July 30, 2003

Inside Veritas -
Article 1 - Brace Yourself: “Land Use Council” Report Coming in August
Article 2 - Sprawl and “Flynt’s” growth industry
Article 3 - Gephardt: New "Monarch" in Waiting
Article 4 - Taxation and Finance - Selling Investment Property — Like-Kind Exchanges
Article 5 - Sewer and Water Update
Association News Update From Laura
Economic Update - Signs point to improvement -- but!
BS: Still about Nothing in particular
Housing Industry Update

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Brace Yourself: “Land Use Council” Report
Coming in August

  When the members of Governor Granholm’s Land Use Leadership Council were presented, it was obvious the council was stacked with a majority being openly hostile to the growth the state has been experiencing. 17 (of 26) members were either outspoken opponents of sprawl or represented groups that are part of the anti-sprawl coalition. Furthermore, the council’s staff was supplied by Public Sector Consultants, whose chief, Bill Rustem, is clearly in the anti-sprawl camp.
  However, before it was to present its final report, the council was expected to reach a “con-sensus,” suggesting the minority opinion would have an impact on the final outcome.
  Well, shortly after the council first met came a decision by the majority that, there would be no “minority report.” Then, more recently, a majority of the council’s members decided the term “consensus” would be defined as a “majority.” Subsequently, when a member, who happens to be a builder and is on the council to create the illusion of diversity, moved that the council prioritize the items that have a true consensus, he was shot down by the usual suspects.
  So, with the “fix” set, “staff” drafted the council’s preliminary report which is still to be rubber stamped by the “majority.” But it should come as no surprise that the “draft” contains the distortions, and outright lies, that have become commonplace in the arguments of the planning and anti-sprawl communities.
For example, its section on land resource based industries (farming, forestry, tourism, mining and recreation) makes the following points: “
· Tourism accounts for 350,000 jobs;
· Forestry provides 150,000 jobs;
  However, according to Census data, farming and forestry combine with fishing for 21,120 total jobs. Why the discrepancy? If they include everyone earning a living from the forestry industry, including the lumber suppliers who support “sprawling” home building, the numbers are likely accurate. And, if we look at the “tourism” employment numbers we can see how these distortions come about.
  Those 350,000 “tourism” jobs just happen to equal the census bureau’s numbers for “arts, entertainment, accommodation, recreation, and food services.” That’s right, the pro and beer cart drivers at Captains’ Club, the bartender at Bonaparte’s, and the Zamboni driver at the IMA are all part of the “tourism” industry according to the draft.
  In its “planning and development regulation” section, the draft operates from the premise that there’s a “widespread perception that the current (planning) system results in sprawl, the unnecessary loss of farms, forests and open space, as well as a decline in quality of life.” Of course, it neglects to state that sprawl is a result of individuals improving their quality of life.
  The problem is that the council’s majority begins with the premise that urban sprawl is a (or the) primary cause for many of the maladies it perceives exist in the state, without once considering the benefits that have materialized due to “sprawl.” Then, it presents a myriad of solutions to contain it, from regional planning, to prioritized funding of infrastructure for existing developed areas, to a statewide set of land use goals. In different sections it calls for dedicated funding for purchasing of development rights, impact fees, and even concurrency.
  Michigan’s home building industry’s never been under siege as it is today. The council’s drafts suggest a direction designed to end development as we currently know it. The real danger is the acceleration of the process that is already destroying opportunities for the small volume builder, while ensuring an even greater market share for the large companies. Which is why the MAHB’s presentation on the Council was titled, “R.I.P. Small Volume Builder.” And, that’s also why the MAHB is hosting an emergency all day meeting on July 31.
  Look for continued reports in upcoming issues of Veritas, and get ready for a full battle this fall.

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Sprawl and “Flynt’s” growth industry

   Nearly a quarter century ago, Flint’s collective “leadership” decided the city’s future was tied to tourism. In those days, it was becoming evident we could no longer depend on auto industry employment, and economic diversification was imperative. So its “high priests” turned to their new vision of the “Holy Trinity,” roughly $140 million in government grants and private contributions to build Auto World, the Hyatt Regency and Water Street Pavilion. The “trinity’s” key element was Auto World, expected to draw thousands of tourists by taking advantage of Flint’s location and America’s “love affair” with the automobile.
Though the plan’s demise is history, its concept hit home in the Journal’s Special Report, in its July 13th edition, “Sex marks the spot,” which noted, “in the crosshairs of I-69 and I-75, the Flint area is an easy destination spot for men looking for sex and drugs.” So, the rationale behind making Flint a “tourist Mecca” may not have been as flawed as its doubters claimed. Perhaps the mistake was the focus on the automobile, when “VICE” could have turned our “leaders” dreams into reality.
  Although the Journal report focused on the booming business in Strip Clubs, adult book stores, massage parlors and street hookers, perhaps its most critical point came from University of Michigan - Flynt Economist Mark Perry, who estimates that “sex, drugs, gambling, and other illegal behavior generate $1.5 billion a year in Genesee County — $600 thousand more than the combined total payroll of the county’s 15,000 General Motors’ workers.”
  To put that in perspective, let’s look at home building. In its annual report to the County Board Chair and Treasurer, the BAMF estimated the average price of the 1,880 single family and condominium homes built in Genesee County in ‘02 was $224,000, meaning the total value of new, owner occupied housing was $421.1 million, just 28% of Perry’s estimated vice revenues. Now, it’s often been stated that new housing has been the Flint area’s economic savior. Now we have to ask, where would Flint be without vice?
  What’s fascinating is that we’ve used the same premise to promote housing growth in Genesee County as the Journal uses to explain the area’s thriving VICE industries: “In the crosshairs of I-69 and I-75, the Flint area is an easy destination spot for ‘families with two members employed in multiple metro- politan areas’.” Unfortunately, our version supports “Sprawl,” and is apparently as unattractive as “VICE,” at least as far as the Journal’s editorial board is concerned.
  A subsequent Journal editorial noted that, “while they (strip clubs) get rich, Flint’s ideal location at the expressway crossing is not taken advantage of nearly to the extent it could be for legitimate economic activity.” Yet, it had previously condemned the legitimate “economic activity” that Flint’s “ideal location” has successfully generated as “gobbling up green space” and requiring infrastructure that’s unaffordable. Well, we can only surmise that the industry that resurrected the local economy in the ‘90s and buoyed the U.S. economy in the 2000s holds the same legitimacy as the Flint (Flynt) area’s other growth industry.

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Gephardt: New “Monarch” in Waiting (from Previous Issue)

  The call for an American monarchy was heard at the democrat presidential forum sponsored by Jesse Jackson’s Rainbow/PUSH Coalition on June 22, just prior to the Supreme Court’s verdict on the University of Michigan affirmative action challenge.
Though all nine wouldbe leaders consistently patronized the largely African American audience, U.S. Representative, and former Speaker of the House, Dick Gephardt (MO) may have reached new heights (or depths) when he virtually stated, “Separation of powers be damned.” Going well beyond Trent Lott’s praise of Strom Thurmond,” and Rick Santorum’s alleged “gay bashing,” Gephardt promised to make the U.S. Supreme Court obsolete, at least when it’s opposed to his point of view.
Said the wannabe president, “When I’m president, we’ll have executive orders to overcome any wrong thing the Supreme Court does tomorrow, or any other day.”
Of course, while Lott and Santorum’s statements remained lead story news for days, Gephardt’s (except for a brief mention on fair and balanced Fox News Sunday) was barely referenced in the traditional media.
Now, we don’t normally subscribe to the “liberal bias” theory, but it took the e-mail of an Associated Press story to bring the Gephardt statement to our attention ... Can you say “Double Standard?"

Barry

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Taxation and Finance ---- Selling Investment Property — Like-Kind Exchanges

   A well known, but sometimes overlooked, way to alter investment holdings without paying tax at the time of the transaction is through the use of "like-kind" exchanges. In a like-kind exchange, investment property is traded for other investment property. The person transferring one piece of property receives different property but keeps the same basis as that for the old property. That way, the gain is deferred while other tax attributes are preserved.
  Of particular interest are the flexible features that make a like-kind exchange an especially useful technique. First, properties do not have to be of identical type to qualify as like-kind. To take a few examples, commercial buildings have been exchanged for unimproved lots, farm land for city lots, and even cooperative housing stock carrying occupancy rights for a condominium interest in the same property.
  One caution: like-kind exchanges do not work with all types of investment property. For instance, neither stocks and bonds nor partnership interests qualify. Second, properties do not have to be exchanged at the same time. Therefore, it is not necessary to have already located the exchange property to make a like-kind exchange (an important consideration if the end of a tax year is looming). It is sufficient that the exchange property be identified within 45 days after the relinquished property is given up, and that the identified property be received within 180 days. (However, if the tax return due date for the original transfer year occurs before the end of the 180- day period, the identified property must be received on or before the tax return due date).
  To illustrate how these exchanges can work, consider the following example: Fred owns an interest in an office building. He bought it years ago for $10,000, but today it's worth at least $100,000. Fred has decided to move to Florida and convert his office building interest into an ownership share in a Florida apartment building. Allison wants to buy Fred's office building interest, and for tax reasons she wants to own the building interest by December 31. Fred wants to avoid the high tax he would have to pay after a cash sale.
  A solution is a deferred like-kind exchange. Fred transfers his building interest to Allison on December 31. Allison agrees to locate and buy a Florida apartment building interest of equal value suitable to Fred. (Fred can even insist that Allison put the purchase price in escrow, so long as Fred has no independent right to the cash).
  After Allison finds and buys the Florida property, she transfers it to Fred, and the like-kind exchange is completed. Provided the 45/180 day rules along with other requirements are satisfied, Fred receives the Florida property tax-free, with the same basis and holding period he had in the office building. As you can see, a like-kind exchange can be an excellent tool that can be used to achieve investment goals. Even in situations where it is impractical to arrange a completely tax-free transaction, like-kind exchanges may still reduce the immediate tax consequences of altering yourinvestment holdings. Any transaction must be carefully structured and completed by a tax professional.

R, P & T

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

RunJerryRun.com; Senator Springer (Hillary’s running mate?)

  This could keep Leno and Letterman in business for years to come. This month’s news reports that Jerry Springer, of trash TV fame, is seriously preparing to run for the U.S. Senate from Ohio, was just what America needed, considering the current political landscape. Yes, we’ve been deluged with the expected quips by Leno and Letterman; and even the semi legitimate news programs are questioning whether, or not, Mr. Springer (a former Cincinnatti Mayor) will be taken seriously. But, if one looks past the negatives (like he resigned from City Council when the public learned he’d written a personal check to a prostitute for services rendered) there are great opportunities for someone of Springer’s proven skills in Democratic politics at the National level.
  Under the premise that a Bush reelection will bring the rise of “Hillary” in 2008, who could be better poised as her perfect running mate? First, he’s from a heavily populated “swing” state that leans Republican. Secondly, his name recognition is better than any other potential candidate.
  However, he brings something else that the Clintons are likely to need. Who could possibly be better equipped to moderate family disputes once the campaign is off and running?
  Of course, for all this to materialize, he must first get elected to the Senate. So, if you’d like to protect against a boring summer and fall of ‘08, we suggest you get on the Springer Bandwagon. To help elect Jerry, visit www.runjerryrun.com. ... $100 will get you a Run Jerry Run tee-shirt, and an autographed, 8” x 10” photograph of the future Vice-President.

"Seinfeld" Briefs:

  “Accepting bids for Jefferson Village,” a “BIASM Classified Ad,” couldn’t help but get our attention. “Crosswinds Communities invites bids” under requirements set forth in Detroit Exec. Order 22, stating “50% of on site labor must be Detroit residents and 25% minority and 5% women and 35% must be Detroit based or small business certified by the city of Detroit.”

# # #

  Great news about Nike buying its competitor (Converse) for $305 million. To put it in perspective, the shoe company that paid endorsement fees to such NBA All Stars as “Magic” Johnson and Bill Laimbeer was only worth three times the endorsement contract Nike paid to a High School kid from Cleveland.

# # #

   Sports columnists across Southeast Michigan are criticizing the National Football League for fining Lions’ President Matt Millen $200,000 because he failed to interview a “minority” coach, prior to hiring Steve Mariucci. Since Veritas never likes to criticize “authority,” we take a different view. Although the premise for the fine may be absurd, let’s look at it as a “make good” for the two years Lion fans had to put up with Millen’s incompetence. Let’s remember, most of these same columnists called for Millen’s head last winter.

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Association News and Events by Laura

  

Parade Entries Suggest Fall Events Stronger Than Usual   It looks like another year of strong participation for the Fall Parade of Homes, opening Saturday, October 11th. As of the first deadline (July 23) we had 21 homes entered, which suggests we’ll end up in the mid to upper 20s for the three weekend/two week event. The final deadline is Monday, August 18th. The entry fee (after the 1st deadline) is now $2,700 for one home, but remains at $1,750 for additional homes by the same company.   Running through Sunday, October 26, the event’s open during our traditional Fall hours: Noon to six on weekends, 4 p.m. to 7 p.m. Thursdays and Friday’s (closed Monday thru Wednesday).   If interested in participating, make sure you have your entry postmarked NO LATER THAN Monday, August 18th. If you don’t have an entry form, please call the Association Office immediately at 810-603-2200.

As has been the custom since 1991, the Fall event will coincide with the Fall issue of Housing Quarterly magazine, due for publication Friday, October 3rd. Due to historically strong support from BAMF members, we’ve been able to keep HQ advertising rates at, or near, 12 year ago levels (non member rates are roughly 50% higher). If interested in advertising in the fall issue, we remind you that all contracts, copy and payments must be in by September 2nd. However, we have to make note that full color ads can’t be assured beyond Monday, August 18th. BAMF NOTES:   Next week’s (8/5) Golf Outing will have sponsored contests on 17 holes, a new record for the annually “sold out” event — if you missed this year’s outing, make sure you reserve early in ‘04. # # #    Remember, we’re having 3 General Membership Meetings this fall, adding a November event. September 10th’s will likely include a "call to action" regarding the Land Use Council.

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Economic Update: Signs point to improvement — but!

   On Thursday (July 31) the Commerce Department will announce its first estimate on 2nd Quarter growth, and it’s the consensus opinion of economists that 1.8% will be the number, which is up from the revised 1.4% (down from a previous estimate of 1.9%) first quarter. However, what may be more important than the actual 2nd quarter growth data is the momentum in a positive direction for the economy as a whole.
  In its current “Business Outlook” column, “BusinessWeek” focuses on the economy’s momentum in the latter part of the 2nd quarter, noting the strength in the index of Leading Economic Indicators as the quarter progressed. This is “one of those times,” it says, regarding momentum being “more important than the quarter’s overall growth rate.” It points out that manufacturing output has risen two months in a row, while retail sales rebounded strongly in June.
  Well, large numbers of economists and Business publications have been forecasting growth that failed to materialize over the past few years, so why should this be any different?
  One difference is the bond market, an institution that hasn’t bought into the previous forecasts of growth. If anyone noticed, since the Federal Reserve cut a quarter point off the Fed Funds’ rate, long term bond yields have soared, up to 4.28% this (7/29) morning. That’s roughly a 35% increase in a month. So conceivably, bond traders may actually believe the economy’s turning upward this time. However, here’s the caveat.
  We had a continual upturn in manufacturing during 2002, but it didn’t relate to job creation. So, the housing industry’s record growth was more significant, since it employed Americans at record levels. Now, with bond yields on the rise, and mortgage rates as well, housing growth is jeopardized. And, a reduction of 100,000 units, just 7.1%, has the impact of 248,000 fewer jobs. Can the economy handle that?

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Housing Industry Update

Michigan’s 6 Month ‘03 Activity Remains Flat

  For the 4th consecutive year, Michigan’s new housing activity continued to fall for the first six months of 2003, primarily due to a large decline in the Multi-family sector. For the first 2 quarters a total of 23,222 housing units were authorized statewide, according to U.S. Dept. of Commerce estimates, 2.3% below last year’s level. However, single family activity was virtually equal to the same period of ‘02, with the estimate off by just 71 units (0.3%).
  Regionally, single family activity throughout “Metro-Detroit” is up 3.2%, with the Detroit and Flint sections up, as Ann Arbor is off slightly. Locally, “Flint’s” single family activity is up 4.4% and total activity’s down 10.6% as apartment construction’s all but disappeared.

Starts/Sales Stay Well Above Record Levels

  “Commerce” also reported a surge in single family housing starts in June, up 5.3% from May’s revised rate of 1.388 million units. June’s level of 1.462 million brings the average for the first half of the year to just over 1.4 million, which is 3.4% above the all time record set a year ago. And, expectations in the immediate future remain as strong since, not only did permits for single family also rise 5.3% from May, but so did sales as well.
  The rate of New Home Sales was at 1.16 million units in June, up 4.7% from it’s May rate, celebrating the fourth consecutive month above the 1 million barrier. The June data raised the first half average to 1.042 million, a whopping 7.1% above ‘02’s record (973,000) and nearly 15% above the previous record of 908,000 set in 2001.
  In fact, with the exception of February, new homes have sold at a million plus rate during every month since last July.

Existing Home Sales Remain in Record Territory

  The National Association of Realtors also reported a strong June for existing home sales, despite a small decline of 0.3% from May. The June rate of 5.83 million was the fourth highest in history (all since last December).
  The June sales data bring the average sales through the second quarter to 5.835 million units, 4.9% above ‘02’s year end record.
  To put those figures in perspective, the 4 million barrier was first broken in ‘96, and 5 million was broken in ‘99. That represents a 39% jump in sales in 7 years.
  The national median price of an existing home was up 7.7% over the past 12 months, to $176,500. Of course, the median monthly payment is down, as mortgage rates were 21.7% lower last month than a year earlier. So, don’t be totally shocked if median prices begin falling from last month’s level, if mortgage rates continue their recent trend.

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