May 29, 2002

Inside Veritas -
Article 1 - Revenue Sharing: What the State Withholds; Housing can Give Back
Article 2 - Business News & Issues
Article 3 - Cancellation of network news?
Article 4 - Taxation and Finance - New 2001 Audit Statistics
Article 5 - Road Commission's Subdivision Development Progress online
Association News Update
Economic Update - "Home" is where the economy grows!
BS: Still about Nothing in particular

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Revenue Sharing: What the State Withholds; Housing can Give Back
  
   To set the tone for a January address by former governor (and current candidate) James Blanchard, BAMF’s E.O., Barry Simon, brought County Treasurer Dan Kildee to the podium to introduce his (Kildee’s) long time friend. In Simon’s introduction of Kildee, he read an e-mail he sent to the treasurer in late December.
   At that time, Kildee had just gotten word that the county’s state revenue sharing allocation would be cut by $430,000. Simon’s “Christmas e-mail” explained that the housing industry was adding “at least $1.2 million to the (county’s) needy coffers” from its 2001 activity, so, “what the state taketh, the home builders giveth back, with dividends.” The point being, a strong home building industry is more than offsetting declining state revenues, at least here in Genesee County.
   We bring this to light because of a barrage of recent articles about municipalities having to cut services due to another anticipated decline in revenue sharing, and their reliance on it to balance budgets. And that’s not just for struggling, older municipalities like Flint, Detroit and Livonia, which are losing population or remaining stagnant. The City of Novi, one of the wealthiest communities between the Hills’ (48302 and 90210) will cut its park renovation spending from $1 million to $275,000 and postponed plans to buy a new fire truck and lawn mowers. As state revenue sharing is based on population, and Novi’s population has grown nearly 50% since 1990, it had expected a significant rise. However, its share of state aid is projected to remain frozen this year at $4.4 million, or even decline, according to a Detroit News story.
   Apparently the crisis is so bad in non-growth communities that officials are asking for “state aid cash advances to ward off possible City Hall layoffs. Some are even going to the voters in an attempt to bypass taxing limitations set by the Headlee amendment in the late ‘70s.
   The News’ article points out that, even in growing communities the “loss of state dollars is a blow.” However, it notes that the Canton Township finance director, who is dealing with a million dollar revenue sharing shortfall, says his community is fortunate to have 1,000 new homes each year as “fresh property taxes help keep the growing Wayne County community in the black.” He’s learned that a healthy housing industry is more dependable than fickle state legislators.

Note: Before you feel too sorry for Novi having to go without $3/4 million in park improvements, remember, it lost far more than that amount in a “development” lawsuit. Best guess is that they were planning on state funds to pay their liability insurance premiums.

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Business News & Issues

Now, it’s a Homeowners’ Insurace Crisis

   Throughout history, homeowners’ insurance cost had a relatively minor impact on the affordability of monthly payments. In fact, it was merely considered an incidental expense that was nearly ignored in comparison to finance and property tax payments.
   Well, a couple of weeks ago the Builders Association got a call from a member who had a mysterious shortage in his escrow account, according to the mortgage company. The investigation found, among other items, an approximate 75% in the cost of insurance, which was paid by the mortgage company last fall (after 9/11).
   The member who called was hardly alone, according to a couple of recent article in the Wall Street Journal. Not only are Insurance costs rising all across the nation, but homes are being “rated” by their history of claims (much like medical insurance buyers), and some are even considered “uninsurable.”
   One of the articles noted in “years past, insurers were willing to stomach losses on their homeowners’ policies to find customers for more profitable auto and life insurance lines.” Besides, if they were to lose money on the practice, they would make it up through investment income.
   However, the easy investment gains are a thing of the past, and a series of disasters last year “rocked the industry with underwriting losses.” In fact, a chart by the Insurance Information Institute shows industry wide losses on home owners’ insurance rising from a couple hundred million $ in 1997 to nearly $9 million in 2001. “Now,” the article says, the “companies are trying to wring profits from homeowners’ policies, and growing numbers of the nation’s 58.6 million homeowners are paying the price.”
   Of course, as builders are fully aware, disasters aren’t the only major area of loss by the industry. The “mold” crisis has also had a dramatic impact.
   For example, in Texas (a surprisingly highly regulated state), both Farmers’ and Allstate have more than doubled their rates in some areas because of mold claims, and the state’s reluctance to allow the industry to refuse to cover “mold.” Furthermore, state regulators and a number of agents told the WSJ that “insurers are frequently targeting potential mold claims with the current wave of non-renewals,” with an agent noting the following: “any time you have a water-related claim, if mold manifests itself or not, you’re on their (insurers) radar screens.”

Beware of Houses with “Checkered Pasts”
   If you’re buying (or selling) a house, it’s “record” may be as important as the income of the prospective buyer. In fact, in some areas, if a home has two or three claims in recent years, it’s automatically rejected by insurers. Much like criminal records are monitored by police networks, home insurance claims are monitored by the insurance industry, and previous water, wind/hail and/or burglary claims may make a home "uninsurable."

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Cancellation of network news?

   A few issues back we mocked the “Disney” TV network, noting it went back to the company’s cartoon roots as it was putting John Madden on Monday Night Football, while trying to dump Ted Koppel for David Letterman. Subsequently there was talk that Peter Jennings, from whom “more Americans get their news than any source,” may have to take millions in salary cuts by an industry that doesn’t even have a salary cap. Finally, Bill Maher’s “Politically Incorrect” was dumped for the “Man Show’s” Jimmy Kimmel.
   I really began to wonder if, and why, network news was in so bad a state. Well, last week I understood.
   I’m seldom home for national news (6:30 p.m.), and by the looks of streets, expressways and commercial parking lots at that hour, neither are most people. But last Tuesday I was home early, and caught the Disney view of the day gone by.
   First, was the terrorist threat to New York, and the nation as a whole. Everything said had been running on radio, and on internet news pages all day. Then came story #2: Obesity may put the health care system in crisis, as 50 million Americans are obese, and they start as kids with candy and fast food (often as part of a Disney movie promo).
   As another employee of Disney News would say, “GIVE ME A BREAK!” There’s already a crisis and businesses, without the assets of “Disney,” who pay employee health insurance sure as hell know it.
   Next came an apology by Merrill Lynch for telling clients to buy dogs, and how its deceit, along with Enron, Arthur Andersen, K-Mart, et. al. has darkened the public’s view of the stock market and run investors out. Of course, that’s a story we’ve been hearing or months.
   Then, after a couple of briefs about investigations into voting rights violations in Florida (did you think you’d heard the end of that one?) and California’s “2001 energy crisis”, it was back to health care. This time though, it was depression.
   Yes, it’s now estimated that 19 million are depressed (that means at least 31 million obese Americans aren’t depressed), and a bi-partisan medical panel (meaning physicians and psychiatrists) says doctors should be asking patients two stupid questions about the presence of depressed mood symptoms (the answers are Yes, unless you’re already on Prozac) to determine if they should seek treatment. Of course, this brings Disney medical correspondent Tim Johnson to the desk to tell us that Doctors should probably medicate those who say yes, and send them to a specialist (a shill for the Psychiatric society?). Of course, this would fabricate another “health care affordability crisis” bigger than obesity (npi).
   The half hour mercifully ended with a story on the “Year of the Shark,” noting that sharks kill ten humans each year, but humans kill thousands of sharks (I was waiting for a deer analogy).
   With four basic cable “24 hour” news networks and the internet, there’s little need for entertainment network newscasts. So, in retrospect, considering the lack of viewers and senselessness of the newscasts, the likes of Kimmel, Letterman and Madden on ABC are far more appropriate than Maher, Koppel, Jennings or even Dennis Miller.

Barry

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Taxation and Finance ---- New 2001 Audit Statistics

   New statistics from the IRS show that the audit rate is climbing...but slowly. In 2000, the audit rate was 0.43 percent. In 2001, the audit rate climbed to 0.48 percent. The difference of 0.05 rise equals about 100,000 more returns. Even though 100,000 more returns were audited, the number of face-to-face audits did not change. Most of the 100,000 audits were correspondence audits. If the IRS hadn't conducted more correspondence audits in 2001, the overall audit rate would have been the lowest in seven years. Individuals:
   Here are the audit rates for individuals broken down by income levels:
$0-25,000 = 0.40%
$25-50,000 = 0.22%
$50-100,000 = 0.23%
Over $100,000 = 0.69%

   Unlike past years, the IRS did not break down its audit figures by state and city. Traditional wisdom use to hold that people on west and east coasts had the greatest odds of being audited, especially people in California. Without stats from the IRS, it's hard to say if this old adage is still true.
   Schedule C filers: If you file Schedule C for business expenses, your odds of being audited go up, especially if you report income of less than $25,000. The audit rate for Schedule C filers with incomes of $25,000 or less was 2.7 percent. By comparison, the rate for Schedule C filers with incomes of $100,000 or more was 1.2 percent. Estates: The IRS loves estates. They are prime targets for audits. The audit rate for estates is much higher than for individuals or businesses, especially for large estates.
   Here's the rundown:

Less than $1 million = 2.7%
$1-5 million = 8%
Over $5 million = 29%

   Businesses: Because business is such a broad category (the IRS includes "Mom and Pop" stores along with multi-national companies), the audit rates are skewed toward big businesses. Small businesses are all lumped in the category of revenues of $250,000 or less. Their audit rate is 0.25 percent. As the size of your business grows, so does the your odds of being audited.
   Here's the rundown:

$250,000-$1 million = 0.78%
$1-5 million = 2.00%
$5-10 million = 5.30%
$10-50 million = 9.70%
Over $250 million = 29%

R, P & T

Road Commission’s Subdivision Development Progress on line

   This spring, the Genesee Co. Road Commission opened a website (www.gcrc.org/) and, this month, added a section/ page showing progress on development plans submitted for consideration. One new page shows progress on subdivision construction plan reviews as another displays preliminary site plan/plat reviews.
   The ability to track progress on the web is a step forward, but that’s not the only recent development in the Commission’s intent to expedite the development process. A late May memo to the association clarifies the intent to speed up the process, particularly when plans have to be resubmitted for the first time. By September 30th, the Road Commission will be at the point where all initial reviews of preliminary or construction plans will be accomplished within 45 days of receipt.
   Since it’s normally expected that first submittals will require require some modifications, all second submissions will be given priority, receiving review within 10 working days of receipt.
   However, subsequent submissions of the same plan (3rd submission and beyond) will be prioritized below even new submissions, and “will be reviewed as time permits.”
   In other words, there will be penalties (perhaps severe) if all discrepancies (“red lined” or otherwise) with the 1st submitted plans are not resolved prior to the 2nd submission. So, the burden is on the developer, or his engineering professional, to make sure that the second submission is the FINAL submission!

Road Commission notes:
   At BAMF’s request, the commission has created a “Top 10 List” of the most common mistakes resulting in the rejection during the subdivision development process. These ten items will be presented to Land Development Council members, and are available to anyone else wishing a copy. Call Barry if interested:

   Also, this fall, the Road Commission will hold a seminar on the subdivision development process, focusing on many of the mistakes that bring about rejection, along with the remedies that bring about approval. Space will be limited, and we will be announcing details this summer!

Beyond Seinfeld: It’s still about "Nothing" in particular

Trial Lawyers (Really) Love Jennifer Granholm
  
  An interesting note came to us from the Michigan Chamber, by way of the MAHB, suggesting that Michigan’s trial lawyers are really quite unified, at least when it comes to their choice for Governor. It appears that, through April 25th, that scrappy little group that spent so much in losing the Supreme Court in 2000, wishes to assure that, at least, any near future appointees to that body will be to their liking. So, they’ve spoken with their pocketbooks.
   According to an analysis of campaign finance reports, Trial Lawyers doled out $271,145 in contributions to gubernatorial candidates and, $233,145 (86%) of that went to the state’s Attorney General, who’s currently locked in a neck and neck race with former Governor James Blanchard (Congressman David Bonior, to this point, appears to be an also ran) for the Democrat nomination.
   This really sets up a rather fascinating contest, with the Democrat power structure split in many ways. Granholm now has support from Lawyers, Teamsters (an interesting combo) and Teachers, while Bonior’s support seems to come from traditional “Labor” (AFL;UAW) and the environmentalists he’s been pandering to throughout his career. Blanchard’s “only” support seems to come from a few celebrities, building trades’ unions, and that group known as voters.
   Of course, there is, at least, one law-yer who isn’t fond of Granholm, and his name is Geoffrey Fieger. The ‘98 nominee recently told the Oakland Press he was taking out petitions for an “Inde-pendent” candidacy, that will only materialize if Granholm wins the primary.

Bonior Attacks Job Creation in the Wrong Place

   Last week the major party candidates debated on “environmental” topics at the Brighton High School Auditorium, and it was really quite difficult to tell the Democrats from Republicans. However, Bonior did stand out from the rest with a rather extremist agenda, which included an attack on a proposed development near Metro-Airport that would create 20,000 jobs. In typical grandstand pandering, Bonior got cheers by stating we don’t need jobs by an airport! We need jobs in Detroit, Flint and Benton Harbor.

Hug a Logger, Not a Tree!

   A fascinating piece on the Wall Street Journal editorial page told of Bruce Vincent, President of the League of Rural Voters, who had spoken to a Montana Middle School class about logging and the long term use of natural resources. As he was leaving he heard the teacher say that the next day there would be an environmentalist talking about an adopt a wolf program. That got him thinking.
   The result? Beginning this fall, a program called "Provider Pals" will begin in Urban Middle Schools, with students "adopting" loggers, fishermen, miners, farmers and ranchers ... now, if they would only add developers to the mix.

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Association News and Events by Laura

  

ATTENTION BUILDERS ASSOCIATION MEMBERS IN THE GRAND BLANC AND GOODRICH AREA ! BAMF REGIONAL LUNCH MEETING Tuesday, June 18, 2002 11:30 a.m., at Little Joe’s (11518 S Saginaw St - Grand Blanc)    Our first Regional Meeting of the year is directed at the Grand Blanc and Goodrich area. These meetings give us the opportunity to reach out to members in each particular sector of the county to find out the issues that are affecting our industry. Local Building Officials (along with elected Twp & City Officials) will be joining us, and time will be set aside for “round table” type of discussions.    Lunch orders on a limited menu will be taken, beginning at 11:30 a.m. The meeting should last no longer than 1:15 p.m. Members meals are paid by the Builders Association. All guests at $10.00 each. Space is limited for this meeting so you must R.S.V.P. by noon Thursday, June 13th at 603-2200.

Habitat Update    Construction on BAMF’s “Habitat” for Humanity house is set to begin. Work on the 1,055 square foot ranch on Nichols (3 blocks north of the Township Hall, off Saginaw Rd. in Grand Blanc) will run during June, July and August, as the home’s expected to appear in the Fall Parade beginning October 5th.    The Habitat committee has set team leaders for each section of the house, and additional categories incidental to the process. For the sections to be constructed through June, they include: Site Plan and Permits Keith Kirby and Vic Lukasavitz Excavation, Foundation & Steel Steve Lissner Framing/Roofing Materials & Labor Doug Graham Jr. Windows & Doors Doug Graham & Amanda Richardson Monetary Donations Larry Corbett and Vic Lukasavitz    If you wish to to get involved, call any of the “team leaders,” or the BAMF Office.

BAMF ANNUAL GOLF OUTING    Mark your calendars for the annual “fun” event of the year, The 2002 Golf Outing will be held on Tuesday, August 6th at Copper Ridge in Davison (Atherton Rd & Atlas Rd). The format is: Four Person Scramble Shotgun Start at 10:00 p.m. Sponsored Contest on Holes Burgers & Hot Dogs for lunch Refreshment Carts (Drink tickets provided) Keg Beer on course, too. Dinner Buffet at approx. 5:00 p.m. Door Prize Raffle (Great prizes that you’ve grown to expect from BAMF Outings)    All of the above for just $100.00 per person. And, of course, hole sponsorships are available at $100.00 if sponsor supplies the prize, $150.00 if we purchase the prize for the sponsor. If you’re not interested in golf, but would like to join us for dinner that evening the cost is only $30.00 per person. Remember, call the Association office, starting June 3rd for your reservations or for other Golf Outing details at (810-603-2200).

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Economic Update: Growth Up; Jobs Down; Markets Schizoid

   Normally in the opening paragraphs of this column we capsulate the economic events of the previous couple of weeks and attempt to put them in the proper perspectives normally missed, or ignored, by economists and the media that misinform the general public. However, in this issue, keeping in line with our lead story (Housing makes up for state budget problems), we’ll highlight some of the comments in one of those “media” sources that, unlike the norm, has a strong tendency to inform its readers accurately.
   With much written recently about the “bursting housing price bubble” it was refreshing (though not surprising) to see BusinessWeek’s Business Outlook column’s current (6/3) issue headline “There’s No Place Like Home for Eco-nomic Growth,” noting the strength and importance of the housing industry to the U.S. Economy. After pointing out that “housing is an American obsession (cable network, magazine and internet activity),” it reminds us that it’s also “a major economic sector, adding to real growth of gross domestic product” throughout this century and has an large impact on consumer demand for “everything from carpet and appliances to dinnerware.”
   But more importantly, it explains that “homebuilding and spending on home goods account for 8.7% of the U.S. economy. In comparison, investment in information processing equipment accounts for 6.1%, and federal spending on goods and services is 6.2%.”
   But BusinessWeek doesn’t stop with the pure data as it also reflects on the “wealth effect,” noting that a substantial portion of “consumer net worth comes from rising home values,” and credits the tapping of that “net worth” for funding a “big chunk of recent consumer purchases” that “fueled the recovery.”
   What’s fascinating is that the piece follows a scathing indictment of the recently signed “farm bill (lead article in our May 9th issue)” by former Clinton economic chief Laura Tyson, calling it “dreadful economic policy” that will encourage farmers to “increase production when prices fall below specified levels.”
   Why would we call this “fascinating?” Because whenever the farm industry (or manufacturing, or financial, or energy) gets into trouble, the government always looks for a way to bail it out ... yet, whenever there’s a housing simulative measure introduced, it ALWAYS dies before it gets to the floor of either house.

Federal Deficit
   Added spending for the Farm Bill and anti-terror initiatives have raised deficit estimates to the $135 billion range for fiscal ‘02 ... Get this! They’re wrong! Look for the deficit to be in the $180 billion range or, as noted May 9, about the same as 2001 U.S. prescription drug expenditures.

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Housing Industry Update

   In ‘01, Genesee County led the Southeast Michigan region in housing construction activity growth throughout the year. In 2002, according to reports of January through April permit activity, it’s running dead last, with 128 fewer single family and condo authorizations (a 19.5% decline from 2001’s four month period), according to Housing Consultants. In all, there were 528 permits for owner occupied housing issued in the County, down from 656 during the year earlier period.
   Regionally, Housing Consultants’ data has Southeast Mich-igan up 5.4% (312 units) over the past year and, when rentals are included, up 7.4% (475).
   Commerce department data paint a bit of a different picture regionally, but one that’s nearly identical to HC in the Flint area.
   According to government figures, “Flint area” single family activity’s off 19.1% (129 units), but the total “Metro-Detroit” single family numbers (including “Ann Arbor” and “Flint”) are off 0.9% from last year. Furthermore, the government’s data on total activity has the region at 1.5% below 2001’s level.
   Statewide, housing activity for the first four months of the year is almost identical to that of 12 months earlier. Total permits are down 116 units, and single family’s up by 211.
   Most of Genesee County’s decline took place in April as, the area was down just 50 units for Housing Consultants’ first quarter report. This becomes even more evident when we look at the Government’s data showing single family permits at normal “April” levels, but down 91 units from last year. It would make an investigative type question, why the big discrepancy?
   Well, in all likelihood, the answer’s the drain commission’s “capital improvement fee,” put in place last May, distorting April’s numbers because of builders hurrying to pull permits for pending construction to get ahead of the $2,000 additional cost.

   As we expected, sales of new single family homes were revised upward in March, and took another jump in April.
   It was logical that the record breaking rate of existing homes sold would have resulted in an upturn in sales of new homes, so it was hardly a surprise that the April (and revise March) data show new builds, once again selling at record (plus 900,000) rates. In fact, all 1st quarter sales’ rates were simultaneously upgraded to a point were the average for the first three months soared from 879,000 units to a near record 903,000.
   April’s sales came in at a preliminary figure of 915,000 (up 1% from March’s revised 906,000).

   Earlier in the month, the Commerce Department reported housing starts fell in April, down 5.4% to a rate of 1.56 million units. However, most reports failed to note that the decline took place on the heels of an exceptionally strong 1st quarter, when mild weather buoyed industry activity by jump starting it in areas that normally wait for spring.
   Furthermore, most of April’s decline was in the multi family sector, which was down by 18.1%. Single family was marginally down (2%) at a historically solid annual rate of 1.27 million.
   There was better news on permits, which rose slightly (up 0.3%), as single family activity rose 1.6%, offsetting multi family’s 4% decline.

   Our lead story in the May 9th issue noted how politics won out over policy in the $180 billion Farm Bill, as it delved into the hypocrisy of both parties and the anti-sprawl undertones of the debate. Subsequently we read of an “anti sprawl” amendment to the senate version by ditzy New Englander Susan Collins (R-Maine) that, fortunately, was removed in the House/Senate conference committee.

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