, Concord, and other cities all kind of blend into each other at some point.  Everything south of San Francisco is a big overdeveloped mess.  Whatever charm was once found in San Mateo and Burlingame is now lost among too many buildings.  One point of Agenda 21 is to promote community integrity by preserving greenbelts and other natural boundaries.

Homework assignments, if you're interested . . . Charles Hugh Smith's "Of Two Minds" blog . . . New Urbanism . . . Plateau Oil (not Peak Oil, as new technology has always successfully postponed that event).  These are among many sources that document the costs of urban sprawl.  Agenda 21 presents a framework for reducing the costs of urbanization in ways that respect traditional communities.  I'm all in favor of using some Agenda 21 ideas where appropriate in the San Francisco Bay Area.  

The Haiku of Finance for 07/03/13

Striking BART unions
Lust for even more money
Take them off the trains

Fire All Striking BART Workers Now!

The unionized employees of BART are on strike.  They are under the delusion that their skills are irreplaceable.  I've got news for them.  They are as irreplaceable as this hole I just punched in the air with my fist.

The skill required to drive a BART train is about as elementary as it gets.  I've peeked inside the BART train control cabin several times in my many years of riding the trains around the Bay Area.  You know something?  I'm convinced I could drive the train myself with a couple of hours' worth of instruction.  It's nowhere near as difficult as driving a two-axle, four-tire, single unit automobile, which any teenager can do after passing a written test and a few minutes of live evaluation.  The BART train operator has a couple of buttons to push and a speed control.  That's about it.  Oh yeah, they have to look out the window briefly while approaching or leaving a platform to ensure some crazy idiot doesn't jump onto the tracks seeking martyrdom.  That is not a six-figure job by any stretch of the imagination.

The mechanics do not deserve to make six figures either.  Armored vehicle mechanics in the military work on systems much more complex than an electric train, making a fraction of the salary.  If the spoiled union mechanics don't want their jobs, there are plenty of ambitious military veterans who would love to take those jobs.  How unpatriotic of those striking union slobs to stand in the way of veterans' development, and on the cusp of our nation's Independence Day no less.

Here's a searchable database of BART employee compensation.  Look at these wasteful pay levels.  It's bad enough to see station agents making $62K for an entry-level job requiring no skill beyond pushing a couple of buttons.  It's totally abhorrent to see "assistant managers" making $200K for pushing paper.  Perhaps the out-of-control stupidity on pay isn't entirely the union's fault if the greed starts at the top.  Across-the-board pay cuts for managers and workers would solve that in a jiffy.

Here's the very generous retirement plan available to BART employees.  They get both a deferred compensation plan and a money purchase plan (i.e., much like a 401(k) plan).  That is comparable to the plans available to highly-compensated professionals in financial services whose occupations are far more intellectually demanding than running trains.

Every day this strike continues causes enormous disruption to the Bay Area's economy.  People need to get to work, for crying out loud.  The taxes levied on the private sector pay these BART idiots' salaries.

These striking transit workers make me sick to my stomach.  None of them deserve jack squat.  Fire them all immediately.  They can then have the life-enhancing experience of finding productive jobs with no cushy breaks.  They deserve no more sympathy for their union-induced greed than the union musicians of the San Francisco Symphony whom I so rightfully took to task during their own strike.  Both of these groups serve the public.  Both of them have widely held skill sets that are easily replicable.  Neither of them have garnered any public sympathy with their immature tantrums.  Neither of them deserve to be rewarded with employment for their greed.

Mineta Transportation Institute Holds Forth on Transportation Funding in 2013

The Mineta Transportation Institute held its annual policy summit last week at the Commonwealth Club.  I have a background in both transportation and finance so I couldn't miss a chance to connect the two over a free breakfast.  I got there so early I actually walked in right behind former Secretary Norman Mineta himself.  I didn't speak with him because I'm just another commoner and there's no way he can do me any favors unless I write a big check to his institute.  I'd rather hear what his invited policy wonks have to say, free of charge.

The first agenda item was an address from USDOT's acting General Counsel Kathryn B. Thomson.  She briefly mentioned ARRA's $48B commitment to critical infrastructure but I'm concerned about whether it's being used effectively.  She also mentioned a couple of programs that I think should be excellent candidates for consolidation into a national infrastructure bank.  The first is the TIFIA program of loans and other credit instruments specifically for surface transportation.  The other is the TIGER grant program for multiple transportation modes.  If USDOT's approach to favoring public-private partnerships is correct, then an infrastructure bank that issues bonds linked to these programs is the way to go.  I do see a potential hurdle in that federal highway improvements are funded by the Highway Trust Fund's revenue from the federal gasoline tax.  Moving all federal infrastructure projects into a national infrastructure bank's inventory means revising the enabling legislation for every federal tax on transportation modes.

Ms. Thomson made us aware that federal gas taxes can no longer be the single funding source for our transportation needs.  Hybrid cars use little gas and pure EVs use none, but their battery packs make them heavier than gasoline-powered cars.  That's simple physics, folks, because the energy storage capacity of liquid hydrocarbons is denser than that of lead-acid or lithium-ion batteries.  Heavy hybrids and EVs will wear out our roads faster.  Here's my idea.  Instead of a knee-jerk funding commitment to every meter of highway in the federal inventory, why not "red-line" those segments that are seldom used?  Cities like Detroit and Stockton will have to downsize and unwind much of their development, allowing USDOT planners to declare some roads too costly to maintain.  This is why ARRA's blanket approach to funding unmet "needs" has given me pause for some time.  A planner may mark a road for the "need" column even if it leads into an urban area that deserves to be torn up and unbuilt.

The Q&A for Ms. Thomson was revealing.  The USDOT favors California's high-speed rail program.  IMHO federal planners are blind to that program's cost overruns, unneeded stops in rural towns, and pork payoffs.  My ideal high-speed rail system for the Golden State would link no more than six cities:  Sacramento, Oakland, San Francisco, San Jose, Los Angeles, and maybe San Diego.  Anything more adds transit delays and costs.  Nobody asked me to contribute, so of course we're getting a more expensive system than we need.  Federal matching funds for high-speed rail make it too easy for state planners to add unneeded segments.  Smart leaders in Ohio, Wisconsin, and Florida have turned down federal matching funds for high-speed rail since 2010.  This unfortunately makes it easier for California to gorge at the federal trough instead of scaling down its own high-speed rail plans.

One comment gave me hope that there is room for disruption in the transportation sector.  Positive Train Control (PTC) is an expensive mandate but the railroad industry is making progress to meet the 2015 deadline specified in the Rail Safety Improvement Act of 2008.  The thousands of wireless devices and monitoring systems needed for PTC represent a great opportunity for entrepreneurs.

The next panel had experts from several different entities.  I think they could have benefited from having a member of the National Research Council's Transportation Research Board (TRB) on the panel.  I've been receiving the TRB's emails for years ever since I expressed an interest in joining the board.  TRB puts out tons of white papers that should inform both the private developers who build near transportation infrastructure and the public policy planners who take development into account.  The panel believed that public infrastructure and private development attract each other but they did little to enlighten us on the nuts and bolts of project finance.  They spent little time addressing how projects could be funded but gave detailed coverage to MTI's latest study on how tax options can be sold to the public.  Come on, folks, even USDOT just admitted there's more to transportation finance than gas tax increases.

It's time for me to go out on a limb, as I am wont to do.  A public that lacks understanding of how its transportation priorities are determined will eventually get as riled up over transit tax increases as Brazil's current protesters.  Fare increases set off the Brazil protests but they have a long list of other grievances.  The American public needs to see benefits that impact them personally and emotionally if they're going to buy into a sales pitch.  Only developers will be convinced by a transportation project's ROI, although that's important to demonstrate.  That MTI survey shows that the gax tax appeal rests on resolving users' pain points.

The panel noted that the MAP-21 legislation will not be sufficient to fully fund the nation's needs for public transit.  The full commitment for a public transit system that meets the nation's needs is a one-time cost of $70B.  Even this doesn't account for pay-as-you-go funding of long-term sustainment.  The panel acknowledged that federal funding will shift to favor those state projects that can demonstrate self-funding, which to me implies user fees.  Some combination of a state gas tax, usage fees, general fund revenue, sales taxes, vehicle registration fees, naming rights, development fees, tolling, and other public/private hybrid solutions are inevitable in California.  This combined funding mechanism needs to be in place far in advance of any further work on high-speed rail.  Private investment committed too early to a public project, as the panel noted, will discount the project's completion too heavily and make it nonviable if future private funding is unavailable.

I did not hear one single comment during this entire forum on inland water transportation or port infrastructure.  California has two of America's busiest ports - Oakland and Long Beach - and many ports in the country need regular dredging to remove buildups of silt that degrade their deepwater shipping channels.  Port cargo throughput ability will be a serious national security enabler in the event of any major mobilization.   NDTA keeps me updated on the lack of progress addressing this potential bottleneck at critical ports.  America's inland waterways need serious upgrades to their locks and dams so barge traffic that supports the petrochemical and agricultural sectors can proceed unimpeded.  The members of the American Waterways Operators know just how much they depend on the US Army Corps of Engineers to keep their traffic flowing.  If you don't believe me, review the USDA's Agricultural Marketing Service data on barge rates for agricultural transportation.  Take a guess at how much higher those rates would be if inland waterways are degraded or congested for lack of infrastructure repair.

I should not have been surprised that the panelists did not answer the question I submitted on transportation finance.  I wanted to know whether California agencies could sustain municipal bond issuance in the face of either rising interest rates or high inflation.  I can't blame them for not wanting to touch that in light of their revelations above about the difficulty of attracting long-term finance (from bonds that fund initial capital outlays) without mechanisms for sustaining annual finance in place (from user fees and other sources).  Today's ZIRP environment is ideal for raising muni bond proceeds and states will never get a break like this again in my lifetime.  Rising real interest rates will soon make the cost of new capital projects astronomically high.  My ideal answer to my own question would rely on state agencies issuing inflation-indexed munis.  They could get really creative and issue equity in publicly financed corporations modeled after Fannie Mae and Freddie Mac, provided the State of California does not provide unlimited guarantees for those corporations' liabilities.

California needs more than just money to complete its transportation dreams.  It needs creative leadership.  Gov. Brown, give me a call.  I'll be happy to put your state agencies on sound financial footing if you pay me for my genius.

The Haiku of Finance for 01/30/13

Growth stat rolls over

Transport sector shows the way

This is no surprise