July 16, 2002

Inside Veritas -
Article 1 - Moratorium draws focus to statewide sewer and water crisis
Article 2 - Business News & Issues
Article 3 - The Feeling of Helplessness
Article 4 - Taxation and Finance - Job Applicant Background Check
Article 5 - Insurance Premiums Choking Employment?
Association News Update From Laura
Economic Update - Weak employment - weak confidence
BS: Still about Nothing in particular
Housing Industry Update

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

Moratorium draws focus to state wide sewer and water crisis
  
   Shock and dismay enveloped the local home building industry on June 28th, when Genesee County’s Drain Commissioner, Jeff Wright, announced that a moratorium on sewer and water “B” permits want into effect for most of Metro Flint. The moratorium was in response to a lawsuit filed by 2 building companies challenging the legality of the $1,000 Capital Improvement Fees, that went into effect last year, to help finance $80 million of improvements to the sewer and water system that would expand capacity.
   The moratorium relates to the suit’s filing as a “class action,” which means the plaintiffs are claiming to represent the class that pays the Capital Improvement fees. Because the fees are technically challenged by that “class,” the funds expected to pay for capacity expansion are jeopardized.
   What’s ironic about this situation is that “class” allegedly represented by the suit had clearly voiced support for the County’s position, and subsequently reiterated its support after the action was filed.
   In the winter of 2001-’02, the lack of sewer capacity rose as a crisis situation. A couple of municipalities placed a hold on new developments due to the lack of available taps, and other communities were nearing that predicament. In February, Jeff Wright came to the association with a solution that would allow development, along with building, to continue at current levels through the next two decades.
   Members at that meeting, and a subsequent one on March 11, supported the plan as necessary medicine for a crisis situation. And, during the fourteen months from its effective date until June 26, there was hardly a complaint from any builder, or even home owner, regarding the cost. In fact, the communities affected by the cost experienced all time records in building permits issued during 2001.
   So, while building remained vibrant, developments that were previously on hold in tapped out communities were back on track. Everything seemed to be working well, until Wright was notified of the suit (57 days after it was filed). His response to the threat of losing the funding source for capital improvements was understandable, if perhaps extreme, because the fees played a primary role in the solution of an obvious crisis ... one that extends well beyond Genesee County’s borders.
   As we reported in April, the Metro Detroit area faces a “$52 billion drain crisis.” To the north, the once fast growing city of Birch Runs has seen development come to a virtual standstill, due to an inadequate water supply system. And, to the west, the city of Lansing was shot down by Michigan’s Supreme Court in its attempt to finance drain improvements with an increase in Citywide water rates.

Why Class Action
   A question that’s often been asked by builders calling the association for information is “how can this guy claim to represent me?” And, since we’ve got a large number of builders opting out of the “Class Action,” the county is challenging the status on that very question. Unfortunately, however, we have an example of a true weakness in the legal system, leaving us all susceptible to individual whims.
   We’ve learned that, when a suit is filed as a “class action,” the plaintiff has 90 days to certify his class action status. So, it can’t be challenged until the July 31st hearing, which is more than 90 days since the May 1 filing.
   Environmentalists have often used the “class action” option as a method of slowing down developments. To our knowledge, this is the first time we've been victimized by a builder.

Back To Top

Business News & Issues

  A couple of issues back we suggested that weak vehicle May sales’ data resulted from a new market dynamic: that car buyers adjusted their behavior to refrain from buying without the presence of major sales incentives. Buying a car without a large rebate, or special financing rate, is tantamount to purchasing furniture at Art Van in between 50 percent “off sales.” Just wait a month or so, and incentives will return.
   Well, after another lackluster month in June, auto incentives returned to their heights of last fall. So, look for sales to soar in July.
   Despite the relatively lackluster sales data last month, there was an upside, at least as far as General Motors was concerned. While sales were down 1.7% industry wide, the nation’s #1 automaker experienced a surprising 4.5% rise over June ‘01. But even more heartening for the Flint born company is that it gained a significant share of the U.S. market, with a 29.7% share.
   Ford’s sales, on the other hand, slipped 10.7%, and its share fell to 21.9%. A year earlier, Ford’s market share was just 3.8 points below GM. Last month’s spread was up to 7.8 points, making some “analysts” suggest Bill Ford Jr should focus more attention on his football franchise, and get off the tube!
   But the news wasn’t all bad for #2: Its British duo of Land Rover and Jaguar showed 71 and 63 percent gains, based primarily on their new, lower priced models.

Toyota #3 Watch

   Toyota continued to close in on Chrysler, narrowing its gap in the race to become #3 to 4.3 points. The gap last June was stood at 4.7 points. For the 1st half of the year, Chrysler’s market share was 15%, equal to the same period in 2001. Toyota gained 0.5% during the period, and has a 10.4% share for this year’s first half.
   Over all, the “Big 3” saw its collective share for the January through June period fall from 64% last year to 62% in ‘02. During the same period, Japanese nameplates saw their share climb from 26.3% to 27.2%.

Help me Honda

   Toyota’s not the only Japan-ese company making significant inroads in the U.S. market. Last week Honda said it would double capacity at its new Alabama plant, which the Wall Street Journal called “big trouble for Detroit’s Big 3.”
   With the Honda announcement, which will add 150,000 SUVs to its capacity, we find that Asian and European vehicle companies will have expanded U.S. vehicle capacity by 1.8 million units between 1998 and ‘05. Honda’s U.S. capacity alone will hit 1.4 million, about the same as Toyota.

More on Drug Prices

   In the May 25th issue, we told of European health systems control over prescription drug prices. Now we find the pharmaceutical industry is suing to end Michigan’s program for attempting to control drug prices.
   Of course, it’s easy to understand their concern. If we not no longer subsidize their concessions to Europe, who could possibly make up for the shortfall?

Back To Top

The Feelings of Helplessness

  When I analogize an issue, the odds are 9 to 1 that a football oriented metaphor is coming into play. Well, the sewer and water crisis in which we’re currently enveloped is that “1” in ten, because I can’t get its similarity to a 54 year “world crisis” out of my mind.
   Imagine that Israel and the Palestinian Authority came to agreement on the “West Bank” and Gaza, allowing peace and relative harmony to prevail for 14 months. Then, up from the south, comes a fanatical Saudi Prince who gives money to disenfranchised Palestinians who resume suicide bombings that threaten Israeli security.
   Israel, of course, responds with a military invasion, and all Palestinians find themselves under occupation and curfew, through no fault of their own.
   Now, just consider Genesee County, and its municipal governments, as Israel, with control of building and development activities within its boundaries. And think of the building industry as Palestinians, whose only hope for self determination rests with its ability to cooperate in finding just solutions to problems, while hoping justice and reason prevail.
   In the winter of 2000 - ‘01, the sewer capacity problem had already shut down development in a couple of fast growing communities, and threatened several more. The County came up with a reasonable solution, and the industry accepted it as just and equitable. The solution worked, and areas affected experienced the strongest permit data in their history.
   But then, along came the “Saudi” like terrorists from the south who, unable to find “dis-enfranchised Palestinians,” set off a “bomb” of their own in the form of a “class action” legal challenge, which put the means to finance the needed solution in jeopardy.
   After the County Drain Commissioner reacted to the threat, local builders found themselves in a moratorium with an impact that was tantamount to a Palestinian curfew, but clearly not of their own making.
   In my wildest nightmares, I never would have equated the plight of local home builders with the plight of Palestinians. At least, not before June 28th. However, events of the past three weeks have made the analogy all to clear.
   From June 26 through July 2, I was in nearly constant contact with Drain and County officials and/or their attorneys, first trying to prevent a moratorium, then trying to end one. All wanted out of the situation, but none knew how to get there. So, despite my closeness to the situation (continuing through July 12), I had no concrete idea when relief would come until this past weekend.
   What was more troubling,however, were more than a hundred calls from builders, suppliers and home buyers that were suffering the pains of the moratorium. They were all looking for answers, and I had none, only possibilities and expectations.
   It was during one of these calls that I understood how vulnerable we are to factors over which we have no control. As you can read in the summary beginning on page one, the combatants in this battle have all the ammunition, and due to obvious flaws in the legal system, our options were to side with the “Israelis,” or the “terrorists.” The choice was easy, but the pain excruciating!

Barry

Back To Top

Taxation and Finance ---- JOB APPLICANT BACKGROUND CHECK

   If you have employees who have significant contact with the public, you'll want to do a thorough background check, including a check of criminal records. Not only do you want to prevent physical harm, you also want to maintain the quality of your business. If a person lacks the necessary skills and qualifications to do a job correctly, his or her incompetence is going to cost you time and money.

Former employers
   An applicant's former employers are the best sources of information about his or her work history. Former employers can tell you an applicant's: Employment dates; Job titles; Rates of pay; Nature of work; Work habits; and If they would hire the applicant again.
   Sometimes, former employers are reluctant to reveal too much information. They may be afraid of violating an individual's privacy or, because of the applicant's former job, they may be protecting trade secrets. It may help if you remind the former employer that most states consider employment references to be privileged information. The employer generally will be protected from any legal action by the former employee.

Education credentials
   Education credentials are frequently misrepresented and many employers don't verify education. The easiest way of preventing bogus education claims is to pre-screen. Ask the applicant to bring a copy of his or her diploma or transcript to the interview. Common problems are: Bogus degrees; A degree in one field when the applicant really has a degree in another field; and Applicants claiming to have graduated when they merely attended a school or university. Most schools and universities will verify an applicant's degree or dates of attendance over the phone. Sometimes, you'll have write to the educational institution, especially if it is outside the US. If you've never heard of the school or college, ask the applicant for more information. You can search online or contact your state department of education.

Driving and criminal records
   If the job requires driving a company vehicle, carrying a weapon, bonding, or other special circumstances, you must check the applicant's driving and criminal records. Criminal and driving records, like credit records, are governed by many federal and state privacy laws. Checking conviction records is generally allowed but you usually cannot check arrest records without good cause. Driving records are available from your state department of motor vehicles. They keep records of traffic violations, driving related offenses, and identifying information on the license. Most states require you to submit a special form before they release any information.

R, P & T

Insurance Premiums Choking Employment?

   Due to the recent articles on prescription drug costs (and their impact on health care spending), we thought it was time to examine the burden of health insurance premiums. Despite concerns expressed over the past several years regarding the Association health program, even we found the data shocking.
   In February ‘97, the Consumer Price Index (CPI) stood at 160, and the cost of the association’s “one person” group was $184 per month. Five years later, the CPI was at 178, up just 11.25%. However, despite reducing coverage in 2000, the insurance premium was up 104%, to $376 (up 55% in the past 2 years). Furthermore, during the same period, we received calls from members noting monthly payments in the $800 to $1,100 range.
   These seemingly unbelievable disparities between the cost of goods and services and health care premiums may be telling us a lot about why employment growth remains weak, despite strong economic growth early this year. Realistically, the cost of putting another employee on a health care program would pay for a lot of “overtime,” and without raising prices, it becomes an even bigger drain on profitability.
   The lead article in this issue tells how our health care costs ultimately subsidize the Europeans. A recent Fox News segment said the U.S. spends $24 billion annually on health care for undocumented aliens. And, a recent Free Press article said most Southeast Michigan Hospitals are running a deficit.
   In 1993, the business community scoffed at the Clinton administration’s design for national health care. When the issue surfaces again, it may be the U.S. Chamber and the GOP carrying the proverbial flag.

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

Will “Dracula World” chase Vampires from Romania?
  
   Perhaps Romania is beset with vampire problems. A note on a cable news announced that Romania’s government plans to build a theme park based on Dracula (with or without a Mott grant), the nation’s sole distinguishable property (with the exception of Nadia Comenici).
   The concept by the hard pressed former Soviet Block country couldn’t help but remind us of a similar economically depressed area seeking salvation through a theme park, based on its historically renowned commodity, the automobile.
   Subsequent to the demise of the auto based theme park, 50,000 auto workers mysteriously disappeared from the community. Perhaps Romania is looking at a similar method to solve a new vampire problem.
   Then again, a “bat flight” through darkness or a “stake through the heart” contest will likely have more allure than a giant internal combustion engine.

From "Kid" Rock's home to "Chris" Rock's Role Model

   Detroit’s new Mayor’s been getting a little “bad press” lately for making himself unavailable to long time supporters and friends. But he’s definitely got the attention of a famed “out of towner.”
   Comedian Chris Rock said he was watching “C-SPAN, and this guy comes on speaking. I see a big earring and this kind of loudish suit. Me and a friend, we were like, this guy, what he getting indicted for? Then we see, MAYOR OF DETROIT (Kwame Kilpatrick).”
   Rock was so impressed he plans to “mirror” the mayor as a role model for his part in an upcoming movie.

How About that Williams' Family Feud?
   So, Baseball great Ted Willaims wanted to be cremated and have his ashes scattered with his dog’s. And, while his son wants to freeze the body, for future clon-ing and its financial rewards, his daughter wants to abide by the Ted’s wishes.
   The situation leaves to wonder, where were the mercenary “Snead” kids a few weeks ago? If the “perfect golf swing” isn’t worth cloning, what is?
   And, where’s Rupert Murdoch in all this? If he doesn't feel "Dead Celebrity Family Feud" is the perfect replacement for "X Files," it's apparent he's lost his edge.

Back to top

Association News and Events by Laura

  

A NOTE FROM LAURA Due to conditions beyond our control, the remaining summer Regional Meetings will be put on hold until this unfortunate crisis ends.    Hopefully we will be able to set up a meeting before our next regular General Membership Meeting (which will be held on September 18th at Bonaparte’s).    We apologize for this delay but our priority at the Association Office is to aid and help our industry in Genesee County get back on track. We hope this will be soon (if not happening by the time you read this) and business will be moving along as it should.    Thanks for your understanding...... .....Laura Rutherford,      Dir. of Operations BAMF GOLF OUTING   Even though the Golf Outing reservations are full, we still want you to know that members who wish to attend the dinner portion of the event may do so by calling the Association Office (no later than July 26th). The cost for the buffet dinner is $30.00 per person (which also includes your name in the

drawings for the door prizes that evening).    Sponsorships are still available for some holes at the Outing. Remember the cost is only $100.00 if sponsor supplies the prize; $150.00 if the we purchase the prize for the sponsor.    Please call us at (810) 603-2200 if you’re interested in dinner or sponsorships as soon as possible. FALL PARADE OF HOMES    Just a reminder that the deadline for the Fall Parade (at the rate of $2,500) is Monday, July 22nd. All builders should have received contracts and information in the mail around the 21st of June. If you misplaced the information sent to you, please let us know immediately and we will get the paperwork out to you promptly.    The final deadline is August 12 (with the increased rate of $2,700). Also on that date all renderings, floor plans and house information sheets must be turned in to the Association Office.    Even with all that has been going on in the past two or more weeks, contracts are coming in for the event. Some builders don’t want to miss this opportunity due to the fact that the Fall

Parade has been so successful for them in prior years. Don’t you miss out! Call Barry or Laura (603-2200) if you have any questions.     BITS AND PIECES    Fall Housing Quarterly contracts were sent out to members a week ago. It’s important you contact the BAMF Office as soon as possible if you’re putting a full page color ad in the magazine (set-up of each issue depends on how many color pages we need).    Also, if any member would like to submit an article for Housing Quarterly they may do so. We ask that you get us the information before August 12th. (Publisher has the right to edit as needed). HABITAT HOUSE - We still need our members’ involvement with this project. Contact President Steve Edwards at 694-4000 or the Builders Association Office at 603-2200, if you can donate your time, labor or materials.

Back To Top

Economic Update: Inflation’s nil; employment stays weak

   Three weeks ago we stressed the impact on employment of health insurance costs. Well, despite the seeming strength of economic activity, there doesn’t appear to be an upturn in employment. In fact, while manufacturing activity experienced its 5th consecutive month of growth according to the Institute of Supply Management’s index, jobs in the manufacturing sector continued to decline. The ISM’s activity index was up a half a point in June, to 56.2 (any number above 50 means the manufacturing sector is growing). Yet its employment index, while improving by a significant two and a half points, rose to 49.7 meaning that the sector’s employment continues to contract, but at a slower rate.
   In the mean time, the unemployment rate edged upward to 5.9% in June, as employers added just 36,000 jobs during the month. Furthermore, the labor department revised job growth substantially downward for the preceding four months.
   The “jobs” picture was met with the falling off of consumer confidence that also seems affected by declining stock prices and the daily news of corporate scandals. So, it was of little surprise when the Commerce Department announced the first decline in consumer spending spending since November, despite a 0.3% rise in personal income.

GDP Revised Upward
   Despite the jobs and confidence picture, economic growth as measured by the gross domestic product, received an upward revision for its final estimate of the 1st quarter. The Commerce Department’s final revision set growth at a surprising 6.1%, a half a point above its previous estimate of 5.6%. It represented the strongest quarter since the end of 1999, when the economy grew at an 8.3% clip.

Back To Top

Housing Industry Update - Local Existing Home Prices

   Last month we reported that real values of existing homes in the Flint area rose 4.3% during the 12 months from the first quarter of ‘01 to the same period in ‘02. That report’s basis was the House Price Index Office of Federal Housing Enterprise Oversight House Price Index (HPI), which measures the actual growth in value of properties within a metro area, as it monitors multiple transactions on the same home over the last 22 years.
   However, we’ve often noted the difference between growth in prices in the HPI, and the growth in median and average prices. While the former presents the likely increase in the value of all homes in an area, the latter reflects on the prices of homes sold, which are often distorted by market conditions. So it may have been a surprise, but not shocking, to find Flint area median prices rising 24% over from early 2001 to the first quarter of ‘02. The new data were released Tuesday (7/9) with the NAHB Housing Opportunity Index, which also suggested that market conditions remained exceptionally strong in the higher priced sector of the local real estate market, as “Flint” fell to the 2nd least affordable market in the Midwest, and its national ranking fell from the 88th most affordable a year ago, to 125th, because more than 33% of all homes sold during the 1st quarter were priced beyond the area’s median income ($55,600). From 1999 to last year, Flint’s areawide home prices fell behind other Michigan metros, despite strong market conditions. The primary reason was surging sales of Flint City property, that began in the fourth quarter of ‘99, and continued through to last year’s 2nd quarter. Though all area homes were appreciating at solid rates, the large number of sales in the city brought the over all price level down.
   Well, Flint’s percentage of the County’s total home sales fell dramatically in 2001, and we’d assume remained relatively low through this year’s first quarter. During that time the total area’s price levels jumped, as is evident in the chart to the left.
   The surge vaulted “Flint” above Kalamazoo, Lansing and Grand Rapids, and behind only Ann Arbor and Detroit.

Back To Top

Look Here for Previous Issues of Veritas