[EconProf]

[quote=harvey]I made my points on the other thread (before it degraded into name-calling by those who didn’t seem to have any actual counter-arguments.)

Here’s a summary:

– Any long-term obligation made by managers/politicians is fraught with peril, and history has proven this. Pension contracts make commitments that must be met anywhere from 10-60 years in the future. Anything that is promised that far in the future by someone who isn’t accountable for honoring it is going to have a tendency to be overgenerous or generally prone to corruption.

– Think about how a pension works: You make promise to pay someone a yet-to-be-determined amount in retirement when they start working (say age 25) The exact amount of the obligation isn’t typically determined until the final years of their employment (30 years later), and the money isn’t completely paid out for decades after that. There’s a lot of hard math and guesswork involved, and plenty of incentives to cheat along the way for short-term gain. If anything goes wrong – a miscalculation, an overly-generous agreement, etc. in the decades-long process, the whole thing can collapse. It’s just too brittle a system.

– The reason private-sector pensions are going away is because shareholders have become wise to the issues described the prior points, and accounting changes have made it is harder to hide the obligations on the financial statements. Basically the market has spoken. Government has been able to get away with hiding pension costs longer because taxpayers don’t scrutinize the books as much as investors do.

– Military pensions are also a growing problem as life expectancies increase, but we don’t see the impact because it just gets piled on with the national debt that will be monetized away eventually. Plus “half-pay” doesn’t sound very generous – if you do the math you see that it can be though. But the public doesn’t do the math. Of course military pensions are also political land-mines, as no one dares question military pay.[/quote]
Great summary of the underlying factors explaining how pensions have become such a time-bomb for our financial future. Workers under 40 should be especially upset.

[EconProf]

Your questions touch upon several areas, so I’m not sure what to address. Most of the choices you make once you own a rental property are obvious–pick tenants carefully, learn all you can about maintenance & landlord-tenant law, keep good records, etc.
I’d add an often-overlooked rule: think long-term rather than short-term in all your decision making. That will often force you to take less profit now for a much greater gain later on. For example:
1. Don’t scrimp on maintenance, especially when turnover occurs. You’ll attract a better tenant, somewhat higher rent, and a higher price when you sell.
2. Pick a neighborhood with a good future and good demographics over one with problems and seemingly better cash flow.
3. Spend time before investing reading up on what you are getting into, talking to other landlords, penciling out “what if” scenarios with various alternative investments. Write down your assumptions and projections and save them. Revisit them in a few years and have a good laugh.

Other items: minimize the down-time of vacancies in every way possible–it will absolutely kill your profitability. For example, when a vacancy approaches, know in advance what it needs for fixup, line up the materials and any workers, go into overdrive to get it perfect and on the market fast. Blitz Craigslist with carefully worded ads and pictures, prepare to show at a moment’s notice. If not rented quickly after several showings, your rent is too high.
A lot of new landlords are buying for cash because non-owner occupied loans are such a hassle and come with a discriminatory interest rate (and because buyers get a far better purchase price with cash). Another route is to buy a rental property as a homeowner with today’s fabulous interest rates, move in for a while, then rent it out. Our Piggs that are agents or brokers can give you more advice about that approach.

[EconProf]

A couple of observations:
1. Pensions are nothing but deferred compensation. The employee is simply getting the promise of X dollars during retirement as well as regular pay during their working years. A worker’s total compensation is their pay, fringe benefits, pension (if any). (Some jobs also have nonmonetary rewards such as prestige, variety, working with interesting or glamorous people, etc., and some jobs have just the opposite of these benefits. Pay and benefits can be higher or lower to offset these nonmonetary factors.)
Our posts are throwing out anecdotal examples from our own experience that don’t really prove anything. However some clarity is achieved when posters bring up death rates by occupation and the full lifetime cost of public pensions.
I’d like to add a market test to the debate. The total compensation of private sector employees is roughly determined by supply and demand. Job seekers are the suppliers of labor and employers are the demanders. Of course there is no exact price point for each occupation, but a range that can broadly move up or down with changes in supply and demand. Employers are not stupid enough (usually) to overpay for their next hire if it is way over market. Job seekers are also not going to take lower than market total compensation if they know, or believe, that they can do better.
This healthy private sector competition establishes average wage levels. What about in the public sector? When public sector unions negotiate against politicians, there is less pushback from the taxpayer’s representatives because it is not their money. Further, they have less incentive to curb excessive pension benefits because that cost will be borne years or decades in the future. The unions and their workers can thus greatly enhance the total compensation of their jobs by taking it later in life. They are more patient, and maybe smarter, than the politicians across the table.
2. Another market observation to throw light on whether government employees are overpaid or underpaid. First, what is the quit rate of, for example, firefighters and police? Second, how many people line up to apply for these jobs on the rare occassions when openings occur? Answer those two questions and you will get a better idea of whether total compensation is too low or too high as compared to the private sector.

[EconProf]

[quote=SK in CV]Why should they work in 911 centers or schools or in the office if they can afford and prefer being retired? You think they should be forced to work? Should everyone be forced to work until they’re over 60 or just cops and firemen?[/quote]
Most people DO work until they are over 60. After all, they have to in order to pay for the cops who may retire at 50.

[EconProf]

Great article–I’m glad to see the mainstream media is finally waking up to this looming train wreck.
CA is especially guilty of overstating expected pension fund returns because it lowers today’s necessary taxpayer and public sector union members’ necessary annual contributions. It is just one more way CA politicians (and voters) think short term instead of long term.
By assuming future ROR on investments will be 7.5 – 8 percent when they will more likely be half that means that today’s contributions should about double. That would blow up our already troubled fiscal situation.
The unions claim that historical rates of return justify today’s fantasy number. They point to three decades of strong investment returns, conveniently starting with 1980 when the DJA hovered around 1000. They won’t use the past 5 years where it has declined, or the past 10 years where it has barely grown.
We are in a new world of low returns and need to adjust our assumptions about the future.

[EconProf]

[quote=CDMA ENG]I agree with Econ…

Most of the schools are Taj Mahals. This is a huge contributor to cost. Expansion, of course, is understandable but the facilities that are being built these days are outrageous.

Also, the elephant in the room is sports. Of course there is the argument that this is money in the bank to colleges but I see it unnecessary and I believe does not do one thing for lowering schools cost. I believe WWRP do here is valid.

Just as a funny side note. I went to a Community College that at the time was ranked 5th in the nation for Math and Science. I attended school there for the same reason I went to ASU… It was “down the street” from my house but later I learned the history behind the school’s mascot and colors. Scottsdale Community College was founded as a academic CC. At some point the administration decided to have sports program against the initial philosophy of the school. When it came time to vote in a mascot and colors this is what the chose. The Mascot: The Artichoke… The Colors: Pink and “Puuky” Green.[/quote]
Good points.
And there is another elephant in the room that will render all the extravagant new campus buildings obsolete: on-line courses. So many of the routine courses that have been taught in the same way for decades: a professor droning away, 50 to 100 (or 500) students faithfully taking notes, (or sleeping, or on their ipads, or absent). On-line education may offer the world’s best lecturer on a subject, instant feedback to the teacher or assistant if material not being absorbed, ease of asking questions, easy review of tough concepts again by students so inclined, plus many other advantages. No parking problems, no frat parties, no sports, graduation in four years (or less). Just pure learning. Upper level small classes and seminars could still go on, but they make up the smaller part of the college experience. The vastly fewer teachers and lower cost of running colleges could be passed on in the form of lower tuition, although only competition between schools and a necessary winnowing out of some will force that in the long run. There will be howls of pain from the tenured elite in the faculty lounges.

[EconProf]

Defense outlays are dwarfed by entitlements.
Google Federal Outlays or some such title.
Defense is 19% of outlays, Social Security is 20% and Medicare 23%. This does not even count welfare such as food stamps, earned income tax credit, misc other federal entitlement programs. And it doesn’t count state and local entitlements.
The trend is for entitlements to explode as baby boomers age and defense to remain about the same % of GDP.
Don’t blame the defense budget–although there is always waste to be found there and rooted out. But if you look at the big picture and the trends in place, it is entitlements that will bury us.

[EconProf]

[quote=mike92104]Something really annoying to me is UCSD’s plans to simply stop admitting resident students in favor of non residents who will have to pay more tuition. Meanwhile still taking and wasting your tax dollars. I know there is waste at UCSD because I work alongside one employee who literally does NOTHING all day everyday, and I know there are several others who do very little.[/quote]
Exactly, Mike. The depressing thing about all CA state spending is that even during this “crisis”, little has been attempted to cut obvious waste at all levels. No one is challenging excessive pay, unnecessary positions, boards that meet monthly and pay $100k per year to political appointees, the fact that our teachers are the highest paid in the nation, etc. When a private sector company (or family) runs a deficit they attack expenses. Our government simply demands higher taxes from that private sector. The politicos OTOH, cut the most worthy and beneficial public services in order to scare the public.

[EconProf]

flu, think about what you just wrote. There is NO correlation between performance and pay.
C’mon, you are smarter than that.
It may be that there is too little correlation, it may vary by company, profession, etc. But companies that pay and promote by performance tend to do better than their competitors who don’t and thus trounce them in the marketplace. Not always, of course. But that is the general tendency. That’s also what makes capitalism so annoyingly productive to its detractors.

[EconProf]

[quote=sdrealtor]Just curious whether you were vocal in this position while still teaching at SDSU or whether it came after you retired? If so, did you find any support among your peers or is it more of a I know things are a mess but at least I’m getting mine too?[/quote]
Good question. I was adjunct faculty for 18 years, not full time or tenured. I quickly learned not to get too vocal, since hiring was “at will”, semester by semester. So yes, I made some noise, but stayed within the unwritten boundaries.
Incidentally, there is often tension between the tenured mandarins and the adjuncts, since the latter perform in a meritocracy, and the former includes the time-servers who could never make it in the private sector (along with many fine teachers too). The problem with our educational system at all levels is that there is too little correlation between teaching performance and pay.

[EconProf]

Although I am retired from teaching at SDSU, I stay in touch with some of the faculty there. The fact is that there is enormous waste and inefficiency at all the CA universities, which, if attacked could radically lower costs. Items:
l. Faculty workload as measured by classes taught per year are down roughly one-third over recent decades. (meanwhile, class sizes have expanded–so much for quality education and interaction with students).
2. Campus amenities and buildings are turning into resorts, with pools, entertainment, gyms, hotel-style dorms, etc. This all bedazzles the prospective students–starry-eyed HS seniors, juniors, and their parents, but most students, once in, just want to get their coursework done and get out to start their life. Stop building TajMahals.
3. Above buildings are used about three-fourths of the year, a remnant of our agricultural past when we had to get the crops in. Instead, go to trimesters and run the universities year around. Some students could graduate in three years, skip the often wasted summer vacation. Get variety and enrichment instead by taking a year or two off to work, save up, travel, etc. after HS and before college. My best students were always older and had some life experience. Of course the faculty will scream if they lose their current 8 months of work out of 12.
4. Cut administration in half, then cut the pay of the remainder. That would put the ratio of their numbers relative to faculty and students at about 1970 levels.
Do all this and we could lower tuition radically. The student protesters, egged on by their Professors, need to ask them some tough questions.

[EconProf]

Long, long ago I taught a year of high school English. In comparing classes, an iron rule quickly emerged: The smaller the class, the easier to teach. More dialog with each student, fewer discipline problems, more control, fewer papers to correct, etc.
So naturally teachers favor smaller classes, especially when they can pitch it to the public as better for the students. I’m sure that the required hiring of more unionized teachers has nothing to do with their position.
But the research unmistakenly shows very little correlation between class size and student performance. Sounds counterintuitive. I think it is because teachers prepare more and get “up” for a bigger class. Less informality, more organized and hard-hitting lectures, and tighter discipline are necessary to keep them on task. Naturally, that is more work for the teacher.

[EconProf]

$800 is what I thought too.
I just set one up in AZ for an AZ property–was well under $200, but can’t remember specifically.

[EconProf]

#48 being the predicted 48th recession in our country’s history.
Well, Paramount, I wouldn’t bet on a recession. But I wouldn’t bet against it either. Hopefully we’ll keep on with our weak recovery and pray europe doesn’t emplode.
More immediate is the future of the CA economy and fiscal problems. Gov. Brown just announced our deficit jumped from his $9 billion prediction last January to $16 billion. Tomorrow, Monday, he’ll give a speech arguing for higher taxes on Californians.
Yes, that’ll fix it. The investors, job creaters, and manufacturers will really want to come to CA then.
We also need high speed rail to attract these taxpayers. And we need to bump up our share of the nation’s welfare population from 32% to 40%. And we need to raise public sector pay and pensions and let them retire earlier. Governor Brown and the CA legislature surely know what’s best for us.

[EconProf]

Isn’t there an annual cost to have an LLC in CA? And what is the initial set-up cost?

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