kitchen table math, the sequel: 11/21/10 - 11/28/10

## Wednesday, November 24, 2010

### GPA Calculations

I was looking at the way my son's school calculates GPA and weighted GPA. Then I looked at how other schools calculate them. Since I was looking at high school web sites, I was only partially successful. In any case, many of them seem to be math-challenged. Even when I searched the web about how colleges calculate GPA (or not), I met with little success. We are told that colleges generally like to recalculate their own GPA. Why? If they have the numeric percentage grades, why do they have to sort them into GPA buckets (e.g. 83-87 is a 'B' = 3.0) and then come up with a new number that contains less information than the percentage grade. Perhaps some high schools send out only GPA bucket scores for each class, but do colleges know what the buckets are?

What I find more interesting are discussions that talk about how colleges like to use unweighted GPA scores. There is some sort of advantage to an 'A' in a regular course over a 'B' in an honors course. Maybe. I think it depends on whether you make it past an initial cut. Someone told me once that colleges use unweighted GPAs for the initial cut. That seems backwards to me. You want to use a weighted GPA (and rank and SAT and etc.) to make the initial cut, but then compare applicants based on unweighted GPA. Of course, they must first strip off all of the non-academic courses.

I do, however, tell him not to give away free points. For example, in science, they had a grade for whether they covered their books or not. I showed my son that if he didn't do it, his overall grade for the class would drop 3 points. I told him that it was like finding free money. Then there are the things you have no control over, like group grades. There was also the essay where he got an 80, but that was the second highest grade. Both of those things dropped his quarter grade by 5 points. There is not much you can do if a school has two different grading rules for the same course and you stuck with the wrong teacher. Things might average out in the end, but it's difficult while the student is going through it.

## Monday, November 22, 2010

### on beyond zebra

A friend sent me a link to this story last night:

"Infinite" is not a word you expect to find in a report on municipal spending. It's more of a science fiction–type term — Tremble, Earthling, before the infinite might of Galaxor! But there it was, in a recent report on San Francisco's finances: Spending on the city's employee retirement system in the past decade had grown at an "infinite" rate.

Naturally, that's an exaggeration. If you do the math, the city's retirement costs for employees in the past 10 years actually grew only 66,733 percent.

Still, you might call that a Galaxor-sized number.

In fiscal year 1999-2000, the city spent about \$300,000 on its retirement system. In fiscal year 2009-10, it was \$200.5 million. Benefits alone — not salaries, just benefits — for current and retired employees this year are budgeted at \$993 million. Spending on retirees' health care and pensions is conservatively projected to triple within five years.

And after that? Infinite.

Let It Bleed
By Joe Eskenazi and Benjamin Wachs
Wednesday, Oct 20 2010
San Francisco Weekly News
I actually didn't even know there was such a thing as an infinite rate.

## Sunday, November 21, 2010

### Warren Buffet on insuring local and state bonds...

Some quotes from this letter sent out in 2008 are rather intriguing. All of this is addressed to the stockholder's view of course, who has a different interest from the local communities that decide to insure their bonds. But it seems that Warren Buffet has some insights into the finances of many public budgets...

"Early in 2008, we activated Berkshire Hathaway Assurance Company (“BHAC”) as an insurer of the tax-exempt bonds issued by states, cities and other local entities....BHAC has become not only the insurer of preference, but in many cases the sole insurer acceptable to bondholders. Nevertheless, we remain very cautious about the business we write and regard it as far from a sure thing that this insurance will ultimately be profitable for us...

The rationale behind very low premium rates for insuring tax-exempts has been that defaults have historically been few. But that record largely reflects the experience of entities that issued uninsured bonds. Insurance of tax-exempt bonds didn’t exist before 1971, and even after that most bonds remained uninsured.

A universe of tax-exempts fully covered by insurance would be certain to have a somewhat different loss experience from a group of uninsured, but otherwise similar bonds, the only question being how different. To understand why, let’s go back to 1975 when New York City was on the edge of bankruptcy. At the time its bonds – virtually all uninsured – were heavily held by the city’s wealthier residents as well as by New York banks and other institutions. These local bondholders deeply desired to solve the city’s fiscal problems. So before long, concessions and cooperation from a host of involved constituencies produced a solution. Without one, it was apparent to all that New York’s citizens and businesses would have experienced widespread and severe financial losses from their bond holdings.

Now, imagine that all of the city’s bonds had instead been insured by Berkshire. Would similar belt-tightening, tax increases, labor concessions, etc. have been forthcoming? Of course not. At a minimum, Berkshire would have been asked to “share” in the required sacrifices. And, considering our deep pockets, the required contribution would most certainly have been substantial.

Local governments are going to face far tougher fiscal problems in the future than they have to date. The pension liabilities I talked about in last year’s report will be a huge contributor to these woes. Many cities and states were surely horrified when they inspected the status of their funding at year-end 2008. The gap between assets and a realistic actuarial valuation of present liabilities is simply staggering.

When faced with large revenue shortfalls, communities that have all of their bonds insured will be more prone to develop “solutions” less favorable to bondholders than those communities that have uninsured bonds held by local banks and residents. "

Page 13 of Berkshire Hathaway's Letter to Stockholders

(p.s. don't ignore the first page.)