June 6, 2002

Inside Veritas -
Article 1 - The "Real" winners in Income Growth: Gaines/Argentine Twps.
Article 2 - Business News & Issues
Article 3 - Census exposes "Farm" legend
Article 4 - Taxation and Finance - Financial Records' Retention
Article 5 - Road Commission's Subdivision Development Progress online
Association News Update
Economic Update - Dollar's decline is cause for concern
BS: Still about Nothing in particular

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

The “Real” winners in Income Growth: Gaines/Argentine Twps.
  
   Grand Blanc and Fenton may have the highest percentage of households earning $200,000 and above, but when it comes to income growth in the 1990s, the residents of Argentine and Gaines Townships were Genesee County’s big winners. The two Southwest Townships led the area as median household incomes soared 50.2 and 49.3 percent respectively during the ten years since the last census. (Goodrich had a higher percent rise, but it was due primarily to the impact of new residents on a small population).
   During the same period, the county’s median income house hold earned $41,951, up 35.2% from a decade earlier. To put that in perspective, the rate of inflation, measured by the Consumer Price Index grew an approximate 31.8% from census to census. So, while the county showed relatively mild real income growth, the fact that real income rose at all (considering the loss of GM jobs) was welcome data.
   But, if there was a surprise in the area’s income numbers, it was Gaines Township, leaping above Grand Blanc and Flushing Townships, thus becoming the third highest income community in the county. Another surprise was Lapeer County, one of just eight Michigan counties registering a median household income above $50,000. Livingston ($67,400) and Oak-land ($61,907) rank first and second.
   There are a number of important items in Genesee County’s profile that relate to the housing market. For example, low number of traditional families may be a reason for it’s relatively low household income. Only 80,574 married couples reside in the county, which is just 47.4% of the total households. Oakland County’s households are 54.2% married couples, so a majority has the option of two wage earners.

Other Housing Oriented Items:
Mortgage Payments: Genesee County has a median monthly mortgage payment of $859, with 25.1% over $1,000. Oakland’s median is $1,322 and 30.7% pay over $1,500.
Rent: Over 4,000 Genesee Co. renters pay more than $750 per month which, adjusted for tax deductions, is above the median house payment.
Mobile Homes: Genesee County has 14,295 mobile homes, making up 7.8% of its total housing units. Oakland has 18,061, just 3.7% of its total.
Income to Housing Ratio: 24.3% of Genesee Co. homeowners spent more than 25% of their income on monthly owner costs. In Oakland County the number was up to 29.2%.

Back To Top

Business News & Issues

   No Incentives? So auto sales flop in May
U.S. sales of cars and light trucks fell to their lowest level in three years last month, and were 6% below their lackluster level of May ‘01. And, as anyone who keeps up on the industry’s health by reading auto ads knows, there’s little incentive to bring buyers into dealer showrooms. So, look for a new round of price cuts and rate incentives to spur a little more activity this month.
   As far as American producers go, GM (-12%) and Ford (-11.5%) were down, while Chrysler was up 4%. But the real story here is the continued inability of the “Big Three” to recapture any of its market share.
   For the month, combined sales for the Americans made up 61.3% of the total market, down from 63% a year earlier. And, for the January through May period, the “Big 3” market share slipped 2.2 points, to 61.8%.
   In comparison, Japanese nameplates’ share jumped 1.1 points, to 27.5%, as European and Korean nameplates split the other 1.1% lost.

Toyota Watch:
   Toyota continues closing its gap with Chrysler, gaining a half a point on a year to date basis, while the Auburn Hills company remains at a 15.2% year to date share.

Steel Tariffs: prices up; supply down; layoffs
   When the Bush administration decided to impose its politically motivated steel tariffs earlier this year, it suggested the move would only have a “limited” impact on prices. But before they even took effect, American steel producers were already claiming shortages and imposing steep price increases on their customers in the range of $40 to $75 per ton. Last month, with the tariffs in effect, prices to manufacturers soared another 20 to 30%, taking them from $210 at the end of ‘01 to around $300, with bigger rises to come. Since manufacturers don’t know how customers will react or if they can pass the price increases on, some have already cut back production plans. It’s no wonder the Commerce Department currently has 1,200 tariff exemption requests.

Back To Top

Census exposes “Farm” legend

   When planners and political allies deliver their anti-sprawl distortions on a relatively ignorant public, they inevitably note the threat to Michigan’s critical farming, forestry and mining industries. And, despite arguments stating employment and wage data, they never budge from the myth that these industries are vibrant, and critical to Michigan’s employment and economic health.
   Well, Michigan’s 2000 Census profile suggests otherwise. In fact, farming, forestry, fishing, hunting and mining, combined, employ 49,496 Michiganders, or 1.1% of the workforce. On the other hand, construction, as an industry, employs 278,079, or 6% of the workforce.
   When we break data down by occupations, we find that mining makes up more than half of those 49,496 workers, as farming, fishing and forestry employ just 21,120 (0.5%), while construction and maintenance employees have 396,915 jobs, or 8.6% of the total.
   Of course, for every job that housing generates within the construction industry, it generates 1.34 jobs in related fields, and that impact is evident in the state’s “jobs” profile. For example, the finance, insurance, real estate, rental and leasing industries employ 246,633, or 5.3% of us, while transportation, warehousing and utilities employ 191,799 (4.1%).
   But the direct issue here is, for every person employed in farming and forestry, there are 13.2 individuals receiving their paychecks directly from construction companies (and a lot more from related services).

Auto Industry Price Problem
   Electronic retailer Circuit City runs an ad with a father and son watching their “dream” TV, but won’t buy it because the price will probably drop the next week. The Circuit City solution is a 30 day price guaranty.
   The auto industry, which uses more sales gimmicks than Circuit City, Best Buy and Art Van combined, doesn’t have such a guaranty, but they’ve created a mind set of the American buyer that new incentives are always just right around the proverbial corner. And, unlike home appliances, those incentives are worth thousands, rather than a hundred dollars or two.
   So, it’s no wonder that auto sales, after celebrating several superb months, fell back in May (top of this page) ... and, it’s little surprise that we’re hearing about 1.9% interest rates and special sales’ deals since the first of this week.
   The auto industry’s beset with a serious “value” problem, and it’s evident right here in its own home state, where nearly 74% of the households live in their own home, while 66% of those living in their own home spend less than $1,000 per month on owner costs. Yet 58.6% of all households have two or more vehicles. While part of the monthly housing expense is recouped by tax deductions, the value of the asset is appreciating. Owning two, relatively late model, vehicles can easily cost just as much (par- ticularly when insurance and maintenance are included), with no tax breaks on an asset that depreciates. So, nothing will in- furiate a buyer more than finding he/she lost a couple thousand by buying at the wrong time.
   If the auto industry doesn’t change its sales policies, it's going to have to get used to a lot of peaks and valleys.

Barry

Back To Top

Taxation and Finance ---- Financial Records' Retention

   During this time of year, many of our clients become aware of the importance of maintaining accurate financial records. As time goes on, the need to maintain more and more financial records poses serious problems for many taxpayers. We’re often asked, "How long should I keep my records?" To assist business owners and individuals, we have created a useful guide to help you understand your responsibilities in maintaining your financial records.
   Because each individual tax-payer's financial situation is unique, you should speak to your personal financial advisor before taking any specific action. To assist you in that discussion you may wish to print the Recommended Records Retention Schedule which appears here. The Internal Revenue Code supplies the general rule that books and records must be kept as long as the information may be material in the administration of the income tax laws. For practical purposes, this means that books and records must be kept for as long as there is a possibility that the taxpayer could file an amended return or claim for refund, or the IRS could audit the return or assess additional tax. Quite frankly, the ability of the IRS to audit a return is based on various statutes of limitation. A brief version of the statute of limitation rules would include:
1) Generally, the IRS has three years after a return is filed to assess additional tax.
2) However, if there’s an omission of more than 25% of gross income from the return, additional tax can be assessed within 6 years of when the return is filed.
3) However, if no return is filed or the return filed is false or fraudulent or if there is a willful attempt to evade tax, there is no limitation period on the assessment of additional taxes.
   As a result of these rules, books and records relating to income tax returns should be kept a minimum of three years from the date the return is filed. However, it would be exceedingly prudent to keep records relating to gross income for at least six years to head off any IRS claim that more than 25% of gross income was omitted.
   In reality, tax returns should be kept forever, if for no other reason than to provide proof they were filed. In addition, the basic underlying financial records, such as annual financial statements and reconciliations to tax returns, should be kept indefinitely. This would help overcome any IRS attempt to assert that tax returns were false, fraudulent or that there was a willful attempt to evade taxes. The policies and procedures that you devise for yourself or your organization may require specific input in which case you should consult with your tax adviser.

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

Before You Use “Priority Mail;" You Better Read This
  
   “The latest post office statistics show that the typical Priority Mail shipment now takes more than half a day longer to reach its destination than first-class deliveries that cost as little as 34 cents,” according to a Wall Street Journal article late last month. The article further points out that priority mail delivery is “getting worse,” as the average piece is taking about 13 hours longer to reach its destination than it took last summer.
   Of course, part of that is due to precautions following 9/11 and the anthrax scare. However, in a head to head test of letters coming out of Atlanta to seven different cities, 1st class pieces arrived “sooner than, or on the same day, as Priority Mail packages mailed at the same time.”

What’s With Hartford (CT)?

   Doesn’t anyone in Hartford drive cars with American nameplates? A few issues back we noted that the Audi TT sold best in Hartford; worse in Flint. Subsequently the Wall Street Journal’s “Me & My Car” feature added the VW Passat and Saab 9 - 5 to the cars that “sell best in” Hartford.

Joint Operating Editorial “Spin”

   Sometimes we get the feeling that the Detroit News and Free Press publishing joint editions is tantamount to Veritas collaborating with the Michigan Environmental League to publish two issues each week. Last Saturday’s double take on a Democrat brouhaha over Jennifer Granholm’s campaign “stealing” documents from the Blanchard campaign clearly illustrates editorial boards attempting to skew public opinion, in opposite directions, on a particular issue.
   The Free Press, which will ultimately endorse David Bonier for the Dems’ nomination, calls it a “petty skirmish” will help the GOP and Bonior, who “talks only about the real issues.” The News’ take was the “paper caper reflects badly on Granholm (of course, the News will ultimately endorse the GOP).” But we like the take of the Free Press’ headline writer who wrote of the former actress wannabe: “Granholm gets pounded on two fronts."

Is Jerry coming back as a “Nut”

   "Variety" says ABC is looking at a half hour pilot based on a book series (Letters from a Nut)" by "Ted Nancy," who many suspect is, in reality, Jerry Seinfeld. Can one now surmise that Beyond "Seinfeld" is actually a collection of "Letters from a Nut?"

Back to top

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    As of today (6/10/02) only 9 foursomes are left for 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, for your reservations or for other Golf Outing details at (810-603-2200).

Back To Top

Economic Update: Dollar’s decline is cause for concern

   On page six we refer to the continuing decline of mortgage rates, despite a barrage of media reports in March that they were heading upward. Now, there’s a real threat to interest rates in general, as the dollar’s decline against major world currencies could likely cut the “$1 billion a day that foreigners have been sending to the U.S. in recent years,” according to a Wall Street Journal article Monday.
   Aside from losing its investment appeal, a significant drop in the dollar’s value would boost the price of imports and, subsequently, allow domestic producers to raise prices while remaining competitive. So, the decline alone will likely result in higher prices. But it’s unlikely to stop there, as it normally puts pressure on interest rates (lenders paying more to attract funds, and borrowers making up the difference).
   After rising nearly 50% in value (in comparison to a “basket” of foreign currencies) from 1995 through February, the dollar’s been trading at roughly a six month low against the yen, and a 16 month low against the euro. And, although it’s fluctuated in the past, a feeling exists that this current drop has stronger significance for the markets in general, because the U.S. has become so dependent on foreign capital.
   Of course, there are always some industries that benefit from a declining dollar, particularly manufacturers who want higher prices for their products at home, and to become more competitive in foreign markets.

Manufacturing/Service Growth
   Last month’s manufacturing activity picked up its pace, according to the closely watched Index of Supply Management index. Its 55.7 reading (any reading above 50 means the sector is growing) represents the fourth consecutive month of expansion for a sector that was in decline from late 2000 to earlier this year. However, the report also noted that factories remain reluctant to hire workers due to continued uncertainty.
   Still, the highest index rating in 26 months was good news for a sector that remains a long way from complete recovery.
   Following its manufacturing index, the institute’s “service sector” index rose to 60.1, its highest reading in 21 months. However, its employment in

Back To Top

Housing Industry Update

   Existing single family homes continued to sell at their record smashing pace in April, as the National Association of Realtors reported the month’s sales data late last week. The report that sales’ activity was up 7% for the month meant little. But the annual rate of sales soaring to 5.79 million units adds to an unbelievable first quarter rate of more than 5.75 million, well beyond 2001’s year end record of 5.296 million.
   The Realtors’ data for the first four months shows sales running 8.2% ahead of last year’s record pace (the ‘01 sales pace never fell below 5 million, even in September). Adding to the record sales’ figures was an earlier report that condos sold at an 838,000 unit pace for the first quarter, up 12.3% from the record setting pace a year earlier, while eclipsing another sales record. The previous monthly record of condo/co-op sales was a rate of 773,000 units, meaning 2002’s first quarter beat the record by a solid 8.4%.
   So, we’re seeing that the total home sales’ data for the year’s first quarter suggest that realtors are selling homes at a 6.6 million unit rate. And, by the looks of the April data, there doesn’t appear to be a let up in sight.
   What we’re seeing is a new demographic dynamic, relating to the maturation of the “baby boomers,” many of whom are reaching their mid 50s and are looking to downsize. The soaring condo market over the past 2 years is representative of this changing dynamic, which is also beginning to show another new trend.
   Single family home inventory levels climbed 11% in April, to 2.33 million, the largest monthly number since March ‘98. So, as more households move from single family to condo, it’s likely that single family inventory will continue to create opportunities for first time buyers.
   Furthermore, as condos begin to become the primary destination of current homeowners, instead of first time buyers, condo prices really take off. That partially explains the reported data showing condo prices up 15.3% over twelve months, more than double the single family median price increase.

Rates Continue Decline
   As the housing industry’s all but carried the U.S. economy for the past 2 years, low mortgage received much of the credit. After peaking in May of ‘00, rates steadily declined until ‘01, when the Federal Reserve began cutting the “funds’ rate,” then held with reasonable stability (in the 7% range) ever since.
   What’s fascinating is that, just 3 months ago, the national media issued a barrage of news spots and articles suggesting that low mortgage rates were an item of the past, as rates would be heading upward. Why? Well, the economy was “recovering” and the Federal Reserve’s “bias” was changed from guarding against recession to neutral.
   When these reports were written, thirty year rates had just climbed from the 6.75% range to 7.1% in a 3 week period. And, as we wrote at that time, mortgage “rates haven’t paid attention to the Fed for the past 22 months, why should they start now?
   So, what have they done since? Gone right back to 6.75% (see below) and may decline a bit more.

Back To Top

Look Here for Previous Issues of Veritas