Veritas

Last Tuesday, Senate Bill 351, MAHB promoted legislation that modifies the state’s complaint handling procedures in the residential construction industry, received unanimous approval in both houses of the legislature, giving it immediate effect. So, along with a new code, Michigan’s Home Builders will be operating under new and improved regulatory procedures.
This new legislation creates new opportunities for builders to structure contracts and building agreements in a manner that can go a long way toward protecting them from unreasonable clients. Following is a synopsis of the basic changes in the law, which will be administered by the Department of Consumer and Industry services (CIS):

· Presumption of Innocence:
It is true, as we’ve written previously, that the CIS must presume innocence of the builder when a complaint is filed. However, the burden of proof in refuting evidence brought at an administrative hearing remains clearly on the licensee.

· Alternative dispute resolution procedure:
If a builder has a dispute settling procedure in the contract, CIS can not initiate a proceeding against the company unless the builder had failed to comply with a decision resulting from the alternative procedure; or, if the settlement procedure was not completed within 90 days of the complaint being filed with CIS.

· Workmanship standards:
If the buyer and licensee agree “contractually” on “mutually acceptable” performance guidelines relating to workmanship, the CIS would be forced to “consider” those guidelines in its evaluation of the complaint. This section is extremely important, because it allows the builder to write reasonable, industry endorsed, quality standards (such as NAHB’s “Residential Construction Performance Guidelines) into their building agreement, and the state will have to view compliance under those standards as credible, unless proven otherwise.

· Reasonable time/access to handle complaints:
Often we hear of situations where a homeowner impedes a contractor’s ability to remedy a problem. Now, the owner will have to demonstrate, to CIS’ satisfaction, that the licensee had been given notice describing “reasonable times and dates” that the structure was accessible for repairs.

Note: If you’re interested in reviewing NAHB’s “Performance Guidelines,” copies are available in the BAMF Library.

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Business News & Issues

   June was another “stronger than expected” month for auto sales as 1,625,341 light trucks and cars were sold in the U.S., a rate of 17 million units for the year (the highest since 17.5 million in February). The 0.3% rise last month sets the stage for this year’s sales to hit the 17 million range, which would make it the third strongest year in car sales’ history.
   However, all can hardly be considered rosy for the nation’s auto industry. First of all, a major reason for the strong figures relates to discounts, averaging $1,800 per vehicle. And secondly, American companies continue to lose market share to Asian and European firms.
   To illustrate, G.M. and Ford experienced sales declines of 3 and 6.6% respectively. Daimler/Chrysler was the only semi U.S. company that showed a rise, and that was only 1%, due to a sharp rise in minivan demand and an early surge for the new Liberty SUV. At the same time, Toyota’s sales rose 20%, Honda’s were up 7% and BMW saw sales soar 32%, while VW experienced its strongest June in 28 years.
   Perhaps even more enlightening is Toyota’s year to year data comparison. Its 36,886 units sold represent a 66.3% rise over June 2000, which helps explain why the combined market share for the “Big Three” fell to 66.5%, from 69% a year earlier.

   The long time congressional allies of the auto industry seem to be abandoning U.S. automakers on the fuel efficiency issue. A recent BusinessWeek article told of “some of Washington’s biggest guns” giving the cold shoulder to the industry, fearful that their continual opposition to higher fuel standards will brand them anti-environment and conceivably cost the GOP control of congress in 2002.
   Tougher mileage standards could cost the big 3 billions of dollars, and seriously impact their ability to recover lost market share.

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Nightmare on Pennsylvania Ave.

   If you were one of the many housing industry professionals who breathed a sigh of relief when the Florida vote count said we would not be subject to Al Gore’s brand of environmental extremism, you exhaled way too early. The current occupants of the West Wing are already in the process of cooking up a scheme that will make Al Gore’s environmentalism seem no more threatening to housing than a mosquito bite.
   While most of the media was obsessed with a missing intern and deceptive congressman, the New York Times published a story on Monday that should send chills up collective spines of builders, developers, realtors, and anyone else whose livelihood depends on property value. The article told what many of us suspected from a Texas based GOP administration: the psychotic tax proposals that got their Washington origins from that state’s congressional delegation, are back!
   The Times wrote that after achieving its goal of a substantial tax cut (see page 2 to find out how well that’s working) the administration’s planning to address “overhauling or replacing the entire federal tax code.” And, as one would expect, it’s looking at three options, “a single rate flat tax on all income, some sort of sales or value added tax.”
   Last summer, the strongest Bush supporters in the home building industry were quick to say their candidate would never support such nonsense. Well, as fellow Texan, flat tax promoter, and House Majority leader Dick Armey told the Times, “now we have people in the White House who want to promote this issue.”

Barry

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Taxation and Finance ---- Education Tax Breaks in 2001 Tax Act

The new law introduces a package of education-related tax breaks, including a temporary college-tuition deduction and a more generous deduction for student loan interest.

College Tuition Deduction
The new law introduces an above-the-line deduction for qualified higher education expenses. For 2002-2003, a single taxpayer with adjusted gross income below $65,000 ($130,000 if married) will be entitled to an above-the-line tuition deduction of $3,000 each year. In 2004 and 2005, the deduction will increase to $4,000 for singles with incomes below $65,000 and married filing jointly with incomes below $130,000. Single taxpayers with incomes up to $80,000 and for joint filers with incomes up to $160,000 are permitted a maximum deduction of $2,000 in 2004 and 2005. After 2005, this deduction is scheduled to sunset to fit within the reconciliation bill's budget restrictions. This deduction cannot be claimed in the same year as a HOPE or Lifetime Learning credit for the same student.

Education IRAs
Distributions from education individual retirement accounts are free from federal taxation if they are used to pay for qualified education expenses. The new legislation greatly expands the prominence that education IRAs will play in future family savings strategies.

New contribution limit
Currently, annual contributions to education IRAs are capped at $500. The new law dramatically raises the limit to $2,000. The new law also exempts special needs beneficiaries from the prohibition against contributions being made after a beneficiary turns 18. Starting in 2002, contributions will be allowable not only from individuals but also from corporations, tax-exempt organizations and other entities. Contributions counted toward any tax year will be permissible until April 15 of the following year, rather than being cut off on December 31.

Higher AGI ceiling
The number of those who may contribute to an education IRA has also been broadened. The current contribution phase-out range for joint filers of $150,000-$160,000 jumps to double that of single filers ($190,000 - $220,000). Grades K-12 covered. In what is one of the most controversial provisions in the new law, proceeds in education IRAs are now available to pay for elementary and secondary school tuition - public and private - as well as the costs of higher education. Covered expenses include tutoring, computer equipment, room and board, uniforms and extended day program costs.

Enhanced Student Loan Deduction
The new law permits more student loan interest - considerably more - to be deducted. Current rules permit taxpayers to deduct up to $2,500 in student loan interest above-the-line. The deduction also had been severely limited by the rule that a taxpayer's adjusted gross income must fall under a certain threshold and the interest must be attributable to payments made during the first 60 months in which interest payments are required. The new law scraps these restrictions. It raises the income phase-out thresholds (to $55,000-$65,000, up from $40,000-$50,000, for singles; and $100,000-$130,000, from $60,000-$75,000, for joint filers). In addition to repealing the 60-month limit, the new law repeals the restriction that voluntary payments of interest are not deductible. Voluntary payments, such as interest-only payments made while a loan is in forbearance, have also been made eligible for above-the-line deductibility under the new law.

Qualified Tuition Plans
The law expands the scope of qualified tuition programs and alters the tax treatment of distributions. Currently, taxpayers may pre-pay higher education tuition costs only under state-sponsored qualified tuition programs. Now, private institutions of post-secondary learning will be able to sponsor qualified tuition programs as well. Additionally, distributions from state-sponsored qualified tuition programs will be excludable from gross income if made after December 31, 2001. Distributions from non-state programs would be excludable if made after December 31, 2003.

Other Education Tax Breaks
Among a handful of other edu-cation-related provisions are changes that allow:
* HOPE and Lifetime Learning tax credits to be claimed in the same year as education IRA distributions, as long as the IRA distribution is not used to pay for the same costs used to claim the education credit.
* Penalty-free contributions to education IRAs and qualified state tuition programs to be made in the same year.

Employer-Provided Assistance
The law makes permanent the employer-provided educational assistance exclusion (up to $5,250 annually), and extends coverage for both, graduate and undergraduate courses.

R, P & T

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Sprawl Battle: State v County

   As Michigan’s legislative and business leaders focused on the evils of sprawl during the past couple of years, the state had been host to a seemingly endless barrage of “Land Use” conferences and seminars. And, nearly every session contained multiple references to Maryland, a state lauded as a model of virtue by the bastion of so called “smart growth” advocates.
   That’s why a New York Times article noting the proverbial line in the sand drawn by Carroll County (MD) officials vowing to “defend home rule” against intrusive state policies, caught our eye.
   The Maryland fight is over the rezoning of 145 acres to accommodate a golf course community with fifty homes, the largest in the past 30 years in the rural county with a historical reputation for pioneering preservation of agricultural land. The vote by the county commissioner was ruled unjustified under state law in a legal challenge by opponents of the development. However, the ruling was “rendered moot because a new county master plan had already been mapped with the zoning change included,” according to the Times.
   Enter Governor Parris Glendening, a nationally renowned darling of the anti-sprawl movement, who considers Carroll County a “sprawl scofflaw that’s violating state preservation plans.” Glendening says he’s going to use a 25 year old law that allows the state to challenge potentially harmful rezonings, telling the Times his “$21 billion state budget will not be used to subsidize sprawl.”
   One of the commissioners in favor of the rezoning explained it was generated by an “older farm family seeking retirement.” Glendening countered that the family could have sold easement rights under existing state programs, just not for as much, noting it’s “not the government’s obligation to guarantee huge profits to farmers.”
   Michigan farmers being sold the Maryland type of plan should take note: Whose interest does the state really have in its plans?

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

Nightmares in GOPville
Last Tuesday, Peter Jennings had an interesting note on the ABC evening news. He quoted a Santa Cruz “think tank’s” finding that Republicans are three times more likely than Democrats to have nightmares.
No reason was given for this phenomenon and, we’re certain the “psychological community” will eventually have a field day with the data. However, the most likely scenario is that Ds and Rs have the same basic dreams: Democrats just sleep through the night in enjoyment; Republicans, on the other hand, wake up in a cold sweat.

Revenge of the Nerds II?
   In the late ‘90s movie “Devil’s Advocate,” Satan, in the image of Law Firm Managing Partner John Milton (Al Pacino), went on a rant about Lawyer domination of the world, calling the legal profession the “New Priesthood.” Well, with that as the premise, here’s a note that may provide another explanation as to why Republicans have such a high propensity for nightmares.
   After experiencing the highs and lows of entrepreneurship, out of work “dot-comers” seem to be looking toward that “new priesthood” for their next professional endeavor. The Wall Street Journal reported “law school ranks as a top draw for former dot-comers,” noting a “19% jump” in the number of people taking the Law School Admissions Test this year.
   In reality, dot-com refugees should be well prepared for the legal profession. They’ve already proven to have uncanny ability when it comes to building paper equity with no redeeming economic or social value, and they have quality experience in serving as the butt of volumes of professional jokes.

Curse of the Clintons
This is not a referrence to Gary Condit’s situation, but an implied threat that time is on the former administration’s side! It was somewhat amazing that so large a number of ligitimate media sources picked up on a statement by Bruce Reed, a low profile advisor at the Clinton White House. However, it should give those with “Clinton fatigue” one more reason for susceptibility to serious nightmares.
Stated the 41 year old Mr. Reed: “There are seven presidential elections until I’m Don Rumsfield’s age. (So) we’re not has-beens. We’re retreads in waiting!”

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Association News and Events -- First Fall Parade deadline approaching

   The first deadline for October’s Parade of Homes is this coming Monday, July 23rd. After the deadline the cost of participation in the October 6th through 21st event climbs to $2,700 (Final deadline is August 13th).
   For fall, the Parade’s open on weekends (noon to six), along with Thursdays and Fridays (4 to 7 p.m.). Contracts and rules were sent to the association’s builders at the end of June. Although it may seem like the Spring Parade just ended, Monday’s deadline is only six weeks prior to the first inspection, when participating homes must be drywalled and sanded.
   If you’ve misplaced your parade information, or did not receive it, and wish to participate in the event, call the association office at 810-603-2200.

As has been the practice for 10 years, Housing Quarterly magazine will be mailed to subscribers a week before the Parade opens. As always, we’ll attempt to honor all members advertising requests made prior to Labor Day, however, to guarantee space (particularly if full color is desired), it’s important that we know by August 6th.
Also, if any member wishes to submit an article for this consumer oriented magazine, let us know right away.

Golf Outing: As of this morning, we have two foursomes on the waiting list (and we’ll know if there are openings at the end of this week), so there’s a possibility additional groups could get in the August 14th event at Woodfield’s Captains’ Club.
Also, at last check there were 16 hole sponsors, meaning an opportunity exists for two more. If interested, call the office immediately.

Economic Update: Vanishing Surplus is story of the week

   It’s been a rather eventful couple of weeks regarding measures of economic activity. Despite a weak employment report, with the jobless rate heading upward after a one month reprieve, most of the data released since the beginning of the month suggests the projections for a stronger second half, reported in the July 2nd issue, remain on target.
   Americans’ earnings continued to rise through the first five months of the year, and consumer spending was up 0.5% for the second consecutive month. Even a manufacturing turn-a-round seemed in the works according to improvements in the Purchasing Management index (NAPM) and an upswing in factory orders. And, with energy prices receding, wholesale prices actually fell four-tenths of a point.
   However, the issue that received the most attention in the business media in early July was the federal surplus, or what’s left of it. And all the coverage apparently struck a nerve at the White House, as Lawrence Lindsey, President Bush’s primary architect of economic policy, felt the need to write an op. ed. piece in the Wall Street Journal, defending the tax cuts that have helped place the surplus in jeopardy.
   The administration’s tax policy, and the eventual $1.35 trillion tax cut, was based on the premise that the trillions in surplus projections over the next decade would become a reality. However, many felt those projections were arbitrary at best, and a massive tax cut while the nation was a risky venture.
   Well, a short time ago, the Congressional Budget Office was still projecting a surplus of $281 billion this year and $313 billion in 2002. Now, it looks more like $160 billion this year, and a struggle to hit $200 billion next, as tax cuts and the economic slowdown are drastically reducing government revenues. But that’s just the beginning of the problem.
   Even under the original rosy scenario, non Medicare and social security surpluses for the next decade are forecast at $1 trillion. But both parties are looking at additional spending proposals. Currently on the drawing board are plans for increased defense spending ($250 b), a prescription drug benefit ($300 b), and a bipartisan education bill ($150 b) which, by themselves, would take up 70% of the projected surplus over the next 10 years. And there are still billions more in tax cuts and spending proposals which are talked about on a daily basis. And, what happens when (not if) the farm lobby comes wining to congress, or there’s a need for emergency disaster relief?
   Lindsey says the tax cuts were necessary to keep the economy, and federal revenues, from “tanking.” But others wonder how the financial markets will react once the budget begins to show red ink.

Employment
The Jobless rate climbed to 4.5% in June as the economy lost jobs at a seasonally adjusted rate of 114,000. Hourly earnings rose 0.3%, to $14.29, which was up 4.2% from a year earlier.

Manufacturing
Although manufacturing employment fell by another 113,000 jobs, the NAPM’s index shows a slowing in the sectors’ decline. However, the July 3rd report that factory orders experienced a 2.5% gain in May, the biggest jump since the previous June, presented a better indication that the manufacturing sector’s worst problems may be over. The rise related to strong demand for transportation and electronic products.

Another positive note: NAPM’s non-manufacturing index rose vigorously in June, indicating a stronger the expected service sector and mending economy.

Housing Industry Update

Tapping Home Equity Keeps Consumption Up
   A report in this week’s issue of BusinessWeek suggests a primary reason consumer’s continue to spend at a pace that’s strong enough to keep the nation out of recession relates to their becoming more sophisticated in using their home equity. The article refers to statements by economic consultant L. Douglas Lee, estimating that 10% of all outstanding mortgages have been refinanced since late last year and, in most cases, owners actually increased the size of their mortgage loans.
   Lee is especially “intrigued” by an MGIC study indicating “that homeowners who refinanced during last year’s fourth quarter added an average $41,000 to their balances. What may be more intriguing, however, is that “the average interest rate on the new mortgages was more than half a point higher than the rate on the old ones.”
   So, Lee surmises that these consumers were consolidating even higher interest rate debt, using their homes’ equity for leverage and, in most cases, reaping a bigger tax deduction at the same time.

If They Didn’t Believe us Before, they’ll listen now
For years we’ve been stressing the housing industry’s economic impact on the nation as a whole, and have frequently presented data stating data showing the industry responsible for as much as 40% of economic growth during particular periods of time. More recently, we’ve noted how housing is the one industry that seems to keep the economy moving during this current economic slowdown, as sales and starts are running at record and near record levels, despite the often state weakness that seems to consume the media. New home sales are expected to break 900,000, which would beat the revised record of 881,000 in 1999, while existing homes are selling at a faster pace than they did in ‘99, although the National Association of Realtors is projecting a near record 5.16 million units for the year.
In a recent BusinessWeek article, Mark Zandi, (Economy.com) as he’s done all year, credited housing for keeping the nation out of recession. But this time he added, “three fourths of the economy’s 0.8% growth in the first half of ‘01 came from housing and related sectors such as furnishings.”

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