April 23, 2003

Inside Veritas -
Article 1 - April Speaker to Focus on that Chronic Building Crisis (Weather)
Article 2 - Water rates; autos and other briefs
Article 3 - MAHB’s Policy; The Irony of it All
Article 4 - Taxation and Finance - Changes in the Michigan Single Business Tax (from previous issue)
Article 5 - Sewer and Water Update
Association News Update From Laura
Economic Update - Auto industry impact really shows
BS: Still about Nothing in particular
Housing Industry Update

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April Speaker to Focus on that Chronic Building Crisis (Weather)

   The local home building industry survived the economy of the early 1980s and the moratorium of ‘02-03. It will even survive the imminent attack by the governor and her “Land Use Council.”
   But one challenge that keeps coming back year after year is construction scheduling within the limitations of Michigan’s climate. Each spring we’re held hostage by road commission “load restrictions.” Will they be taken off early (like in ‘02) or will they continue into May (as likely in ‘03)? Will the Spring Parade be marred by snow (like in ‘96) or will an early winter impact the Fall event (also ‘96)?
   A severe December and early January caused the ‘99 Parade committee to delay the Spring event 2 weeks. But the winter turned mild by mid January, and would have had no impact.
   If anyone can shed some light on the coming weather, its our guest speaker at the April 30th meeting. Most of us know John McMurray from more than three decades as an “on air meteorologist” on ABC-12, and over two decades on WJR.
John’s given two phenomenal presentations to the association in the past century, and we’re confident April’s will be just as well received.
   The evening (at Bonaparte’s) begins at 6:00 p.m. with Social Hour sponsored by MCIM.

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Water rates; autos and other briefs

   The Saturday Journal’s front page headline, getting “soaked by higher water rates,” told of the imminent decision to cover the 37% increase in water rates by passing it on to local units of government, which will subsequently pass the cost on to its water users. Of course, we’ve known for months that Detroit was going to raise its rates to Flint, which would start the cycle of “pass-ons” through the county and municipalities.
   What’s troubling is that nothing was written about the complicity of local legislators in leaving their constituents at the mercy of Detroit. Despite the Motor City’s complete mismanagement of the water system and total disregard to the interests of its customers, six of the county’s seven legislators (3 of whom knew better) opposed a bill to give Genesee County a voice in the system’s operation. And, their opposition made the Governor’s veto of the legislation creating a Water Board from the communities that buy Detroit water viable.
   One can’t blame Governor Granholm for acting in the best interest of her urban Detroit constituency. But even the most hardcore Democrat would question a vote in Detroit’s behalf to the detriment of legislative constituencies in Genesee County by the Democrats who represent them (Note: Dave Robertson, the county’s lone “R” voted for the bill).

   “WANT BETTER CHILDREN? BUY a house.” So opened a BusinessWeek note that an Ohio State University study discovered that “homeownership helps boost school achievement and reduces behavioral problems.” We may not put much credence in what comes out of that particular school (no way should they have beaten Michigan or Purdue), but we’ll accept this one. Look for a corresponding parade ad.

   We haven’t heard much about it yet but September 14th is a critical day for the economic future of of the area. It’s the day the current UAW contracts are up, and soon we’ll be hearing the speculation on which company’s going to be the “target.”
   This year, the choice of target is more important than usual, since the divergent needs of the three companies give a proverbial “heads up” to the company that shapes the new contract. As most of us in Southeast Michigan are aware, the eventual contract for all three auto-makers is pretty much determined by the first (or target) contract. And, that’s why the choice has become so critical.
   GM is currently being crushed under a heavy ($5 billion annual) health care burden on its retirees, and is apparently willing to offer job guarantees as trade for a cost reduction. But Chrysler and Ford can’t afford more job security, as they need to cut a bloated workforce.
   Problem! While GM has 2.5 retirees for every 1 worker, Ford and Chrysler have a 1 to 1 ratio. So, if GM sets the trend, Chrysler and Ford will remain at a per unit labor disadvantage ... without equal benefits from health care savings as, they currently have $1.4 and $2.8 billion health care bill respectively.
   Of course, the UAW knows this, and if job security’s the main issue, GM will get the nod.

   There have been a number of instances over the past few years when organized labor has been businesses “friend,” under the premise that unions’ top priority is (or should be) jobs. So, it was notable when Teamsters President Jim Hoffa (Jr) formed a political group called “Labor Environment Alliance,” to promote common sense on the environmental front. Hoffa's target is clear; He's tired of labor's party giving in to environmentalists on critical issues, particularly opposition to drilling in the Arctic National Wildlife Refuge (ANWR).

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MAHB’s Policy; The Irony of it All

   There was a somewhat ironic note in last month’s publication of the MAHB Governmental Affairs Update (GANUP), focusing on the “Approaching Storm” due to the likelihood that land use will “dominate the debate” in the current legislative session. The 1-30 edition included the 13 point “MAHB Land Use Philosophy,” which included the following statement: “Fair and broad-based ways to underwrite the cost of infrastructure investments must be used, ways which complement the sense of belonging to a community, not undermine it by pitting newcomers against existing residents.”
   Of course, financing of infrastructure expansion is, perhaps, the primary issue in the sprawl debate. The anti-growth community claims new sewer and water line expenditures drain public resources, while those of us on the pro-growth side show example after example of how development more than pays its own way.
   And, from a local perspective, we can hang our proverbial hat on the County Capital Improvement Fee (CCIF), where we supported the county’s finance plan to create the sewer and water capacity that’s necessary for continued growth.
   So, upon reading the GANUP, I sarcastically e-mailed its author, “thanking the MAHB for its support of Genesee County’s position” on the CCIF. After all, it was obvious the County was in line with MAHB philosophy in solving the sewer problem.
   Well, historically, my sarcasm seldom sits well with our state association, and this instance was no exception. So, it was little surprise when I subsequently received word, through a third party, that the philosophical statement had nothing to do with the county’s situation, and had, in fact, been written “five years ago.”
   For irony’s sake: Guess who was PRESIDENT of the MAHB 5 years ago? None other than Mike Tobin, who filed the suit against the county’s “fair and broad based underwriting” of the cost of infrastructure funding.

Barry

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Taxation and Finance ---- Changes in the Michigan Single Business Tax

   As you may be aware, Michigan recently enacted legislation affecting taxpayers who are subject to the Michigan Single Business Tax. The new legislation addresses such issues as the accelerated repeal of the SBT; an increase in the gross receipts threshold for purposes of SBT filing; and a change in the definition of gross receipts for purposes of the SBT. Of particular note, the gross receipts threshold for purposes of filing a Michigan Single Business Tax return has increased from $250,000 to $350,000. Depending upon your Michigan gross receipts, you may not be required to file an SBT return this year.
   As part of the new legislation, for tax years beginning after 2009, the SBT is repealed. The SBT rate, which is currently 1.9%, is being reduced annually by 0.1 percentage points over a 23 year period provided that certain revenue targets are met.
   Under former law, the earliest the SBT could have been repealed was for tax years beginning after 2020.
   In addition, for tax years beginning after September 30, ‘03, the definition of gross receipts has been amended to exclude proceeds from the issuance of stock or debt; refunds from returned merchandise; cash and in-kind discounts; trade discounts; federal, state, and local tax refunds; security deposits; payment of the principal portion of loans; property received in a like-kind-exchange; and proceeds from the disposition of a capital asset or land qualifying as business property.
   If you’ve got any questions about this recent legislation or how it affects your SBT filing requirements, please contact a professional tax advisor.

R, P & T

Sewer and Water Update (from previous issue)

   As we reported the "8 month nightmare could soon be over"...then, as we posted at www.bamfhome.com last week, the County Board supported the Drain Commission's bonds for the Western Trunk line. So, it's just a matter of time until the moratorium's officially over. It could come as early as this week...so, check the website for updates!

Beyond Seinfeld: It’s still about "Nothing" in particular (from 8-19-2002)

Oh, What We Learn Due to Dumb Bureaucrats

   Had it not been for meddling bureaucrats, we may never have known about a segment of the workforce that’s thriving in the Flint area. Late last year the Michigan Liquor Control Commission turned its attention toward strip clubs, deciding the practice of “lap dancing” is an evil that should be verboten. Calling for restrictions that would keep performers out of touch with their customers, it (the commission) showed little concern for the economic impact.
   Of course, by drawing attention to the industry, Strip Clubs were put under media scrutiny. So, what did the media discover? Well, despite the loss of auto jobs (or due to it) Genesee County is a proverbial strip club “Mecca.”
   With nine licensed clubs, we’re second only to Wayne County. In fact, with all the local residents that travel to Oakland County for employment, it’s heartening to know that its professionals must travel to Flint and/or Detroit to find work ... Oakland’s void of opportunities.
   It’s interesting to note that Liquor Control regulators seem reluctant to clamp down on the practice, despite the commission’s wishes. Perhaps they fear it’s the one final blow to the Flint economy that the area just can’t handle.

When Will this “Reality TV” Business take a Rest?

   Now that Monica Lewinsky’s got a new gig hosting “Mr. Personality,” and “Joe Millionaire’s” in KFC commercials with our own “George Costanza,” we know you’re wondering who’s going to be the next “reality” superstar? Well, an April 2nd Flint Journal brief (we could have accepted it had it been April 1) suggests none other than the king of real estate development, Donald Trump.
   From the producer of “Survivor” comes “The Apprentice,” where 20 people will compete for a job in the Trump organization, with one being fired each week.
   According to Trump, the series offers “a way to discover a new generation of business leaders in a fun, entertaining and cutthroat way- -not unlike the real business world.”
   What’s next? .... Will, White House Press Secretary Ari Fleisher host a series to find a new Iraqi Information Minister? May sweeps are just a couple weeks away.

Where’s “Baghdad Bob?” Perhaps at the Land Use Institute

   Since former Iraqi Information Minister Mohammad Saeed al-Sahhaf, became internet celebrity “Baghdad Bob,” the questions as to his whereabouts never ceased. Well, here’s a possibility. He’s working for the Michigan Land Use Institute whose spokesman recently suggested that Sprawl was responsible for Michigan being FAT: "Sprawl is an infidel plot, designed to keep us fat and lazy so they (infidels) can steal our land and pillage our resources to use against the will of God! (or something like that).

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Association News and Events by Laura

  

General Membership Meetings    As we note on page one, the April meeting will feature media meteorologist John McMurray. It will also be the final meeting prior to summer break, so plan to attend. The sponsor for the evening is Michigan Construction Industry Mutual, the industry’s exclusive workers’ comp company. Spring Parade Still at 41 Models    We’re less than three weeks away from the opening of the annual event, which promises to be another successful kick-off to the spring buying season. One note: we’ve altered the Parade Awards program this year, as homes will be categorized by price, not size. Look for the winners to be announced shortly after the May 9th judging ... Also, we’re going with new Parade Home signs this event. Housing Quarterly    The 96 page Spring issue will be set for mailing and distribution the week

prior to the opening of the “Parade.” Since we needed extra color pages to meet the demand for full color ads, we’ll also have color on some editorial pages, enhancing the aesthetics of the magazine as a whole. Golf Outing    The annual Golf Outing will be back at the “Captain’s Club” in Woodfield, where we’ve had our most successful events. It’s set for Tuesday, August 5th; with the usual 10:00 a.m. shot gun start; four person scramble ... Lunch at the turn, Steak at the banquet; all the sponsorships and prizes you’ve come to expect...and we held the price at $100.    Hole sponsorships continue at $100 (you bring the prize) and $150 (we by the prize)...remember, we have a contest & prize at each sponsored hole.

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Economic Update: Auto industry impact really shows

   In recent years, we’ve spent a considerable amount of space in this column pointing to housing’s impact on the economy. Today, we’re going to highlight another industry’s impact: that of the auto industry.
   There were a couple of notable bright spots regarding the “consumer” during the past couple of weeks. First, consumer spending in March soared to its biggest rise in more than a year. And, with the exception of the auto industry’s (0%) surge on the heels of the 9/11/01 events, it was the biggest jump in ten years. But, like that surge in fall 2001, the auto industry led this one, as sales were up 5.3% from a lackluster February showing.
   Still, even without considering autos, retail sales were up a solid 1.1%, suggesting the demise of America’s consumers was greatly exaggerated.
   Also, the University of Michigan’s Index on consumer sentiment rose 5.6 points in mid April to 83.2 (which represents a 7.2% increase).
   There were also some negatives, with autos playing the major role. We found, for example, a big spike in the Producer Price Index, as the level of wholesale prices jumped 1.5% during March. However, much of the rise was attributed to higher energy prices, soaring 5.3%. Yet the core rate of wholesale inflation, minus food and energy, which has been stable for such a long period, was up 0.7%. However, that was completely due to vehicle prices. In fact, the core rate would have been unchanged without the surge in truck and automobile prices.
   Then, along came last week’s claims for unemployment benefits, which rose 30,000 from the previous week. Not only did those numbers reverse a decline from earlier in the month, it took the four week average to an 11 month high. And, what caused this reverse in trend? You guessed it, the auto industry led this one too. The Wall Street Journal reported the Labor Department “attributed the jobless claims’ increase to layoffs in the auto industry,” noting that GM, Ford and Chrysler temporarily halted production at several factories.
   So, April reports showed big jumps in Retail Sales, Wholesale Prices, and Jobless claims, and each one of those rises was spurred by the auto industry.

March Employment Takes a Hit
   Like we expected in the April 1 issue, jobs took another hit in March as employers cut payrolls by an additional 108,000 during the month, leaving the unemployment rate at 5.8%. However, if we take the number of unemployed, as compared to the total workforce, the rate’s significantly higher.
What was notable is the impact of the war fears on employment, particularly as they relate to tourism and leisure. As Americans were expressing a reluctance to travel, airlines, hotels, amusement parks, restaurants and bars shed 77,000 workers.
   The employment data suggest the economy’s shed an average of roughly 100,000 jobs per month during the first quarter.
(note: The state that’s been leading the nation in unemployment for the past 18 months is that “darling of urban correctness,” Oregon. It’s growth boundaries have not only kept people out, but apparently jobs as well. This could, however, signal the future of Michigan if its new environmental zeal become the law of the land).

Industrial Output Declines
   Finally, we also found that industrial production slipped more than expected in March. The Federal Reserve report said the output of America’s factories, mines and utilities fell 0.5% last month, its biggest decline in three months.
   However, the decline was led by a 4.1% drop in utility production, as improving weather let customers cut back on gas and electric, so the actual impact was likely somewhat less than the data suggest.

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Housing Industry Update

Q1 Housing Starts Return to Record Levels

  So much for the impact of the severe winter. Last week’s report from the Commerce Department showed single family housing starts back at record levels, as builders began construction at a rate of 1.414 million units in March. The March data put the first quarter rate at 1.412 million units, nearly 4% above ‘02’s year end record of 1.358 million.
NAHB called the March data “reassurance that housing activity will proceed at a healthy level this year” and noted that it emphasizes the fact that February’s “big decline” was due to the extremely “harsh winter.”
Notable in the report was the rise in the Midwest of 25.4% over the previous month.

Builder Expectations Grow Higher

   On April 15th NAHB released its monthly Housing Market Index showing a strong, six point gain, in sales expectations for the next 6 months. While more builders think current market conditions are “good” than feel they are “bad,” there’s strong optimism regarding the coming six months, as the expectations jumped to “62” (meaning for every builder that sees conditions as “poor,” there are nearly 2 perceiving conditions as “good”).
However, the segment that’s continued to lag in the HMI is “traffic” of prospective buyers, which came in at “35.”

Southeast Michigan’s Housing Activity’s Still Solid

We had to chuckle at a Detroit News article this past Sunday headlined, “War, economic woes sap new-home market.” In opening, the article stated “the war, economic fears, and low consumer confidence contributed to a 0.8% decline in the construction of single family homes in Metro-Detroit during the first quarter.” All those factors (and that neglects the severely cold winter) and housing activity was off less than 1%?
Now let’s see, in the 1st quarter of ‘00, with the economy growing at a 5.6% rate, consumer confidence at its highest historical level, and NO WAR, single family activity was 3.5% lower than during the same period this year. In other words, while great metropolitan newspapers may fight the never ending battle for truth, justice and the American way, they may leave much to be desired in analyzing the economic news of the day.

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