Davis, California

by philg

A report from a visit to Davis, California…

The university seems to be in good shape despite all of the talk of dire budget problems. The lawns are trimmed and the students seem happy and purposeful. Due to the tuition of $13,000 per year (source; compare to $35,000 at Harvard), the school is a place where a lot of kids from poorer families are able to start working their way up the economic ladder (California has a falling white population, so necessarily the UC system will be serving a lot of immigrants and children of recent immigrants). Professors seemed to take undergraduate education seriously.

The town has done a lot of sensible things with local tax dollars, e.g., run a decent school system and maintain a lot of pleasant “greenways”. Unfortunately, however fiscally responsible the town might be, the residents will end up paying the pension costs of fiscally irresponsible cities such as Vallejo, California. Vallejo may be bankrupt and reneging on its promises to bondholders, but the pension promises that their politicians handed out are now obligations of the state, as far as I know (see this article, which contains some numbers on average compensation, this more detailed study from Cato Institute, this detailed table of Vallejo firefighter compensation, this list of some particular individuals earning up to $300,000 per year in simple wages). In theory, I think the California towns and cities that handed out all of the $200,000-500,000/year pensions will have to pay the costs. In practice, if they can’t pay, I would think that the burden will fall on Californians in other parts of the state (though I guess you could argue that the federal government will step in and bail out California with tax dollars raised from citizens of other states).

People who live in the town seem to love it. All of their friends are easily accessible by bicycle and a lot of recreational activities are available within a 1- to 2.5-hour drive (there will soon be fewer opportunities for recreation, since California is closing roughly one quarter of its state parks (story)). Unlike a New England or Old England town, the immediate surroundings of Davis are not attractive. One goes straight from subdivision to agribusiness. So the opportunities for a pleasant walk are better if one is willing to drive two hours round-trip to the trailhead. They aren’t as good as in a lot of smaller New England towns if one wants to walk out one’s backyard.

Houses close to the town center and university tend to be from the 1960s and on small lots. Despite the high costs of these houses, ranging from $400,000 to $800,000, they are poorly maintained and hardly anyone has invested in new construction or extensive renovations. People who want to live in newer nicer houses drive or bike an extra couple of miles into subdivisions that are on the outskirts of town. Curiously these are on lots ranging in size from 0.15-0.2 acres. Given the footprints of the houses, which tend to sprawl a bit, the result is a house that might cost as much as $2 million and that has essentially no yard. The space between houses is best described as an “air shaft” rather than a side yard. Hardly anyone has enough of a backyard that a couple of 8-year-olds could throw a ball around. Consequently, kids are dumped into the street and public areas, which isn’t so bad since most of the streets are cul-de-sacs and playgrounds dot the landscape every few hundred feet.

It seems odd that the newer bigger houses would be built on such small lots. There does not seem to be any shortage of land near Davis. realtor.com shows that nearby farmland sells for between $6,000 and $25,000 per acre.

California has a lot of great natural resources, e.g., the perfect climate of La Jolla or the scenic beauty of San Francisco Bay. California has a lot of concentrations of interesting industries, e.g., entertainment in Los Angeles or technology in Silicon Valley. If you live in a place with natural beauty or fantastic job opportunities, it might not be too painful to pay the nation’s third highest income tax rate, the nation’s highest sales tax rate, or endure the 2nd worst business tax climate in the U.S. (source for all three). But a person in a town such as Davis does not benefit, on a daily basis, from any of the things that draw people to San Diego, Los Angeles, or the Bay Area. So how is it fair for the Davis resident to pay the same 9% sales tax and 10% income tax as the Google or Disney employee?

[Why are the pensions so expensive? In California they are based on the total cash received from the state in the last year of work. If the employee has saved up months of vacation days from previous years and gets paid for them on the day of retirement, e.g., on his 50th birthday, up to 90 percent of that one-time payment, plus an inflation adjustment, will be added every year to his or her pension. I.e., if the employee lives to be 100 and we assume a discount rate after inflation of 1 percent, the employee will be paid, in net present value terms, 35.4X whatever his or her ordinary salary was for those vacation days (45X without discounting). An employee whose base salary was $200,000 per year, for example, and who’d saved three months of vacation would get paid approximately $2.255 million for those vacation days, in today’s dollars. Discounting at a 1 percent rate (similar to the yield on TIPS bonds), the value of those vacation payments would be $1.769 million. Any payments for overtime worked would be similarly multiplied.]

9 thoughts on “Davis, California”

  1. A lot of the Coast/Internal differential is impounded in real estate cost. Davis RE, though pricy by, say, Youngstown standards, looks like a steal compared to Palo Alto or La Jolla.

    Re RE, good land may be less plentiful than it seems. Considering the value of Calif land for farming, it’s sometimes a wonder anybody lives here at all (recall that in living memory, Silicon Valley was a vast orange grove, and Davis is what it is because it was the University farm).

    Another demand on the Davis housing market comes from Sacramento; bureaucrats along with the support infrastructure of lawyers, lobbyists, etc. Davis has about the best public schools in sight and people sacrifice a lot to sty close to them.

  4. Sorry to beat this one to death, but your claim is a serious one. My final post on this topic.

    From the LA TImes: http://documents.latimes.com/sunshine/pensions/

    (CalPERS spokesman Ed Fong said that administrators rely on their internal guidelines in reviewing what compensation is eligible for pensions. He noted that CalPERS does not count overtime or vacation pay­outs in pension calculations.)

    You’ve lost credibility with me on the topic of pension reform.

  5. Eric: I don’t pretend to be an authority on California pension accounting. As a Massachusetts resident, I’m assuming that I won’t have to pay for whatever your politicians are promising in order to win reelection. I’m not sure why you’re relying on me as your only source when Google is right at your fingertips. Here are few things that I found:

    http://www.bloomberg.com/news/2011-05-20/california-legislation-takes-aim-at-pension-padding-for-460-000-official.html (state employee made only $460,000 in base pay, but then added “car, housing and other costs directly into his paycheck, according to public records. When he retired, the combined payments would be counted in his final year’s salary and used as the basis for calculating his pension for life”). The same article says that Jerry Brown is trying to “curb pension spiking by requiring all newly hired state and local government workers to base their pensions on an average of their base pay for the final three years and prohibit unused vacation or sick leave in that calculation” (i.e., an employee hired last year who retires in the year 2040 will still be able to include vacation and sick leave). The article quotes the same Ed Fong saying “We have some very clear guidelines” but then he adds “with more than 2,000 public agencies participating in the pension system, Fong said, legal pension padding is often written into contracts at the local level.”

    http://articles.latimes.com/2011/may/15/local/la-me-vacation-pay-20110515 is also kind of fun.

    http://nocanyonlaketaxes.org/wordpress/?p=128 covers one specific 51-year-old fire department employee who retired with a $241,000 pension, which would have been only $186,000 per year if not for the unused vacation and holidays. If he lives another 50 years, that will cost California taxpayers $2.75 million in additional payments. As Californians in the private sector work an additional 5-10 years to pay the taxes necessary to support these $2.75 million and similar obligations, I suppose that it will comfort them to know that the obligations were against some rule or other.

    [How does a $241,000 pension compare to what other government workers are paid? For being on the golf course, this guy will collect 20% more than what the United States Secretary of Defense earns for going to work every day. http://www.mofd.org/content/publicfaq/ says that the $241,000/year pensioner formerly worked in a fire department responsible for 47 square miles and five fire stations.]

  6. Coupla more thoughts, about life in Davis and Calif ed. I bought one of those Central Davis homes in 1969 [for 26k–my by-then-former wife sold it around 1990 for around 400k]. I agree they are looking a bit tatty; I can come with two possible reasons. One, some of them are still occupied by folks from my generation (the ones who did not get divorced); they’ve grown too old to care about fancy remodels. The other is I suspect a fairly large number are now student rentals.

    Re the social function of education: UC certainly is much more of an ethnic patchwork than it was two generations ago, and not just super-achiever Asians. But the real social-change story is in the two-year community colleges. Even in these high-priced times, they are still within reach of people grabbing for the bottom rung and they often do a remarkably good job of living up to their aspirations (colleges and students both). UC tries to noodge lower-level undergrads into the CC system, with the promise of recompense later on. It’s win-win: takes some of the pressure of UC, and at the lower level, the CCs probably often provide a better education.

  7. Older people who are about to retired are advised to shift more of their investments into bonds from local/state governments, but with cities like Vallejo and States like California playing games with taxpayers’ money, it seems like bonds are on shakier ground than they used to be.

    What are the average retirement-age investors to do? Keep their GE stocks? Hold onto their index funds and change their allocations to have more foreign investments?

  8. Bob: A friend who runs a hedge fund says to look at the data within Wealth, War and Wisdom: “Biggs is crazy but says that over the last 100 years, the best place to store wealth in the event of a catastrophe is in the stock market. He does a big study of Europe in WW2 and notes that even through hyperinflation in Germany, the German conquest of the Netherlands + France, etc you’d be pretty much OK holding stocks. Bonds got destroyed.”

    I don’t think it makes sense to hold U.S. muni bonds. What if the U.S. deteriorates to the point where you’d want to emigrate? (consider the residents of Detroit, for example; many of them would probably be better off living somewhere else) The same collapse of state and local government that motivates you to emigrate will impoverish you as well so that you won’t be able to afford living in Canada, Mexico, Europe, etc.

  9. Here’s my take on the total of 16 years living in Davis, CA for those contemplating a move here.

    Kids are generally polite and law abiding. They tend to score well because the parents are competitive and help them. Parents also supplement with extracurricular programs to keep kids busy and out of trouble. Instead of more classes, I would rather take my kids traveling or homeschool them to wake their minds and show them what’s bigger, better and lovelier. “Kids, look how smart and hard-working people in other countries are, look at their architecture, look at how they dress (not in usual Davisware of shorts and t-shirt), let’s go out to lunch or make lunch together (the perks of homeschooling).”

    Public schools here are rather preoccupied with fund-raising. Even the University. Unfortunately, times are different now and I can’t give my children what I had growing up in the S.F. bay area. So Davis is just ok. They are always telling me that they would like to move.

    Davis is boring after having lived in the Wild Wild West, S.F. bay area, and Taipei Taiwan. But it doesn’t do any good to complain.

    As my husband has told me, “I don’t like Davis and all it stands for (politically), but the people are law-abiding.” Recognize the good things. It can help you hang in there until a town feels like home. If you’ve never felt at home, maybe you are moving too much. Settle down and invest in one community. Davis is safe enough. I see people walk their dogs or jog at 11pm. It’s normal fare. What’s also normal are kids/adults with frequent allergies. It can make life tough. If medication does not work, I would seriously consider moving. People are people and if people don’t know anything better, they will think Davis is great. I have appreciated the relative safety in Davis for my kids, but overall I would rate Davis a 7 compared to our past residences which were 8’s, 9’s and 10’s in quality of life

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