Los Angeles Homeless Issue: Follow-up to HHH Audit Blog Post

I wrote a post about the audit of Proposition HHH in Los Angeles. I figured I'd start doing some additional reading about the topic.

Yahoo via the New York Times wrote:

Homelessness has been an intractable problem in the largest California cities for decades, but it has surged in some areas in recent years. San Jose, the nation’s 10th-largest city, counted 6,200 homeless people this year, a 42% increase since the last count two years ago. In Oakland, the figure climbed 47%. And it rose 17% in San Francisco, and 12% in Los Angeles, where the county counted so many homeless people — 59,000 — that they could fill Dodger Stadium. For the first time in 20 years of surveys, the issue was noted as a major concern for Californians, according to a poll released last month by the Public Policy Institute of California.

. . . Meanwhile, in Los Angeles’ San Fernando Valley, homeless people living in an encampment in Chatsworth have had rocks thrown at them from cars, have had insults yelled at them and have been pepper-sprayed, according to Paul Read, 43, who assists the homeless there.

One thing I've started to notice more in the Los Angeles area (this includes places like Hollywood and Pasadena) is the following:

1. Classical music is being blasted from speakers at various stores. The LA Times even wrote an article about 7-Eleven franchises doing so. Of course, the LA Times was being a bit unfair. I can tell you that 7-Eleven is not the only chain that uses classical music.

2. Some store entrances are perhaps 3 feet deep from the sidewalk. It makes for a perfect place for a sleeping bag and staying out of the way of pedestrians. I've started to notice that once stores close, if they don't have a metal gate that is used for protection against robbery, they're starting to put up yellow warning tape in front of the entrances to discourage the homeless from sleeping in the recess.

The quote about Chatsworth might seem like a strange quote to put up, but here's an article about Chatsworth from the Daily News:

Hundreds of people crammed a community meeting to lash out against a proposed Chatsworth housing proposal Tuesday night, forcing the event’s organizers to find a larger room for the discussion.

Once the meeting was convened on the plan to build supportive housing for the homeless in the northwest San Fernando Valley, the crowd heard L.A. City Councilman John Lee reiterate that the project is not yet a done deal — despite his vote of approval for city funding that could make it happen.

[Christina Martinez, project manager at Affirmed Housing Group] added that the funding the developer has recently received under Proposition HHH was tied to the Chatsworth location and couldn’t be transferred for another site.

Arguments against included:

1. The building would be too high. That's just a NIMBY type of argument.
2. It was next to an elementary school. Would this really be an issue? Perhaps.

Arguments for:

1. There are already homeless living on the streets of Chatsworth. As for this argument, the article mentions that those who want to move into this supportive housing unit would need to go through extensive background checks. How many people currently living on the streets would meet those background check requirements?

I did a check of this Chatsworth project based on the HHH audit report. The construction date is set for February 2021 and is expected to conclude in August 2022. Based on the community reaction, who wants to bet that the construction date is going to shift out? This project isn't even suppose to start for another 15 months or so and a community meeting regarding the shelter was packed.

If the project is well run by Los Angeles, when the building becomes occupied, no one is going to notice that there are homeless there. If the project is not well run, that location will probably be a spot where you find a ton of drug needles on the sidewalk.

This LA Times article isn't about the homeless, but it does address one reason why people end up homeless -- the lack of housing:

The illegally converted church in South Los Angeles had no gas, water or electricity when Amelda Glaspie moved in. She and about 40 other tenants shared two kitchens, where roaches crawled among the dirty dishes and rotten food left in half a dozen refrigerators. Every day, Glaspie said, residents carted water from a nearby building in buckets to flush the toilets. Paying $800 a month, she and her husband lived in a cramped bedroom until late June 2018, when LAPD officers ordered everyone to evacuate.

But there is one reason why Los Angeles has a lack of housing. Yahoo wrote this about what is driving the cost structure up for Proposition HHH units and why the audit determined that less units were going to be built than promised:

At an average cost of $531,373 per unit – with many apartments costing more than $600,000 each – building costs of many of the homeless units will exceed the median sale price of a market-rate condominium. In the city of Los Angeles, the median price for a condo is $546,000, and a single-family home in Los Angeles County has a median price of $627,690, the study states.

If this is the average cost to build units for the homeless, what must it cost to build condos/homes now in Los Angeles. Yes, the median price for a condo is $546,000 and a single-family home is $627,690. But those are current selling prices for homes that might have been built years ago. What is the price to build a new condo/home now? It has to be similar in cost as the units being built for the homeless.

Goldman Sachs: oil forecast for 2020 and beyond

CNBC reported on Goldman Sachs' 2020 outlook for oil:

International benchmark Brent crude is likely to continue trading at around $60 a barrel next year, Goldman Sachs said on Wednesday, in the absence of any “meaningful” energy market shocks. The U.S. investment bank said Brent crude futures had been caught between “worsening growth expectations and rising Middle East tensions” in recent weeks.

For context, Brent crude ended Friday trading (10/25) at $61.73.

What CNBC left out was what Goldman Sachs' was predicting for the future. Oilprice covered that:

“We believe this inflection may be around a year away,” Goldman Sachs wrote. The investment bank says that slowing U.S. shale production growth combined with a shortage of investment in long-term projects will lead to a new boom.

Goldman lowered its forecast for U.S. oil production growth to 0.7 million barrels per day (mb/d) in 2020, down sharply from its 1 mb/d forecast previously.

. . .“The last wave of 2014/15-sanctioned long lead time projects will be ramped up in the next 6-9 months,” Goldman said. The oil price crash that began in 2014 led to severe declines in investment in long-term megaprojects.

. . . Because those projects take years to come online, we are only now reaching the end of the pre-2014 project pipeline.

Goldman Sachs might see oil prices flatlining in 2020, but 2021 and onwards might lead to price increases. Oilprice mentions two drivers. First, shale growth will slow. Second, due to the oil price collapse that started in 2014, investments in oil exploration collapsed. Those final projects from the pre-crash hey days are coming online in 2020 (perhaps talking about Guyana) and after that far fewer projects will occur.

If Goldman Sachs is correct, the world might be in for a long period of high oil prices. As one can calculate from the article, it takes about 5 to 6 years for oil projects (excluding shale) to finish (2015 being the final projects and 2020 being the year those projects finally start producing oil).

OilPrice digs further into this investment problem via Rystad Energy:

Oil and gas companies have discovered 7.7 billion barrels of oil equivalent (boe) year-to-date, according to Rystad Energy’s latest global discoveries report. “The industry is well on track to repeat the feat achieved in 2018 when around 10 billion boe of recoverable resources were discovered,” says Palzor Shenga, senior analyst on Rystad Energy’s upstream team.

The so-called resource replacement ratio for conventional resources now stands around 16%, which is the lowest seen in recent history. “This means that only one barrel out of every six consumed is being replaced by new sources. This is the lowest replacement ratio we have witnessed in the last two decades,” Shenga added.

The article has a graph that indicates a replacement ratio of around 35% - 40% from 2013 - 2015. That ratio fell to below 25% for the years 2016 onwards.

So could US shale start to flatline in 2021? And conventional oil production start to decrease come 2021? Admittedly, OPEC+ is still holding back production so there is that. There might be some interesting calculations to make for 2021 forecasts.

Venezuela: Russian control of PDVSA?

Moscow Times has an article up about Venezuela giving up PDVSA (state-owned oil producer) to Russia's Rosneft in exchange for debt relief. I don't know how reliable Moscow Times is as a source, but I'll say the site is skeptical that this is going anywhere:

“Frankly speaking, it seems strange,” Alexander Korolkov, an expert at the Russian International Affairs Council (RIAC) told The Moscow Times.

“For me, there are more questions than answers around these rumors. Why do they want to give control to Rosneft? They owe much more to China than to Russia.”

“And I’m not sure that Rosneft really needs this kind of a ‘gift’. ‘Control’ here may mean not direct control over the business but a new level of coordination on the oil market. I suppose there might be an advisory team from Rosneft giving support to the locals in terms of reforms.”

Give it up to the Moscow Times. They're showing some distinct skepticism about this. What isn't mentioned in the article is that the head of PDVSA is Major General Manuel Quevedo. If Venezuela gave up to control of PDVSA to Russia, I'd say the military would be part of a coup against Madura within a year.

Algeria: is the military winning?

The protests in Algeria are getting smaller as the military makes moves against the protestors via arrests and suppression while at the same time trying to present themselves as willing to compromise.

Via Al Jazeera:

Algeria's powerful army chief has said the military will not back any candidate in a presidential election set for December to choose a successor to ailing President Abdelaziz Bouteflika.

"We affirm that only the people will pick the next president through ballot boxes, and the army will not support anyone," a defence ministry statement quoted Lieutenant General Ahmed Gaid Salah as saying on Sunday. 

Los Angeles and Homeless: Proposition HHH audit

Los Angeles City Controller Ron Galperin just recently released an audit of Proposition HHH. Proposition HHH was meant to address homelessness in Los Angeles.

The LA Controller website describes Proposition HHH as such:

Los Angeles voters approved Proposition HHH in November 2016 by an overwhelming margin, authorizing City officials to issue up to $1.2 billion in general obligation bonds to partially subsidize the development of up to 10,000 supportive housing units for individuals and families experiencing homelessness. HHH funds can also be used to support new affordable housing units, temporary shelters and service facilities.

The audit didn't exactly have good news for voters.

Pension Obligation Bonds: Montebello, CA

California cities are having to make difficult decisions when it comes to pension obligations. Some cities are considering risky options such as pension obligation bonds. Montebello, CA is considering this option. Via San Gabriel Valley Tribune:

Seeking to address the dilemma of rising pension costs, Montebello City Council members plan to issue a $155 million bond to pay off its unfunded portion of the city’s pension liabilities.

It’s a bond that some think is risky, although no one, including council members, spoke up at Wednesday’s meeting. That’s when City Manager Rene Bobadilla was authorized on a 5-0 vote to begin the process. If all goes as planned, the city would issue the bond in February, and it would take taxpayers 20 years to pay off.

LIbya: US, Russian and World Powers

Before going into news on Russian and US involvement in Libya, let's see how the battle for Tripoli is going. Via Asharq Al-Awsat (Oct 2):

A senior LNA official told Asharq Al-Awsat that National Army forces advanced took control over new areas in their advanced towards Aziziyah, about 40 kilometers south of Tripoli.

. . . The media loyal to the GNA quoted some of its military officials as saying that its air force bombed an LNA convoy on its way to the airport, located in the coastal city of Sirte. It noted that most of the vehicles in the convoy, which had departed from al-Jufra air base, were destroyed in the bombing.

Shale Oil: Lower Production Around the Corner?

Both the Wall Street Journal and Reuters recently published articles predicting that shale production growth is reaching a peak.

From the Wall Street Journal:

Unlike several years ago, when shale production fell due to a global price collapse, the slowdown this year is driven partly by core operational issues, including wells producing less than expected after being drilled too close to one another, and sweet spots running out sooner than anticipated.

Some interesting data points from the article include:

1. In 2018, the year end at a production level of 12 million barrels per day. So far, 2019 is averaging 12.2 million barrels per day. Admittedly, there's a problem with this. The article also mentions that 2018 had an average of 11 million barrels a day. So 2018 production increased dramatically throughout the year as the average was 11 million barrels a day while the year end number came in at 12 million. What I wish is that they'd mention what current production is at, which is probably slightly higher than 12.2 million barrels per day.

Sudan: negotiations result in a new political agreement

I briefly mentioned in an April post that after protests, Sudan's military had removed their dictator, Omar al-Bashir. Since then, I haven't discussed what was happening in Sudan.

I decided to take a look at the country. At least for now, it appears that the military and protestors have come to terms. There are articles up on both Al Jazeera and Foreign Policy that come to different opinions on this agreement.

First, Foreign Policy had the following negative take:

Many protest leaders say they knew they had been outmaneuvered from the start—that Sudan’s security establishment had actually defeated the country’s revolution back on April 11, the same day that the longtime dictator Omar al-Bashir was officially removed from office in the face of massive demonstrations.

Sudan’s security establishment, led by the country’s elusive former intelligence chief Salah Gosh, ousted Bashir and quickly reached out to sympathetic opposition leaders to negotiate a transition. But by steering the talks, the army preserved its status—and, for now, its dominance.

California: Pension and Budget Analysis

Back in August, I quoted a newspaper article that had a discussion with Joe Nation. Well, he recently wrote an article on CalMatters. He provides a little history lesson. Back in 2008, he and some graduate students did an analysis of California's pension system and determined that the "unfunded liability was over $500 billion -- seven times the number officially reported." In 2018, that figure went up to $1.109 trillion or $81,300 per household.

If I'm reading the write-up correctly, that is based on a market basis. If one goes by an actuarial basis, the debt per household drops to $22,800 (this is still an increase from $8,000 back in 2010). He doesn't mention it immediately, but further in his article, the $22,800 amount comes out to $311 billion.

I haven't read too much about the difference between market basis and actuarial basis. What seems to be the big difference is what discount rate is used. The market basis uses the terminal rate, which is a much lower rate than the actuarial basis. I'll need to dig into this a little more, but it does explain the reasons for the big difference between $311 billion and $1.109 trillion.