September 24, 2002

Inside Veritas -
Article 1 - “Habitat House” taking shape after active framing weekend
Article 2 - Moratorium Still in Affect
Article 3 - Squeezing Small Builders
Article 4 - Taxation and Finance - An alternative health care arrangement
Article 5 - When legal action’s the only alternative
Association News Update From Laura
Economic Update - Not much optimism in recent reports
BS: Still about Nothing in particular
Housing Industry Update

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

“Habitat House” taking shape after active framing weekend
  
   As you’ll notice in the photo on page five, the Association’s venture in building a home with “Habitat for Humanity” is taking shape. The home, on Nichols Ave. in Grand Blanc Township, was framed last Friday and Saturday, under BAMF President Steve Edwards’ direction. The deck went down in the morning due to the efforts of the Blondin brothers, the reigning association Golf Outing champs (with-out their captain), while walls and trusses went up that afternoon with Michael Bolton and his crew doing the honors (with a little guidance from Vice President Steve Lissner).
   Bolton and crew were back the next morning, with Edwards, and the trusses were set and the house closed in by noon.
   And, working throughout the framing period was the home’s eventual owner, Janine Case.
   The home was framed on the foundation poured by Horcha poured walls, in the basement dug by Woodside Builders, on a lot surveyed by Gould Engineering. Now, before we’re accused of spouting off the names of sponsors like a “Winston Cup” driver, we want to note that we’ll be updating the construction of the home over the next few weeks, and do a concluding article when the home’s complete.

   Habitat Note: The home on Nichols is the 30th for the local “Habitat” branch; in ‘01 some 200 homes were built in Michigan under the “Habitat” label; and, 4,700 were built nationally, making “Habitat” # 15 on Builder Magazine’s top 100 list.

Association Notes

   The October 23rd meeting will feature Steve Easley, television building guru, sponsored by James Lumber. Full details will be coming in the October 9th Veritas, but keep in mind we need you to RSVP by October 17th.

   Also, don’t forget the Fall Parade will open October 5th with 28 models, and run through the 20th. And, Housing Quarterly magazine should be in the mail at the end of this week.

Back To Top

Moratorium Still in Affect

Wright at our General Membership Meeting

   Hopes were high when the Genesee County Drain Commission went into court on Monday. It was seeking a motion for Summary Disposition to throw out the challenge to its Capital Improvement Fee on sewer and water taps. In other words, an end to the case that was responsible for the moratorium that’s plagued the county since the end of June.
   The county’s optimism stemmed from a number of factors, not the least of which related to the fact that there was now general agreement between the parties that the fee was, in fact, for projects to expand capacity (plaintiffs had previously stated the fees were merely for maintenance of the current system). However, plaintiffs now argue that all rate payers are receiving a benefit from the expansion, which wasn’t taken into consideration when the fees were set. And, unfortunately, Judge Neithercut felt that issue was enough to keep the case alive, despite noting it would be difficult to prove. So, as of the moment, the case is open and the moratorium continues.
   As Drain Commissioner Jeff Wright said at the BAMF meeting last week, he was ready to take all plans that had gone through the approval process directly to Lansing Monday afternoon, had the judge ruled in the county’s favor. Now, we’ll have to wait.

Back To Top

Health Costs’ Stranglehold on Economy

   Our June 25th issue focused on rising costs of Health Care and its impact on the economy. We noted, among other issues, how Americans subsidize European prescription drugs by paying as much as 2.5 times more for the same medicines; that spending on drugs rose 17% in 2001; premiums for the association health plan rose 104% in the past 5 years, while the cost of living was up just 11%; and while Europe spends roughly 8.6% of gross domestic product on health care, the U.S. spends 12.9%. But, perhaps most critical was the point that, as BAMF insurance costs rose 55% since 2000, major employers (those that include full health benefits) had cut payrolls by roughly four million jobs. And, despite an exceptionally strong 1st quarter showed no evidence of reversing the employment trend.
   So, while employers were unable to raise prices in an era of relatively no inflation, we concluded that the inability to meet the rising costs of health care was “choking employment” growth throughout the U.S.
   Well, since that issue there have been a number of reports suggesting we were on target. However, those reports also suggest that our rising premiums are way beyond the national average:
   1) A national employer survey found the average cost of ”Health” premiums rose 42% from the end of ‘98 to ‘02. During the same period the rate of inflation was up just 8%. The average conventional family plan now costs $8,479 annually, of which the average worker now contributes $1,630.
   2) GM spent $4.2 billion on Health Care last year, including $1.3 billion on prescription drugs. A Flint Journal article noted the company spent $55 million on Prilosec, a drug American’s pay for at 280% the European rate.
   3) A Wall Street Journal article included a chart showing spending on prescription drugs rising from about $70 billion in ‘97 to around $148 billion last year (a previous study put it at $172 billion for ‘01). And, the two biggest sellers, the highly advertised “Lipitor” and “Prilosec” ($9.83 billion combined) were the two drugs featured in the 6/25 article, emphasizing the difference between what Europeans and Americans pay.
   4) It’s going to get worse! The fastest growing market is children and teens, a group that showed a 28% rise in 2001. According to Medco Health Solutions, the rise is led by Allergy, Asthma and Attention Deficit/Hyperactivity drugs.

Back To Top

Taxation and Finance ---- An alternative health care arrangement

   An alternative health care arrangement, on which the IRS has recently released some favorable tax guidance, may now offer employers an alternative to costly health maintenance organization (HMO) and preferred provider organization (PPO) insurance plans.
   Health reimbursement arrangements (HRAs) offer employers the possibility of reining in health care costs. We expect you'll be hearing more about HRAs in the near future, so we want to brief you on how they operate. An HRA is an arrangement through which an individual health care reimbursement account is set up with a fixed annual amount for each covered employee. These accounts are similar to a health care flexible spending account (FSA) because employees can submit their out of pocket medical expenses and get reimbursed from the accounts. However, there's a significant difference. An FSA is funded solely by the employee, whereas an HRA is funded by the employer. Contributions an employer makes to the employees' HRA accounts are tax deductible and if some relatively straightforward rules are satisfied, any reimbursements from the accounts are nontaxable to the employees.
   Any unspent money in an HRA at year-end can be carried forward from year to year until it is need (even if the employee retires or leaves the company in the mean time.) With an FSA, if an employee misjudges how much to put in the account and has some left over at year-end, the excess reverts back to the employer.
   At this point you may be wondering, why would an employer who currently offers a FSA (that's funded by employee contributions) want to switch to or add on HRA accounts (that must be funded solely by the employer?) The key is what comes with the HRA. Employers who are setting up HRA accounts are also switching to high deductible major medical plans. For example, let's say the plan has a $2,000 deductible for singles and a $4,000 combined deductible for a family. An employer might put $1,000 annually into an HRA for someone who had employee-only coverage and $2,000 annually for someone with family coverage. The idea is that an employer's savings from switching to a high deductible plan will more than offset the cost of setting up the HRA accounts. If this works, the employer saves money.
   Employees can also come out ahead with the combination of an HRA and a high deductible plan if their total expenses for the year are less than what their employer puts into their HRA account. They are allowed to bank the excess and carry it over to a future year. In fact, the result is touted as one of the big benefits of HRAs. It is suppose to give employees a greater incentive to make cost-effective decisions when they purchase health care services because if they exceed their HRA account balance, the next layer of medical expenses come straight out of their pocket. Thus, the bottom line is HRA accounts have the potential to save employer's money and perhaps help rein in health care inflation by making employees better health care consumers.

R, P & T

When legal action’s the only alternative

   To some it seems hypocritical. Throughout the summer the Builders Association was featured in the media in its support of the Drain Commission’s Capital Improvement Fees which were being challenged in a law suit. Now, the same association is in the process of legally challenging Grand Blanc Township’s decision to raise its fees by $1,000 for sewer/water taps.
   Despite similar basis, the difference between these two situations is the proverbial “night and day.” Without going into lengthy analysis of court decisions, we can see that the county’s fee is clearly designed to increase sewer and water capacity to allow for new development. Therefore, the payer of the fee is receiving a proportional benefit, with that being the opportunity to tap into the system, something that would not be available without the expanded infrastructure.
   The township, on the other hand, increased its fees based solely on the fees of surrounding townships. With no consideration of proportion, purpose and benefit, its action clearly violates at least 40 years of case law from “Merelli to Bolt.”
   However, it was a “last resort” when I gave our attorney the O.K. to file last week. It only came after eight months of trying to avoid legal action, which brings me to the real point of this commentary.
   When I began working for this association (1977) the industry normally had, at least, one ally in each municipality. That “ally” was the municipal attorney, who would advise over zealous officials on the legality of their actions, often (but not always) deterring them from violating the law or constitution. Now, all to often, the attorney’s become a political or fiscal consultant, who can let the law be damned in his recommendations.
   In the Grand Blanc situation we made numerous attempts to avoid litigation, but each was ignored. In fact, its attorney even ignored a Freedom of Information Act request.
   So, after no less than eight tries, the board of directors had nowhere to go but to issue the order to go ahead and file.

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

Farm Subsidies: “Blight on the Economy”

 An interesting commentary in September 9’s BusinessWeek had another argument against farm subsidies. Noting most poor nations have agriculture based economies, Paul Magnusson (BW international trade writer) suggests wealthy nation farm subsidies are helping to keep the poor nations from improving their economic climates and consequently, from emerging as a market for developed nation’s goods.
   He points to the “Vicious Cycle” that subsidies start, that works to diminish agricultural trade opportunities: “1) Subsidies to farmers in wealth nations encourage overproduction and drive down prices; 2) Poor nations, unable to match U.S. subsidies, levy high tariffs on imports, helping local farmers but hurting consumers; So, 3) support for free trade is diminished since lowering import duties would ruin the poor nations’ farm based economies.”
   What we have as a result is more than $311 billion annually in agricultural subsidies by rich nations which is more than double the amount of total farm exports from developing nations. These subsidies make up roughly 20% of U.S. farmers total income, and 31% of the average European farmer’s .... and, they’ve given poor nations the need to, on the average, put tariff's in the 17% range.

Lawyer & Insurance Co. both get “justice”

   The following must be true, since the e-mail said so: A Charlotte (NC) lawyer purchased a box of rare cigars, then had them insured against fire and other calamities. After smoking them, he filed a claim against the insurance co., noting the cigars were lost in “a series of small fires.” The Lawyer sued when the company refused to pay, and won on a technicality. Rather than file an appeal, the insurance paid the $15,000.
   However, after the check was cashed, the company had him arrested on 24 counts of Arson. With his claim and testimony used against him, the lawyer was convicted of intentionally burning insured property, and was sentenced to 24 months in jail and fined $24,000 .

Back to top

Association News and Events by Laura

  

GENERAL MEMBERSHIP MEETING Wednesday, September 18, 2002 at Bonaparte’s (in the Great Lakes Tech Center) Social Hour at 6:00 p.m. (Sponsored by S & M Lumber) Buffet Dinner at 7:00 p.m. Meeting starts at approximately 8:00 p.m. Guest Speaker: JEFF WRIGHT Genesee County Drain Commissioner ********** Member’s Dinner: No charge All Guests and Member’s additional attendees must pay $20.00 at the door that evening. RSVP no later than noon Thursday, September 12th by calling 810-603-2200 or e-mail to: Tracey@bamfhome.com

HABITAT HOUSE UPDATE    The Builders Association sponsored Habitat for Humanity house is making progress finally after weeks of delays.    The foundation is done and the next stage is the official framing of the house. The Association office has been keeping a photo dairy of each phase in hopes of giving the new homeowner a special scrapbook when they move in.    The “Habitat House” was the featured front page article in the Grand Blanc section of the Flint Journal on Thursday, September 5th. In the article, President Steve Edwards noted that our wish was to have the house in the Fall Parade but it may be possible to have it where people can come by and see the progress to date. (Steve will give us an update at the Sept. 18th Membership Meeting.)

Back To Top

Economic Update: Not much optimism in recent reports

   Unless your a bond trader, or looking to buy or refinance a home, there’s little positive to be taken from the economic reports over the past couple of weeks. As you’ll note, on page four, mortgage rates hit another new low of 6.05% on the average. Furthermore, the ten year bonds that usually reflect on changes in mortgage rates closed with a yield of 3.7% yesterday (Monday), suggesting that fixed rates could continue to slide.
However, as bond prices soared and yields plummeted, so did stock prices, continuing to “hammer away” at Americans’ net worth. And that’s been since last week’s report by the Federal Reserve that household net worth plummeted $1.425 trillion, or 3.4%, during the 2nd quarter. The decline brought the total worth of the nation’s households to $40.077 trillion, 5.5% below the peak of $42.382 trillion in 1999.
So, while Americans gained roughly $2.3 trillion in home value over the past 2.5 years (see page 8), they still ended the period $2.3 trillion in the hole.

Drop in Industrial Output
The Fed also reported last week that August’s industrial production (a measure of output from the nations’ mines, utilities and factories) fell 0.3% from July, its first decline since December. And, though much of the decline came from lower utility output, manufacturing output was down 1% reflecting a cut in production of consumer products. This was, to some extent, in line with the Institute of Supply Management index we reported on two weeks ago, which suggested that the sector was nearing contraction for the first time since the end of last year.
Furthermore, it was in line with the Fed’s early “beige book” report stating that economic activity had slowed during recent weeks in most of its districts, with “sluggish” manufacturing and “little or no employment gains.”

Retail Sales the Lone Good News
If there’s to be good news, let it be retail sales, because, after all, we still have a 67% consumer driven economy. And, it looks like consumer is continuing to do his part, as retail sales rose a greater than expected 0.8% last month, on the heels of respective 1.4% and 1.1% gains in June and July.
The rise was led by auto sales for the second consecutive month, but strength was evident in other sectors, particularly the home furnishing sector. Of course, housing played a major role in the retail activity as the record setting pace of mortgage refinancings appear to be providing the cash that consumers continue to spend.
Regarding autos: Consumers jumped to take advantage of 0% financing as spending in that sector was up 2.2%, following a revised 4.3% rise in July. However, excluding cars and trucks, sales were up 0.4% which was better than the 0.2% the previous month.

Back To Top

Housing Industry Update

   Single family housing starts fell to their lowest level in ten months during August, tumbling 4.4% from July’s revised figure of 1.31 million. August’s data represented the third consecutive month of decline since they peaked at a record rate of 1.39 million in May.
However, news wasn’t all bad in the Commerce Department’s release last week, as building permits for single family were up to 1.3 million units, the highest level since February.
Overall, starts were down by a 2.2% rate to 1.61 million, the lowest since April.

While the mortgage industry still entices business with low downpayments and sweet refinancing deals, we learned last week that the foreclosure rate set a new record in the second quarter. Also, delinquencies on loans are on the rise.
The Mortgage Bankers Association of America reported that 1.23% of all home loans are in foreclosure, far surpassing the previous record of 1.14% in the 1st quarter of ‘99. In the same report it noted that delinquent mortgages rose to a 4.77% rate as a large number adjustable rate loans (5.25%) are now, at least, 30 days overdue. The delinquency rate on fixed rate mortgages is only 2.75%. Yet the delinquency remains well below its record level of 6.07% set in 1985.
However, the high foreclosure rate’s inspired more talk about the “housing bubble,” and the likelihood of a number of homes falling back on the market as overextended buyers walk away from homes with large debts and relatively little, if any, equity. Adding credence to that concern is the fact that FHA foreclosures are up to nearly 2.8%, while conventional foreclosures are at less than 1%. Add to that the obvious differential between fixed and ARM loans regarding delinquencies, and there are a lot of “Chicken Littles” waiting to say “I told you so.”
Note: there’s a closer look at the “housing bubble” in Housing Quarterly which should be in your mail box by Monday, September 30.

Home values rose roughly 5% during the first eight months of 2002, boosting Americans’ wealth by $620 billion, according to estimates of UBS Warburg, an economic consulting firm. But the rise wasn’t nearly enough to offset losses in the stock market during the same period. And, over the past 2 1/2 years, Warburg estimates that investors have gained $2.3 trillion in home values, while losing $5.5 trillion in stocks.
Homeowners will take $138 billion in “cash outs” from refinancing in ‘02, according to Mark Zandi of Economy.com, of which $83 billion will likely be spent according to Fannie Mae estimates.

Back To Top

Look Here for Previous Issues of Veritas