Judge adds $20 million
in Novi Case
This past winter we wrote of an Oakland County Judge’s ruling that the City
of Novi, after reneging on an agreement with a developer, was responsible
for a failed housing project and owed the developer $40 million. The case
involved an agreement by the city to build a new road to one end of the “Vistas,”
a “new urbanism” style development begun in 1994. The following year
the development company, Sandstone, filed suit against the city maintaining
that the Vistas was bankrupt due to Novi’s failure to follow through on its
promise as delays in road work, along with barricades placed by the city destroyed
the company’s ability to sell homes.
This past January, Oakland Circuit Judge Barry Howard ruled that Novi abused
its authority and was responsible for the development’s failure. Subsequently,
he (Howard) recommended the two parties enter mediation and come to an out
of court settlement.
This past summer Howard lowered his judgement by $6.7 million. Then, at the
beginning of this month, Howard added more than $19 million in interest and
$1.3 million in legal fees to Novi’s bill, giving the city a debt that’s equal
to 81% of its annual budget, with the interest on the debt continuing to rise
each day as the appeal goes on.
As is always the case in legal actions, there are two opinions on who’s right.
An attorney working on the appeal told the Detroit News that they (the
defendant) continue to think they have strong legal arguments to present.
However, an independent attorney consulted by the News who’s familiar
with the case, not only questions the danger to the city but further notes
that the judge who made the ruling is “an elected official” who must face
all the county’s voters, and wouldn’t make that type of decision “lightly.”
Note: The issue may have cost one elected official her job. Theb Mayor
was defeated in August in a 3 person primary!
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Government Policy and a fragile economy
After hearing that the financial markets were plunging at a disastrous rate
last Friday, I quickly went on line to see what was going on. What I found
was more infuriating than worrisome, and it once again shows how fragile our
economic well being is in the face of naive public policy actions.
You’d think I’d get used to it, but the blatant incompetence of public policy
decision makers never ceases to amaze me: From the idea that raising interest
rates at the end of the ‘70s would slow inflation when, in fact, it spurred
the cost of living and budget deficit through higher financing costs and increased
transfer adjustments; To the removal of tax incentives from commercial real
estate which brought three major industries to their knees; public policy
brought the recessions of 1980 and ‘91.
Last Friday’s fiasco was primarily a result of more bad policy, and like Volcker’s
Federal Reserve and and the backers of the Tax Bill of ‘86, the proponents
never looked at the likely consequences.
The devastating nature of Friday’s price report was primarily a result of
tobacco lawsuits as the price of cigarettes rose 9.5% as companies struggle
to pay their legal losses. Because tobacco products remain in the Consumer
Price Index, their rise will cost Americans billions and billions on a continuing
basis as government transfers and labor costs reflect cost of living adjustments.
Ironically, the States’ Attorneys who brought these suits claim their actions
were attempts to recoup the public and economic costs of smoking.
Barry
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Critical Timber Industry Update
A considerable amount of attention has been focussed on the timber industry
during the past two weeks, enough to support this whole column, and little
of it can be considered favorable to the housing industry. So, let’s begin
with the worst:
Although the Wall Street Journal referred to it as his “plan
to leave an environmental legacy,” the President’s desire to designate as
much as two-thirds of the nation’s road-free federal forests as permanently
“off limits” to logging, mining and development may well be geared, far more,
toward building enthusiasm among environmental groups for his chosen successor.
Currently, some 35 million acres of federal forests are considered protected
and another 60 million have no roads for access. The Clinton executive order
will keep another 40 million acres off limits.
Clinton’s plan received an enthusiastic endorsement by supporters of environmental
protection, and it’s hard to believe that any attempt to energize that community
was not done with focus on the stumbling Gore campaign.
Just prior to the Clinton declaration, a Federal Judge in Illinois
ordered the government to cease certain timber sales that were previously
exempt from environmental review. The ruling, which continued the steady reduction
of the capacity to log on federal lands, was a definite blow to the timber
industry.
In a suit brought by a pair of members of “Heartwood,” an environmental group,
the U.S. district judge ruled that the forest service violated environmental
law in a 1992 alteration to its “categorical exclusion” rule, which allows
companies to harvest a limited amount of timber without the completion of
environmental impact assessments. The ‘92 revision of rules had raised the
size of allowable sales under the exclusion.
The Illinois ruling was the second similar ruling in recent months. A month
earlier, a Seattle judge ruled the Forest Service violated the law for not
performing wildlife and plant studies prior to putting timber up for sale.
The one positive piece on timber policy comes from the NAHB report
that its attempt to keep the Canadian softwood agreement from being renewed
in 2001 got a boost as Trade Ambassador Peter Scher suggested both countries
"get out of the business of regulating lumber trade."
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The Seinfeld
Section (it’s still about Nothing ; in particular)
When Mayor Woodrow Stanley won re-election four years ago, he supposedly
received a congratulatory call from President William Jefferson Clinton. Now,
as he’s facing another contest in less than two weeks, we’re wondering if
he’s been struck with Clintonitus? In yesterday’s televised debate, the Mayor
apparently closed with a claim that Flint is experiencing a “housing
boom.”
If asked about the statement (Flint’s had NO housing starts this year according
to Housing Consultants) his only possible answer would be the Clinton-esque,
“Well, that depends on the definition of Boom.”
Talk about the “silly” season? Donald Trump, the first Builder/Developer
to actually seek the U.S. Presidency, apparently will run, only if he can
win! And he has noted a poll that says Americans with inquiring minds want
him in the White House.
But despite the “National Inquirer” poll, the Donald has a most serious
problem. Yesterday Mrs. Trump #2, aka Marla Maples, made it clear that she
would “Tell All” if Mr. Trump becomes a serious candidate because the American
people have a right to know (thought that’s what the Inquirer was for)
just what kind of a person he really is. Problem: As terms of her divorce
settlement, Ms. Maples is forbidden to talk about Trump’s personal life, we
assume under threat of a personal visit from Trump proponent Jesse the Body.
Stay tuned. This could get better than Monicagate.
Back to one of this issue’s featured items: Does it strike anyone
as unusual that, with the heavy emphasis on smoking related health problems,
tobacco remains as one of the items making up the cost of Living index?
Furthermore, since the increase in the cost of cigarettes played such a critical
role in this year’s hike in the Consumer Price Index; and, since the higher
tobacco prices result from the lawsuits against tobacco companies; and, since
the CPI rise relates to higher Social Security payments. Do you suppose the
Attorney General of Florida, if campaigning in Miami Beach, will take credit?
We were kind of surprised when a Flint resident brought in a “Stanley
for Mayor” flyer titled “The Big House.” The publication attacks Mayoral
challenger Scott Kincaid for having a large second home, on a lake near Traverse
City.
However, when most followers of Flint City government hear the term “Big House,”
they immediately think of the place where so many of the Mayor’s appointees
will end up. And that “Big House” is on Cooper Street, Jackson, a long way
from Traverse City.
Does an increase in the number of homes have any relationship to a
rise in population? Off hand, one would think the answer’s an obvious YES!
However, looking at the population figures published in the October 10th Flint
Journal, we may well come up with another answer.
From 1970 through ‘’79, the City of Flint issued permits for 2,765 new housing
units, according to old records from the Genesee County Metro-politan Planning
Commission. However, during the same period, the city’s population fell from
193,300 to 159,600, a 17 percent decline.
According to the Detroit News, “Eurostat, the statistical
agency of the European Economic Union, reports that the French are the heaviest
drink-ers in the union.”
The News noted that the report was “no shock to France’s neighbors”
....but we think that it goes a long way to explaining the French affection
for comedian Jerry Lewis.
Need we say more? Donald Trump; Warren Beatty; Cybil Shepherd; Arnold Swartzenegger;
Hulk Hogan; Jesse Ventura; Geoffrey Fieger; and Steve Forbes...all running
for high public office.
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Association News Update
As the final parade of the millenium came to an end this past Sunday,
reports of exceptional traffic continued to pour in. Despite recent concerns
about rises in mortgage rates, the market appears exceptionally strong in
the area, as parade traffic, along with building permit activity, continues
to show.
The fall parade also presented the first opportunity to advertise the association
web site, bamfhome.com. Also, for the first time, we began monitoring hits
during the last week, and were pleasantly surprised at the number this past
week.
Prior to the end of the year we’ll be holding a builders’ meeting to plan
next year’s parades. Although all previous parade participants will be invited,
we urge anyone wishing to be involved to look for information on this page
in subsequent Veritas issues.
At the October 13th meeting, prior to being entertained
by “Amusionist” (comedian/magician) Al the Only, the following nominations
for association leadership in 2000 were presented:
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Economic Update: Friday showed
our economic fragility
Anyone reading this column during the past few months is aware that, unlike
critics of the Federal Reserve, we’ve continuously noted that the seeds of
inflation are very evident, from import prices, to slower productivity gains,
to currency strength. However, there are few signs any of those seeds are
beginning to sprout.
What’s troubling is the lack confidence expressed by the financial community
in the nation’s economic health. Last Friday we were given an example of the
type of panic that sets in when a rather meaningless expression of inflation
explodes on the scene. On October 15th the Labor Department released its Producer
Price Index (PPI) for September, and the markets went berserk. On the surface,
the report was disastrous as wholesale prices rose 1.1%, the largest gain
in 9 years and more than double analysts’ expectations. And the core rate
of wholesale inflation, minus the volatile food and energy sectors, was up
0.8%, also twice the consensus forecast.
However, when we look at the core rate, we can quickly determine that it lacks
any evidence of any serious inflation problem since it’s rise was totally
related to two items, autos and tobacco.
Without autos and cigarettes, the core rate was up a mild 0.1%.
Historically, car prices rise in September as new models are introduced with
higher sticker prices. This year they rose 2% and were responsible for approximately
0.2% of September’s rise. However, last month’s prices appear distorted from
a seasonally adjusted perspective, since they’re actually 0.5% down
during the past year.
Then there’s cigarettes, up 9.5% (18 cents per pack) for the month, due totally
to increased taxes and paying off the legal costs on the myriad of lawsuits
against tobacco companies. In all, the rise in cigarette prices was responsible
for a 0.5% rise in the core PPI.
Unfortunately, within minutes of the Department’s release, analysts were predicting
the report would assure Federal Reserve tightening action in November.
The markets tumbled during Friday’s session, and remained apprehensive in
expectation of Tuesday’s Consumer Price report. Upon finding that consumer
prices were in line with expectations, rising 0.4%, (core rate 0.3%), the
markets rallied all morning before falling back in the afternoon.
Again, tobacco was the primary culprit. However, if the rise would have been
much higher, the panic would have ensued, despite the circumstances, showing
just how fragile the economy really is.
Quite frankly, Friday’s disaster, which could easily have become Tuesday’s
Armageddon, was created by public policy as a number of States’ Attorneys
(with backing from the White House) found it pollitically prudent to financially
attack an important segment of the U.S. economy, with no concept of the potential
economic repurcussions. They may have dodged the bullet this time, but they'll
be back!
Due to the rise in the consumer prices during fiscal ‘99, Social Security
recipients will get their largest raise in three years. The 2000 increase
of 2.4% will be nearly double last year’s rise of 1.3%. Furthermore, for working
Americans, the maximum annual earnings subject to fica taxes will rise to
$76,200 from $72,600. (see related “Seinfeld” note)
September’s data shows a drop in employment of some 8,000 jobs, while
wages established their largest gain in 16 years according to the monthly
Jobs’ report by the Department of Labor. Analysts had forecast a 218,000 job
gain for the month. Some 9,000 service jobs were lost, while manufacturing
jobs were off by 21,000. Construction gains, however, totally offset the manufacturing
loss. But the real culprit was Hurricane Floyd, which cost the economy 56,000
jobs according to Labor. Still, the unemployment rate remained at 4.2%, the
lowest in 29 years.
A bigger surprise was the average hourly wage rise of 7 cents to $13.37, well
above the 4 cents anticipated and the largest monthly rise since fall of 1983.
And average weekly earnings rose to $459.93 from $458.85 in August.
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Housing Industry/Mortgage Market Update
On Monday, Housing Consultants of Clarkston released its Building
Department survey for September, showing that Genesee County continues the
kind of increase in building permits it’s been experiencing all year. Through
the third quarter of 1999, permit activity is up 55.4% as compared to 1998.
Of course, as we’ve said in previous issues of Veritas, much of the
increase is related to Multi-family rental which currently represents 21%
of the total (there were no rental permits reported in 1998) with 410
of the 1,957 permits in that sector. However, if we remove the rental sector
from consideration, permits are still running nearly 23% above ‘98 levels,
with 1,547 single family and condominium units.
In total units, the Flint area is running 698 permits ahead of ‘98, while
all of Southeast Michigan’s eight county region is up just 188 units from
last year. Only Macomb County (+ 9.5%), of the other counties in the region,
is showing any growth in activity. In fact, for the first time in memory,
Genesee County has surpassed Washtenaw County in permit activity this late
in the year.
The areas within the Grand Blanc and Fenton Township borders continue to dominate
local activity, with slightly over 50% of the county’s total (44% of condo
and single family). Mundy, Davison and Flint Townships, along with the City
of Burton, are all experiencing strong housing activity as well.
On a rather fascinating note, the municipality with the biggest increase for
the first three quarters of this year, in comparison to ‘98, in the City of
Fenton. Last year at this time the City had issued just 7 permits....this
year, 222; for a whopping 3,171 percent increase.
With continuing concerns related to potential negative effects from
rising mortgage rates, NAHB’s Housing Market Index (HMI) fell three points
in October in comparison to last month. All three components of the HMI, current
sales, expectations of sales over the next six months, and traffic in models
were down, according to the association’s monthly survey of member builders.
However, the HMI found that the scores for current sales (77) and anticipated
sales over the next six months (80) remain at historically high levels (any
score over 50 means more builders view conditions as “good” than “poor”).
Only traffic, which fell 4 points to a score of 50, was even near average.
However, traffic had been running well behind the other components for a couple
of years.
The composite index of 70 is the lowest since March and April. The HMI has
remained in the 70s since hitting 71 in June, 1998. Previously it had only
reached that level in December, 1993.
The mortgage surveys last week found that interest rates were up,
and with the subsequent performance of the bond market they’re likely to rise
again.
The Freddie Mac average hit 7.85%, up from 7.77% three weeks ago, while
the local survey found an average of 7.62%, up from 7.38% in late September.
Most major lenders quoted 7.625% with two points. The market remains particularly
volatile as long term rates soared Monday and Tuesday.
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