Veritas

   Will minority control become the ruling force in Michigan’s Legislature? Will trial lawyers successfully buy back control of the Michigan Supreme Court? Will Colorado and/or Arizona begin a national trend toward “urban growth boundaries?”
   The answers to these questions will, in all likelihood, have a far greater impact on the future of housing than whether the nation chooses Bush or Gore to oversee federal health care and education expenditures.
   In this article we take a look at these issues which will be decided November 7th.

Proposal 00-2 is “Poison”
   After two decades of declining political influence, Michigan’s big city mayors decided to halt the trend. Using the Michigan Municipal League (MML), they developed a ballot proposal that would require a super majority (2/3 vote) on any legislation affecting “municipal concerns,” which would effectively allow their allies to block any legislation with, as few as, 13 senators. As the Michigan Association of Home Builders puts it, using “taxpayer dollars to fund their drive, the MML has succeeded in placing their minority rule proposal on the November ballot. The amendment would allow 1/3 of the Michigan Legislature (either house) to block laws supported by a majority of lawmakers elected by the people. Proposal 00-2 is poison.”
   Of course, the League, along with its supporters, counters that the issue is “local control,” and it’s merely trying to preserve the concept of “home rule.” But an analysis of the potentially far reaching impact of “00-2” suggests otherwise.
   Reviewing the proposal for the Chamber of Commerce, Richard McLellan, of the law firm Dykema Gossett, wrote that the minority rule proposal would go into effect on legislation that “intervenes in Municipal concerns.” So, the question becomes, what is encompassed by “Municipal concerns?”
   According to McLellan, “all legislation would potentially be subject to the new minority rule standard” since the definition of “municipal concerns” is, both, “broad and vague.” Noting the proposal authorizes a minority to block laws that intervene, or increase “the scope of (Legisla-tive) interventions in the municipal concerns, property or government of a” municipality, the term “concerns” is so broad, “any bill passed by less than a 2/3 majority will be hostage to any municipal government challenging” it as a matter of interest to the municipality.
   McLellan also focuses on infrastructure, land use, economic development and growth issues which could well be negatively affected by the minority rule proposal. But one particular area of focus in McLellan’s analysis may reflect on the real intent of Municipal League leaders when they began their drive for minority control. The proposal would “lock in place laws as they exist and as adopted by Legislatures” elected under pre-2000 apportionment plans. “By preventing a majority of the newly apportioned Legislature from passing any law affecting ‘municipal concerns’ in effect, the proposal is designed to limit the Legislature from responding to new situations or shifts in political power reflected in shifting population,” McLellan concludes.
   It’s this issue, the declining political influence of Michigan’s cities, that may well be the primary catalyst behind the MML’s decision to begin this initiative. From the mid-1960s until 1980’s reapportionment kicked in, big cities’ political leaders were the real power behind the legislature’s controlling party’s politics, with influence that reached beyond their city’s borders. Since that time, however, those cities have experienced a dramatic decline in political influence as their populations tumbled (Flint and Detroit, for example, have likely lost 50% of their population since 1960) while suburban population soared.
   With the incredible upturn in new home construction during the ‘90s, today’s big city mayors see the proverbial writing on the wall. When the 2000 census becomes the base for legislative apportionment, cities’ influence will have declined even further.
   So, despite statements suggesting legislation that overruled local control became the issue, Proposal 00-2 is far more likely a preemptive strike against the residual effects of the continual suburbanization of Michigan.
   Because of the danger it presents to the state’s economy, Michigan’s business community is united in its opposition to the MML proposal. However, business is not alone, as its joined by many diverse elements, from the major association representing Townships and Counties, to public employee unions, to the NRA. Yes, even the National Rifle Association entered the debate, calling 00-2 “an insidious move by (Mayor) Dennis Archer” and a “veiled ploy to gut pro-gun statutes.”
   There is a certain cynicism regarding this issue for those who feel there’s a semblance of safety when the legislature is handcuffed. After all, if good legislation can be blocked with 13 Senators or 37 Reps, bad laws shouldn’t have a chance at passage. However, if Michigan is to continue its current level of growth, changes in the direction of state spending will be necessary. And, without question, any change will be a “municipal concern.”
   As MAHB puts it, if proposal 00-2 passes, “big cities will be given a veto over the passage of state laws controlling taxation, regulation of business and revenue sharing. Fast growing municipalities would have little say in these matters. Local governments will regain the power to pass additional and conflicting regulations on businesses and residents ... previously passed laws (since 3/1-00) could all be repealed.”
   Hopefully Michigan’s citizens won’t be confused by the misleading talk of local control ... because 00-2 is clearly a grab for political control by a few, at the expense of the majority of Michigan’s residents.
   Ironically, the housing industry’s position on 00-2 puts it at odds with one of its strongest public sector supporters. Burton Mayor Charles Smiley recently became president of the MML and, consequently, a major spokesman for the league’s initiative. Unlike the “Big City” mayors who spurred the initiative, Smiley’s city experienced a dramatic renaissance under his leadership, flourishing ever since he took office nine years ago. Once November 7th has passed, perhaps his MML colleagues will look to the example he set in Burton as the way to solve their own city’s problems. They’ll surely find that the Burton solution holds more promise than a constitutional amendment designed to trick the public into granting disproportionate influence to a special interest minority.
Keep Markman, Taylor and Young on the Supreme Court
   As Democrats and Republicans fight for control of Michigan’s “non-partisan” Supreme Court, the stakes are exceptionally high ... so high, that it’s likely the race will cost each of the six candidates $1 million.
   The lines are clearly drawn in the 3 court races along traditional political alliances: Labor unions and Trial Lawyers are siding with the “Democrat” nominees, as business and health care professionals are strongly backing the incumbents. The only digression from tradition comes from several Democrat Law enforcement officials who back incumbent, GOP nominated Justices Markman, Taylor and Young.
   The political hyperbole that’s been blasting the airwaves, at the expense of the State Republicans and Democrats’ soft money accounts, probably provide the best reasons for an end to soft money. Markman, Taylor and Young are not in the collective “pockets” of corporations ... nor are Fitzgerald, Robinson and Thomas best friends of Michigan’s criminals.
   There are, however, two real issues that are actually driving these contests: 2000 reapportionment and jury awards. On the former, the issue is quite simple. The Democrats don’t expect to get a “fair shake” from the Republican controlled legislature or Governor Engler when it comes to drawing new state and federal legislative districts. So, they want a friendly Court in which to challenge the reapportionment plan.
   It’s the second issue that’s a bit more complex, since it relates to dramatic differences in judicial philosophy.
   As noted in the July 31 Veritas, the three Republican nominated incumbents spoke to the MAHB Directors in July, primarily on how the current majority brought a sense of reason and judicial restraint to Court rulings. The final speaker that afternoon was Justice Markman who put his colleagues’ comments in perspective. He explained that, unlike in Michigan, Lawyers in several states have used the courts to overturn Judicial reform legislation. And, using several examples, he explained that many of the outrageous jury awards that make the news are far less likely to hold up under appeal in Michigan because reason is one of the courts guidelines.
   It’s that sense of reason that’s brought a massive infusion of Trial Lawyer dollars to the campaigns of the three challengers. And, some of the data in a Flint Journal article last Thursday is enough to make one wonder just why these races are so important to certain members of the legal community. For example, why have “attorney’s from a single law firm contributed at least $60,000 to each (Democrat) candidate (sources in Lansing say its closer to $80,000 each)?” Do they really expect to gain more than a quarter million in benefits by removing Markman, Taylor or Young from the bench? And why did Sam Bernstein, of 800-Call-Sam fame, personally donate the $3,400 maximum contribution to each of the three challengers?

Growth Boundary Initiatives
   On election day, Colorado and Arizona will vote on anti-growth initiatives with serious national implications. Both would create urban growth boundaries; force voter approval for any exception to the boundaries; and allow any person or group to file lawsuits to stop development.
   Both proposals are being promoted by the Sierra Club, hoping they begin momentum to carry to other states in 2001. It wouldn’t be surprising if Michigan became a future target.

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Job Creation study’s analysis ignores local economic reality

   According to a study on the nation’s labor market, Genesee County experienced “sluggish” job growth during the ‘90s, ranking 301st of 318 metropolitan areas. The report, by economy. com, said that employment in the area grew approximately 3% during the decade.
   Economy.com’s Chief Econo-mist, Mark Zandi, told the Flint Journal that the data by itself means very little, but in most cases, slower job growth suggests “slower growth in real incomes and living standards,” which mean a lot.
   However, median household income in the Flint area soared nearly 42% during the ‘90s, from $36,000 to $51,000, according to data from HUD, far beyond the national average. And living standards, at least as measured by growth in personal wealth, housing starts and values, along with retail sales, have also grown at rates well beyond the national average. But most critical is the fact that the jobless rate during the period fell from double digits to roughly 4.4%. Unfortunately, the economy. com study didn’t look at the actual affects the area’s supposedly slow job growth.
   The problem with studies that cover a national perspective, is the lack of knowledge about the individual areas they’re studying, particularly when related to overlapping. If an unemployed individual living in Montrose finds a job 50 minutes away in Grand Blanc, the metro area has another job. But, if a jobless Grand Blanc resident takes a new job in Auburn Hills, just 18 minutes away for example, the area’s unemployment rate may fall, but the new job doesn’t even show up as a Genesee County resident being employed.
   That’s the reason Flint area employment data have been so consistently distorted over the past few years.
   As we’ve noted in the past, according to the Department of Labor, the actual number of jobs in the Flint area fell by 10,100 from ‘98 to 2000, a reasonable assumption considering the loss of local GM jobs. However, the data also show a decline of 11,300 jobs held by area residents during the same period.
   Yet during those two years, the department’s data show the unemployment rate fell 16.7%, from 5.4% to 4.5%. Unless some 12,000 individuals either retired or moved away from the area, the data’s drastically distorted.
   It’s possible that the complete Census data will present a more realistic illustration of Genesee County employment. But, don’t be overly optimistic.

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The $230 billion surplus: real or fantasy?

   It was Saturday morning and CNN was going to a commercial break. In the transition, it showed a live shot of George W. Bush speaking at a rally in Florida, telling the crowd that immediately upon taking office he would ask congress for $48 billion in prescription drug and catastrophic health care benefits. The actual numbers did little to bother me ... after all, his opponent wants even more. What was upsetting, however, is that the Bush statement was so symbolic of the over all tone of politics 2000.
   There’s little doubt that this year’s election agenda was set by the Democrats. Just watch television and you see and endless barrage of Republican ads pushing the big ‘D’ issues, education and health care. Unfortunately, NO ONE! And I do mean no one, is talking about the traditional GOP issue, fiscal responsibility.
   Mr. Bush and Mr. Gore talk about projected trillions of dollars in surplus funds, and how to spend them. But in reality, both are guilty of the Bushian terminology, Fuzzy Math.
   Both candidates base their fiscal programs on projected surpluses over the next ten years. However, we’re already finding it evident that those projections are flawed because, even as I’m writing this, both major parties are playing politics with federal spending.
   Just look at the discretionary spending bill (programs subject to annual spending review). In fiscal 2000, the discretionary budget was $600 billion. Last spring, the GOP leadership promised to hold discretionary spending at the same level.
   But now, in the heat of a tight election when control of the house is in question and at least five GOP incumbent senators are in jeopardy, the pork barrel is open and discretionary spending, much of it targeted toward tight congressional districts, will likely run in the $650 billion range.
   Most projections suggest the surplus will be in the $2.2 to $4 trillion range over 10 years, if the economy continues to thrive. But, as a Business Week analysis put it, “if the porkathon continues, it could shrink by $800 billion.”
   Bush wants to cut taxes by $1.3 trillion, Gore by around half that. Both want to raise social spending dramatically. But their plans depend on budget surpluses that, in reality, may not exist.

Barry

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Taxation and Finance .. by Rachor, Purman & Tucker
Business and Nonbusiness Bad Debts

   It’s virtually inevitable that all of us will, at one time or another, incur financial losses in our business and personal lives. One frequently occurring type of loss is a bad debt. Whether made in the course of business, or to a friend or relative, sometimes a loan simply cannot be repaid despite the best intentions of the debtor and, if there is little or no prospect that repayment can be made in the future, you may have a bad debt.
   From a tax standpoint, the question is how to handle bad debts, and what steps to take to at least derive the maximum tax benefits available from them. Although this subject is fraught with complexities, we will outline the basic principles here to give you an idea ass to whether the bad debt rules may apply to you.
   The first step is ascertaining that a real debt exists. There must be a valid and legally enforceable obligation to pay you a fixed or determinable sum of money.
   Loans between family members or other related parties such as corporations and their shareholders, are particularly scrutinized to make sure they are really debts rather than disguised gifts, dividends or contributions to the corporation’s capital. Therefore, if you are contemplating a loan to a related party, you must ensure that you treat the transaction as a true loan by taking the steps that an arm’s length lender would take, such as putting it in writing and charging a reasonable rate of interest.
   It then must be determined if, and when, the debt has become totally or partially worthless, i.e., a bad debt. The problem here is that the IRS often requires taxpayers to play a guessing game. If a taxpayer claims a bed debt loss when nonpayment is only probable, rather than a virtual certainty, the IRS may disallow the loss as premature because there is some possibility of repayment in a later year. On the other hand, if the taxpayer waits until repayment is clearly hopeless, the IRS may maintain that the debt was really worthless in an earlier year, and the loss should have been taken then.
   Because of potential statute of limitations problems, we generally recommend that the loss be claimed in the earliest possible year that it can reasonably be argued worthless. There are a number of facts which might indicate worthlessness, including the debtor’s bankruptcy, but no one of them is decisive; it is the totality of circumstances that is determinative.
   Once it is established that a bad debt exists, the business or nonbusiness nature of the debt decides the outcome. As you might expect, a business bad debt must be created or acquired, or become worthless, in the course of your trade or business. If you conduct a business in the form of a corporation, generally any debt held by the corporation is a business debt.
   Any debt not falling into the business category is a nonbusiness debt, which must be considered completely worthless before a loss can be taken. A loss on a business bad debt, however, can be taken when partial worthlessness is established. Furthermore, nonbusiness bad debts are subject to the limitations on capital losses. Business bad debts, on the other hand, are deductible as ordinary losses, in full, against your other income.
   As we said above, this is a complex topic and the preceding discussion can only give a rudimentary overview of all the tax rules involved. If you are, or may be, in a situation where these rules could affect you, please be sure to contact your tax advisor.

R, P, & T

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

   We can’t help but love the continual barrage of tracking polls related to the presidential race ... because, unless there’s a landslide, they probably mean nothing. Look, for example, at the three polls taken from October 6th through 8th:
  Poll              Bush    Gore
  CNN/USA   49%    41%
  Voter.com    43%    41%
  NBC/zogby  42%    43%
and all supposedly have a margin of error within 4%.
   The problem? According to a political reporter on CNN last week, less than 35% of Americans are willing to answer the polling company’s questions ... thank you telemarketers!

   We couldn’t help but take note of a October 7 Free Press article titled “Dead join the flight to the suburbs.” It opened, “half a century after the living started leaving Detroit, the dead are following.” It focused on a Clinton Township cemetery that has received remains of more than 1,000 former Detroiters in the past five years.
   According to a spokesman for the National Funeral Directors’ Association (FDA?), no one keeps data on after death migration, but Detroit may well rank first in the nation.
   Last fall we found that Detroit has just 14.3% of the jobs in the metropolitan area, the lowest percentage of any of the 92 largest cities in America. Now we discover it’s #1 in Flight of the Dead (movie coming 5/01).
   “Nothing to worry about,” according to Mayor Archer. “To my knowledge, not one has changed his voter registration, and I’m confident they’ll be out in mass to support Al Gore and proposal #2 on the (Nov.) 7th,” he concluded.

   Another note for our Sprawl is Good archives. A recent News article, “Growth helped cut crime,” was subtitled “Afflu-ent new residents bring sprawl, not trouble.” The story told of Livingston County’s substantial drop in serious crime since ‘90, despite the fact it’s the fastest growing county in the region. According to Sheriff Don Ho-man, “many residents spend hours commuting, leaving little time for getting into trouble.”
   No time for trouble? The Al Gore “livability agenda” says they wouldn’t be getting into trouble, but would be spending the time they waste commuting by reading to their kids ... This is all so confusing.
   A tax on “mad cow” products? On this morning’s WRIF morning show, Trudy Daniels reported that Britain is considering a tax on fatty foods. Well, the colonies should take note. McDonalds harms more children than Phillip Morris. And, while we’re at it, lets get those 2 for a dollar 1/4 pounders with cheese off the TV screens.

Association News and Events BAMF Elections; Christmas Party; Parade

   At last week’s General Membership meeting, BAMF President Steve Lissner presented the Past Presidents’ Council report for 2001 leadership:
   Current directors: Gil Cramer, Dave Johnson, Doug Graham, Larry Corbett, Dan Fralick, and Keith Kirby were renominated for the positions they currently hold. Newly nominated directors are Steve Edwards (1989 President) and Al Kurmas.
   For officers, the Council nominated Andria Auker to rise from 1st VP to President; Gil Cramer to move from Secretary to 1st VP; and Steve Edwards as Secretary. Bob Vance and Larry Corbett will remain as 2nd VP and Treasurer.
   The Council also unanimously supported a proposal calling for the 2001 Directors to present a by-laws change to the membership proposing “more practical volunteer leadership structure and electoral process,” for action by early fall of next year.
   Following the presentation of the Past Presidents’ report, a motion was made to close the nominations. Since the motion passed unanimously, the Past Presidents’ nominees are, in reality, already elected as next year’s officers and directors.    Also announced at the meeting was a new schedule for ‘01 meetings, that will allow the association to adapt to the changing environment of the building industry. A look at meeting attendance in May, June and the beginning of September made it obvious that a change was necessary ... so, beginning in 2001, we’ll no longer be meeting on the second Wednesday of each month. In fact, rather than normal meetings, we’ll be setting up every session as if it were a special event, beginning with a late January meeting, followed by the “exhibitors’ night” in late February or early March. We’ll be setting up the first half of ‘01 by the beginning of December ... look for details in upcoming Veritas’.    The format of recent Christmas Parties, less formality and held on a weekday, has been exceptionally well received, so we’re continuing it this December 13th ... only this year, it will be held at the Woodfield Clubhouse, where we held the two most recent golf outings.
   The evening will still open with a hosted bar and phenomenal hors d'oeuvres, a top of the line dinner menu, a very short installation program, music and comedy entertainment. And, as a show of appreciation of member support, it’s still $10 for each member, $25 for guests. Look for the flyer in the October 31st Veritas for further details.
   According to reports from the first weekend of the Parade of Homes, traffic was exceptional despite Saturday’s hail and Sunday’s rain and snow ... and, the few participants we spoke with this past Saturday said weeknight traffic was surprisingly strong.
   This past weekend we even had two hours of remote broadcasts from Parade models on WCRZ (Cars 108)

Economic Update: Looks like growth may well have returned

It’s going to be interesting to see the release of third quarter economic growth data since Gross Domestic Product may well have grown beyond expectations. When we saw the September employment report, it added credence to what’s been written in this column for the past several issues: That the chest beating by Federal Reserve policymakers, claiming victory over the booming economy, was likely premature. And, when the employment report was followed by the retail sales report, the evidence continued to grow.

Job Growth Up; Unemployment falls
   The U.S. economy created 252,000 jobs last month, 10% above analysts expectations, driving the unemployment rate back below the 4% level. September’s data, following a net job loss in August, which had been brought on by the end of census employment and the Verizon strike, rather than any direct economic factor. It’s growth was primarily due to an upsurge of 200,000 new jobs in the service sector, and the return to work by Verizon. Still, there were an additional 27,000 lost census jobs.
   While analysts were expecting the jobless rate to remain at August’s 4.1% level, it actually fell to 3.9%.
   The labor report even had some good news on the inflation front. Despite the fast pace of job growth, average hourly earnings rose a very modest 0.2%, or 3 cents per hour, to $13.83.

Retail Sales
   As we continue to point to Americans’ consumption as being responsible for 2/3 of U.S. economic activity, the fact that retail sales soared at a 0.9% rate last month is another indicator that the third quarter was stronger than most had expected. The increase was higher than expected, and suggests that gasoline prices are not putting a damper on consumer activity.
   Furthermore, the day the Commerce Department released last month’s sales data, the University of Michigan’s survey of consumer attitudes showed a negligible decline as it remained at historically high levels.

Import; Wholesale Prices Rise
   What’s fascinating is that the continual upturn in spending and exceptionally high levels of confidence that remained evident last month, did so as prices rose at higher than expected rates. Although the Consumer Price Index won’t be out until tomorrow, it’s expected to mirror the price data released last week.
   Import prices soared 1.5% during September, 2 1/2 higher than expected. However, excluding petroleum prices, imports actually fell 0.3%. Wholesale prices were up 0.9% for the month, also based primarily on oil. However, the core rate of wholesale inflation, minus food and energy, was 0.3%. But even that rise was somewhat misleading, as it reflected new model year auto costs.
   Eliminating the model year end bookkeeping procedure, it was up just 0.1%.

Housing Industry News’ Update

   “Severely restrict or eliminate all apartment complexes in Grand Blanc.” Those were the words of a Grand Blanc resident to the Township’s planning commission, as reported by the Flint Journal in an article about a proposed apartment complex for the Hill/Genesee Road area earlier this month.
   Despite the fact that the proposed development is on a parcel that’s been zoned for multi family use for nearly a decade, the local residents were out in force to stop this development that would “lower existing property values, overcrowd schools, make their homes targets for break-ins and jeopardize their children’s safety.”br>   What’s fascinating about the anti development residents is that they moved into a subdivision with apartment buildings to their immediate west and one of the county’s largest apartment communities just a half mile to the east. Equally fascinating is the “resident” quoted at the beginning of this note: Joan Cockerton. If the name sounds familiar, it’s because she became well publicized as the protector of “Deer Park” in the initial stage of Super K-Mart/Kohls development plan.

   According to a recent brief in Business Week, “the boom that lifted home ownership to record levels has spread to the second home market.” Sales of existing 2nd homes hit 377,000 last year, a 27.4% rise from ‘95, while the median price of vacation homes is up 49% since ‘91.
   The ‘97 law permitting sellers to exclude $500,000 in capital gains on home sales is credited for the rise ... subsequent to the changes, many families were able to sell homes, downsize their permanent residence, and use the remaining gains for a vacation paradise.

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