May 15, 2003

Inside Veritas -
Article 1 - CCIF Decision Critical for Fight Against Anti-Sprawl Forces
Article 2 - Auto, Prices and other briefs
Article 3 - Myron Orfield: U-M’s Second Coming of Ed Martin?
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 - Economy sluggish but still growing
BS: Still about Nothing in particular
Housing Industry Update

Would you like to see a previous Veritas Issues? Click Here

CCIF Decision Critical for Fight Against Anti-Sprawl Forces

   By now, everyone who’s interested knows that Judge Geoffrey Neithercut ruled in favor of Genesee County in the lawsuit over the Drain Commission’s Capital Improvement Fee (CCIF) The ruling brings an end to the first chapter of a fascinating period in Builders Association history where traditional positions gave way to the realities of 21st Century America.
As active BAMF members are aware, the association was in support of the CCIFs since Jeff Wright, Drain Commissioner, introduced the idea in early ‘01 to solve the county’s sewer and water capacity problems. And, last June, when the CCIFs were challenged, we stood with the County in its defense, despite the fact that the plaintiff was an association member with a long history of support for the association and industry.
Complicating the matter, perceptually at least, was that the association had filed against Grand Blanc Township’s tap-in fee increase which, on the surface, appeared to be on similar grounds as the suit against the CCIFs. However, the situations are different as night and day.
BAMF’s support for the CCIFs resulted from the recognition of Genesee County’s need to expand a sewer system that was already overextended in a number of fast growing municipalities and, arguably, county wide. Wright’s plan virtually created a tap-in fee to finance the necessary capital improvements, similar in scope to the way municipalities financed sewer and water extensions in the past. The difference was that the county hadn’t charged these types of fees in the past and, historically, would have passed the costs of additional capacity on to the rate payers as a whole, which brings us to the irony of the situation.
The Michigan Supreme Court, in ‘99, ruled that an additional fee passed on to the rate payers had to meet the tests of a traditional fee (like a permit) or it was to be declared a tax, and subject to a vote under the “Headlee Amendment.” The case, Bolt v Lansing, made the primary basis for plaintiff’s case in the “Tobin v Genesee County” action.
The problem is, plaintiffs continuously claimed that the rate payers should be charged for the expansion of the system, which is a direct violation of “Bolt.” Unfortunately, there seems to be much confusion in the legal community surrounding the meaning of “Bolt,” so perhaps a non-lawyer can clear the air.
In Bolt, the city added a stormwater service charge to separate storm and sanitary sewers. However, 75% of the city already had separated systems, so only 25% would receive the direct benefit. So, the majority of the rate payers received no benefit for their charges, meaning the costs were not in proportion to the benefit received, and did not meet the criteria that separates a “fee” from a “tax.”
“Bolt” was nothing really earth shaking. All it did was extend the protections of previous decisions on the validity of “fees” (applied to purchasers of permits, licenses, etc.) to the public as a whole. And, rather than merely calling the fee “unconstitutional” it added the “Headlee” violation to the mix.
Therefore, if Wright would have proposed a rate payer funded expansion, as Tobin et. al suggested, it would have been a Bolt violation, since new users would get the primary benefit. Or, if he had put a rate increase to a vote of the people, it would be DOA on referendum day.
Decision bigger than “Tobin” alone
Who pays for infrastructure expansions? While the Governor and her Land Use Leadership Council decide on a plan of action to contain “sprawl,” the argument keeps appearing that it (sprawl) drains public resources for infrastructure expansion. However, we continuously argue that expansion is paid, with dividends, by the eventual users of the new sewer and water lines.
Now, in a perfect world, the county would add sewer capacity as a pure capital investment. As we showed in a memo back in December, General fund revenues from the first 700 homes built would finance 20 year bonds to pay for the Western Trunk Line, meaning the roughly 49,000 units of capacity would do nothing more than enhance county coffers. But in this imperfect world, as our industry is under fire from several directions, the burden is on us to prove that even the initial “investment” is paid in full by the users.
Well, that’s exactly what the County Capital Improvement Fees do. They prove, beyond reasonable doubt, that relieving sprawl’s strain on the sewer and water system in Genesee County is paid for by the direct beneficiaries of the expanded system. There’s no drain on public resources. No cost to established units of government. And no expense to current residents. Just voluntary expenditures by individuals looking to take advantage of opportunities created by “sprawl.”
Today, sprawl is under heavy attack. Not only does Governor Granholm consider sprawl Michigan’s public enemy #1, we now find the attack extended by the “Ameregis” group, an alleged Minneapolis based “think tank,” that makes erroneous statements about Flint area sprawl while going unscrutinized by the media. And, one of those statements is that “residents in fast growing areas will have to pay higher taxes and fees for water and sewer.” It’s a standard anti-sprawl claim that, obviously, holds no water!
Fortunately, as we continue to challenge the distortions and outright lies of the anti-growth community on a near daily basis, we have the county’s sewer and water expansion financing mechanism to rebut the their misrepresentations.

Editor's Note: After finishing the article above, we were able to get our hands on a copy of the “Ameregis” report, titled “Genesee County Metro-patterns.” One of the many misrepresentations was directed at the CCIFs.
On page 6, Ameregis writes: “rapid growth in (on) the edge brings with it significant public costs that fall disproportionately on current residents.
In fact, the Genesee County Board of Commissioners recently approved borrowing $9 million to expand the county’s sewer system after the court rejected the commissioner’s previous attempts to make developers pay water and sewer tap-in fees that would help cover the costs associated with expanding the system to their developments."

Back To Top

Autos, Prices and other briefs

   U.S. Vehicle sales fell 6.2% last month, but the news was far worse for American based companies. While GM’s sales were off 9%, Chrysler’s were down 10%, and Ford showed a 6.9% decline. Its two primary competitors, on the other hand, Toyota & Honda, experienced a 0.9% decline and 11% rise respectively.
April sales were at a seasonally adjusted rate of 16.5 million units, down from 17.3 million a year earlier.
One result of the downturn in sales has been historically high inventories, suggesting another round of buyer incentives could well be in the offing. However, another theory suggests that auto makers are stocking up in anticipation of a potential strike.

Regarding the auto talks: A couple of issues back we told of the divergent goals of the Big Three in regard to job guarantees v benefit reductions. GM is will ing to give job guarantees for lower benefits, while the others prefer the reverse. The basic issue was around which company would be targeted first, because that company would likely set the “pattern” contract that the others would follow.
Well, a Detroit News feature this past Sunday emphasized this issue, but also may have tipped the hat as to which company will be the target. And, the winner is likely GM ... Why? While “Ford is still mired in financial woes,” Chrysler’s possibly “not big enough to establish a pattern agreement.”

A couple of articles, one in the Wall Street Journal, 1 in BusinessWeek, focused on the question, if we are in a deflationary period, why are some prices rising so fast? The data show the answer’s pretty clear; price gouging for necessities.
For the 12 months that ended on April 1st, we find the following are up: Health Care (4.3%); Cable TV (5.2%) Auto Insurance (8.9%); Gas (37.6%); and Home Heating (49.8%). But for the same period, we find the following items down: Computers (-17.7%); TV

Back To Top

Myron Orfield: U-M’s Second Coming of Ed Martin?

  Now that I’ve had the opportunity to review the Mott Foundation’s $350 thousand boondoggle called “Genesee County Metropatterns,” I can honestly state what I’ve suspected for the past year: The University of Michigan’s alliance with Myron Orfield of the Ameregis Group (that wrote the study) should have the same impact on the school’s credibility as Ed Martin had on its basketball program. (We can only surmise that the mother school was so wrapped up in its U.S. Supreme Court fight that it left it’s child in Flint unsupervised for too long a period. Perhaps a charge of child neglect will be forthcoming.)
For those who don’t know, Ed Martin was the U-M “booster” who allegedly took “good care” of some of U-M’s basketball stars with over $600,000 in direct payments, costing the forfeiture of more than 100 games and removal of any evidence of two “final four” appearances in the ‘90s. Martin died while under indictment, but the school’s penalties for his activities continue to linger.
Well, at least Martin helped bring the school temporary glory. Orfield, on the other hand, discredits the schools involvement from day one!
Like so many of his ilk, Orfield begins with his conclusion, “poorly planned, inefficient development and competition for tax base are hurting almost every city and suburb in the region (defined Gen. Co.), then sets out to find evidence to support his predisposition. The problem is, his evidence has more holes than a Baghdad cafe.
For example, “Metropatterns” notes that employment “in the region” fell by 1% during the ‘90s. What it neglects to say, however, is that employment of residents outside the “region” rose by more than 100% during the same period or, that the same “region” had its lowest unemployment rate in history at the end of the period. In other words, Orfield ignores the additional 23,500 commuters that became employed outside the county during the decade ... that is, until it served his purpose.
“Metropatterns” was quick to note that county “workers experienced an average commute of 25.6 minutes, up 23% from 1990,” then says the trend is “straining the county’s road system and exposing the insufficiency of its public transportation.” Of course, what he neglects to note is that the rise is due to more county residents working outside the county, and its impact is on roads in Oakland, Livingston, and other surrounding counties.
The misrepresentations don’t stop there. They even claim the county lost the CCIF lawsuit (see box to left) and that older suburbs are losing retailers to newer communities (which ones?).
Orfield makes the mistake of defining Genesee County as a region. However, if he looked at Census groupings, he’d realize that the county is merely part of a region. And, if he’d think rationally, he’d understand that the market trends he disdains actually saved Genesee County as a viable entity.

Barry

Back To Top

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)

Bad Year for “West Wing” as Scandalized VP Resigns

  Ever since a poll found that most High School seniors (in the ‘80s) thought J.R. Ewing (the evil brother in Dallas) epitomized the American businessman, we tried to keep up with TV’s impact on the development of America’s perceptions. So, we were somewhat fascinated with the potential impact NBC’s “West Wing” would have on thoughts about the U.S. Presidency in post Lewinsky America.
Well, in turn, it’s been America that’s had the impact on the show. First, as ratings were already dropping, it’s star, the ultra liberal Martin Sheen, began speaking against the war in Iraq. Then, we learned Aaron Sorkin, its creator, and primary writer, couldn’t make deadlines (he had to quit using cocaine since being arrested), and quit.
But from its onset, we thought there may be a perceptual problem with Vice President Hoynes, played by Tim Mathieson (left), who was best known as the womanizing Eric Stratton (a.k.a. Otter) in “Animal House.” Well, two weeks ago, “Otter” came out in Hoynes, as an elicit affair with a socialite (an Omega?) brought about his resignation. He was giving away classified government secrets during “pillow talk.”
Now, we wonder what impact this has on America’s youth and its noted inability to separate fantasy from reality.

Party at Kwame’s House; Let’s move back to the CITY

   While his political “sister” tries to force suburbanites back to Michigan’s cities, Detroit Mayor Kwame Kilpatrick gives all a reason to return. With the lights out at Joe Louis after the Red Wing’s demise, and no one going to Comerica Park, Kwame moved the party to the Manoogian Mansion (Detroit’s Mayoral residence) with booze, strippers and entertainment (a cat fight between the Mayor’s wife and a stripper).
That’s just one of the claims of former Deputy Police Chief Gary Brown, who was recently fired as “the city’s top anti corruption cop for investigating weather the mayor, his family and staff were involved in criminal activity. Brown’s charges also include the covering up of a drunk driving accident and falsifying employee time cards.
Yes, while his “sister” (Jennifer Granholm) tries to save the city by forcing the middle class back in, Kwame continues to improve its attractiveness.

Back to top

Association News and Events by Laura

  

Interest High in Spring Parade We probably couldn’t have had worse weather for the Parade opening, but the traffic was solid in most area’s, exceptional in others. We’ll present a follow up report on the event upon its completion, but there’s one significant item we need to emphasize. From Wednesday May 7th (when the heavy TV advertising began) through Tuesday May 13th, individuals accessed 22,700 web pages at bamfhome.com/, of which 65% were the spring parade. However, the Fall Parade drew another 4%, and 1% went back to last spring’s event.

Housing Quarterly If anyone wants extra copies of the Spring issue, you should come to the BAMF office right away. By the opening of the Parade, we were down to less than 800 left. Golf Outing The annual Golf Outing will be back at the “Captain’s Club” in Woodfield, 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; 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 all sponsored holes. Tee reservations will be taken June 2. We expect the usual sellout, so act quickly.

Back To Top

Economic Update: Economy sluggish but still growing

  Despite war concerns and declining employment, it appears the economy grew in the first quarter of ‘03. The first estimate of Gross Domestic Product showed modest rise of 1.6% from January through March, which was slightly better than the 1.4% final figure from last year’s fourth quarter.
The growth was credited to the narrowing of the nation’s trade deficit, purchases of clothing, food and other non durable items and, of course, strong housing construction, which offset a decline in autos and other durables.
It was housing construction that was, once again, the “standout performer.” It rose at an annual rate of 12% during the period, limiting the damage from a big (4.2%) falloff in non-residential investment as businesses held back on investment activity.
The inflation component of the GDP report showed prices rising at double the rate of the fourth quarter. However, the rise was mostly due to energy costs as the core rate (minus food and energy) came in at a 2% rate for the quarter.

Manufacturing Continues Slide
After growing through most of 2002, the manufacturing sector experienced a decline in activity for the 2nd consecutive month in April, according to the Institute of Supply Management’s manufacturing index. The index registered 45.4, (any score under 50 suggests the industry’s contracting) a decline of 0.8% from March.
As would be expected, manufacturing employment continued to contract, registering 41.4. Even while the sector’s activity was growing, it’s employment base was declining. In April, the sector cut 95,000 jobs, the 33rd consecutive month of decline.

Greenspan, Bush and Tax Cuts
It was almost laughable. A few days after the President announced his plan to reappoint Alan Greenspan to one more term as Federal Reserve Chair (he’s only held the position since the early ‘80s), the honoree repaid him by reiterating his disapproval the Presidential pet project, his $726 billion tax cut. This time, however, Greenspan added a new wrinkle, referring to a new study showing that interest rates rise a quarter percent for every 1% increase in the ratio of the federal deficit to GDP.
Not only did Greenspan restate his concern about deficits, he also echoed a previous statement that monetary stimulus was more effective to stimulate the economy than fiscal stimulus.

Deflation Worried Fed In March
The headline above was taken from the May 9 Wall Street Journal, following the Fed’s “signal it will fight possible deflation.” But the article noted that concerns about deflation go back to its March 18th meeting. It’s an interesting point because, two months earlier we wrote: “With the report of last year’s inflation, fears of deflation were once again brought to light. The core rate of wholesale inflation fell four times since July and core wholesale prices were down 0.4% from a year ago. The next day we learned manufactured goods’ prices were down 1.5% from a year earlier.” So, remember, not only did Veritas “scoop” the WSJ by nearly four months, it beat the Fed by two!

Back To Top

Housing Industry Update

New Sales Up; Existing Sales Down

 Sales of new homes jumped 7.3% in March, surpassing the million unit rate for the 6th time on record, as the Northeast led the surge with an 82.6% rise on the heels of depressed sales blamed on the extremely harsh winter. The March data bring the first quarter rate to 961,000, which is just 1.5% below the all time year end record set last year. And, when we consider the impact of the winter in midwest, south and northeast.
The day after the New Home release, the National Association of Realtors reported existing homes sold at a 5.53 million unit pace, down from previous months but at the same level of last year’s record, bringing the first quarter sales’ rate to 5.83 million, which is 4.8% above ‘02’s year end record.

Michigan Builders Survive First Attack
In recent issues we’ve been noting how the housing industry is under attack from several directions, well beyond the land use battle. Well, the first took place in the House Tax Policy committee last Tuesday, when the Governor’s attempt to raise revenue on the back of the housing industry was thwarted. Calling the avoidance of paying the Real Estate Transfer Tax on the construction portion of a new home a “loophole,” Ms. Granholm wanted the legislature to close it, along with several others, that were not loopholes, but attempts at increasing taxes. In our particular case, since builders pay the additional 2% sales tax on materials, the construction portion pays its fair share. Furthermore, the RETT had been bringing the state a windfall of 35% above the rate of inflation since it was instituted in Proposal “A”.

Back To Top

Look Here for Previous Issues of Veritas