Veritas

It was roughly fourteen years ago when Money Magazine unveiled its annual ranking of the nation’s best places to live for the first time. In that inaugural issue, “Money” listed over 300 cities from “best” to “worst,” and at the very end of the list was Flint which, at that time, was in the midst of a virtual depression and seemed totally unable to resurrect it’s economy, and residents were still leaving the area in massive numbers to search for employment. Despite the obvious malaise, the community’s leaders were so offended, “Money” became a proverbial “4 letter word” in the area. And, to show support for the community, local radio station WTRX fought back by sponsoring a public burning of copies of the issue. Well, last month “Money” published its 2000 issue of “Best places to Live,” and probably is worthy of another public burning due to the city it ranked as the “Best:” Portland, Oregon. Yes, the mother of growth boundaries and the city dubbed the “darling of urban correctness” by Britain’s Economist is “#1.” As the Associated Press says it, “citing short commutes, small school classes, corralled urban sprawl and pedestrian friendly blocks, Money lists this city as the nation’s best.” The problem is, even under Money’s criteria, this ranking is absurd. Economically, the city is extremely expensive, and income is barely above average. Also, it’s high tech employment base is in serious jeopardy, evident by stock values and bank-ruptcies. It’s homes are priced out of reach, dampening growth in values. In fact, even when compared with Detroit (below),

Detroit/Portland: Comparison of Money’s Criteria

	Portland	Detroit	U.S. ave.
Catagory Days with Precipitation	152	133	110
Median Home Price	$165,700	$140,600	$128,570
1 year appreciation	3.1%	8.3%	5.8%
5 year appreciation	31.9%	47.5%	26.7%
Med. household income	$53,700	$63,200	$50,200
Cost of living index	111	105.2	104
Unemployment rate	4.1%	3.7%	4.1%
Per pupil spending	$5,270	$6,976	$5,387
Student/teacher ratio	20.1	20.1	16.95
Quality of life
“leisure index” ranking	45	14	91
Commute Time	20.7	23.1	19.23

Source: Money Magazine and Federal Government

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Building Officials’ 2 Day Training Builders Association Members Welcome

   The Genesee County Building Officials Association (GCBOA) is offering two days of professional training on Wednesday, January 17th and Thursday, January 18th, at the Holiday Inn Gateway Center. They’ll be having two classes each day, running from 9:00 a.m. to 4:00 p.m., with a noon to 1 p.m. group lunch included in the price of $90 per day ($65 for GCBOA members). Workbooks are also included in the price.
   Each class is limited to the first 60 registrants on a first come, first served, basis.
   Perhaps the class which would be of most interest to association members is the Wednesday session on the International Residential Code (IRC). Although there will be a few minor differences, the Michigan Residential Code is being taken directly from the IRC. So, learning that code will basically give a builder nearly a complete understanding of the next code in the state.
   The IRC class will be taught by Mike Westfall, service coordinator at BOCA’s Midwest Regional Office. On Thursday, Westfall will be teaching a class on the International Building Code.
   The other two classes will be taught by Dennis Smith, Building and Zoning Administrator for the City of Grand Blanc. On the 17th, Dennis will present a course titled “Building Construction and its Pitfalls.” The following day he’ll be conducting a “Residential Plan Review” course.
   Both days will begin with registration and a continental breakfast beginning at 8:30 a.m.
   The registration deadline is January 4th. If you’re interested, Barry has registration forms at the BAMF Office, or call Jan Walling at the Flushing Building Department, 810-659-5665.

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Economic expectations often unrealistic

   I had to laugh this weekend when former and (perhaps) future President elect Bush said the Clinton administration may be leading us into a recession (after all, it was Dubya who said Americans, not the administration, was responsible for our record breaking expansion).
   Bush’s comment made me think of two telephone conversations I had last week, both regarding 2000 housing construction data in the Flint area. I explained that starts will likely be off 7 to 10 percent from last year’s record pace. That’s right! DOWN! We’re only looking at the second best year for housing starts in 27 years.
   Unfortunately, both callers were looking for another rise because it sounds better ... You see, if we would have had 1,900 starts last year, it would have been a 5.8% rise in activity over 1998. But instead, we were up 14.6% last year, so this year’s 1,900 represents a 7.2% drop. The year may be exceptional, but it just doesn’t look good.
   Now, back to Mr. Bush who’s obviously nervous. Eight years ago his father blamed Federal Reserve Chairman Alan Green-span for holding the economy down through restrictive monetary policy, resulting in the elder Bush’s loss to Bill Clinton. Now, as the younger edition is about to reclaim the family legacy, Mr. Greenspan is still in power, and after six interest rate increases his policies seem to be cooling the hottest economy in history. Could this be Deja Vu?
   The economy cooled to 2.4% growth in the third quarter after growing at a 6% rate for 18 months. But 2.4% is nearly the exact growth target the Fed has maintained for roughly three years. Consumer confidence is down (likely due to the stock market’s doldrums) but it doesn’t seem to be affecting consumer spending. Auto sales are down, but still at incredibly high levels. Real estate activity is down, but sales are on track to break the 5 million unit mark for the second time in history.
   So don’t get so uptight Mr. President elect(?). Remember, Greenspan owes you one ... he may even cut rates before you get blamed. That is, unless you cut taxes by $1.8 trillion.

Barry

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Taxation and Finance by Rachor, Purman & Tucker CPAs
Election to Expense Business Assets

Despite generous long-term benefits from accelerated methods for depreciating assets, many small and medium sized businesses find it difficult to come up with the cash necessary to purchase new assets to improve their operations. Fortunately, many businesses have the option of taking an immediate write-off of up to $20,000 in the year of the purchase for ‘00, and $24,000 for the year 2001. The option is called a section 179 election.

Who is eligible for this election?
All taxpayers other than estates, trusts, and specified noncorporate lessors may make a Section 179 election. Therefore, the election is available whether one operates as a sole proprietorship, corporation or partnership.

What type of property is eligible for the election?
The election is generally available for tangible property that is depreciable, provided it is personal property and is purchased (i.e., not received by gift or inheritance). However, the election cannot be made if the property is purchased from a related party. Also, the property must be used in a trade or business. Tangible property does not include items such as goodwill, films, videotapes, or sound re-cording, and most software.

When and how is the election made?
The election to expense must be made by the due date of the return for the tax year in which the property is placed in service, and is made on Form 4562, Depreciation and Amortization, which is attached to the tax return. Also, the election may not be revoked unless the IRS consents.

What is the Maximum available deduction?
This election is subject to two limitations: First, the election cannot exceed the income from the business. However, any amount disallowed under this limitation may be carried forward to a subsequent year; Second, the maximum deduction available for any particular year is generally limited to a set statutory figure (like the previously noted $20,000 in ‘00). However, this amount is reduced on a dollar-for-dollar basis if the cost of qualifying assets during the year exceeds $200,000. For example, if the taxpayer buys $205,000 worth of qualifying assets, the maximum Section 179 deduction for 2000 is $15,000 since the $20,000 maximum election is reduced by $5,000 ($205k less $200k). Also, the basis is reduced by the expensed amount.

What if I do business in an empowerment zone?
Special rules apply for companies that meet detailed enterprise zone requirements. These enterprise zone businesses may be eligible for an extra $20,000 write off.

What if property is no longer used in the taxpayer’s trade or business?
Some income consequences may result. For example, assume a taxpayer expensed assets worth $5,000, and 4 years later, no longer predominantly uses the assets in the business. Also, assume that if he had not made the election, he would have taken $3,000 worth of depreciation deductions over the 4 years. In this situation, taxable income of $2,000 ($5,000 less $3,000) results.
As you can see, making a Section 179 election makes a lot of sense for many businesses. Please contact your tax preparer if you have any questions as to how it can be effectively used in your business.

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Beyond Seinfeld: It’s still about "Nothing" in particular
If only they had video tape replay in voting booths (T plus 2,419,200 seconds & count)

There’s a football analogy for nearly everything in life, and the Florida election fiasco is no exception. Watching the action in Leon County Circuit Court this past weekend (during football commercial breaks), there were two clear impressions. First, that the Bush attorneys were attempting to “run out the clock” with long and boring testimony; and second, that Gore’s attorney’s were in a no huddle, hurry up offense. But by the second game Sunday it became evident that the real Bush legal goal was to make sure the referee would not allow the use of video tape replay.
If it’s good enough for the NFL, then it ought to be good enough for the nation ... let’s put a video recorder in each voting booth.

   The new senator from New York, and a whole lot of others, want to eliminate the electoral college. But when we look at the 2000 presidential election, it becomes clear that the Constitution’s framers new what they were doing.
   First, we have to remember, the President is the CEO of the “United States,” not the people of the United States. Now, if we look at the popular vote, we understand just how week Al Gore was in most states.
   It’s true that he won the popular vote by more than 300,000 votes. However, he won New York and California, two states which are hardly representative of America, by more than 2.8 million. So, when we look at most of America, Bush actually had some 2.5 million more votes than Gore.
   The electoral college brings a semblance of balance to the elective process, and any attempt to eliminate it would put far too much influence in a few highly populated states.

   One couldn’t help but find it quite amusing when Dubya, in an interview at his ranch, said “Dick Cheney and George Bush will be President and Vice President of the United States.” By what’s transpired in the past 4 weeks, it looks like he’s correct in his order.

   One final election question. If Al Gore loses the court battles and Bush becomes President, does that mean the he’ll have to return to his home state (TN) that snubbed him in the election and will, in reality, have provided the margin for Bush’s victory?

   On some more important, local issues. How about the the first area women who were arrested in the city of Flint’s “red zone?” If you remember, the zone was set up on the city’s East side in an anti-prostitution ordinance. The two women, a mother and daughter team aged 35 and 19, were picked up by undercover police, for “flagging down cars” on N. Franklin, and pleaded guilty to prostitution charges.
   Both were placed on probation, given a map of the zone, and told it would be a violation if they were caught within the zone’s boundaries.

It’s been five years, but O.J. Simpson continues to get a lot of attention in his new state of Florida. His comment about TV coverage of the “Ryder” truck shipping ballots to Tallahassee was the lead quote in News-week’s “perspectives.” Said the Juice, “This is boring! Now I know what people went through when my Bronco was goin’ up the freeway.”

Association News and Events Dates; January meeting moves to Broadstreet

   Through most of its 55 year history, the Builders Association of Metropolitan Flint held its General Membership meetings at G-6378 Pierson Rd (just east of Elms). Whether the facility was called the Country Squire, Bosley’s, or the Urban Cowboy (complete with mechanical bull), the association was there during all, or part of, the final four decades of the 20th Century.
   In January, to kick-off our new member friendly schedule, we’ll return to the restaurant, now known as “Broadstreet North,” for a special event that will focus on the upcoming adoption of the first “statewide” building code.
   Our featured speaker for the evening will be Michigan’s Code Chief, Henry Green.
   Set for Wednesday, January 31st, the evening will begin with cocktails (social hour by Knapheide Truck equipment) at 6:00; dinner at 7:00; with the formal part of the meeting beginning by 8:00. Because of the need to give the restaurant with a head count, it will be necessary for members to make reservations, which we’ll begin taking after the first of the year. As always, members’ meals are free (we will be raising the price on guest dinners, however).
   Look for further updates on the January 31st meeting in the months’ two issues of Veritas.

   February’s Exhibitors’ Night will, once again, take place at Bonaparte’s in the Great Lakes Tech Center (South Saginaw at Atherton). However, this year it will be held as a “Mardi Gras” event on Tuesday, February 27.
   Since its introduction in 1998, this event has grown tremendously, and had 44 exhibitors, along with more than 240 attendees last year. This year, we’re making the evening even bigger, and will be increasing our guest list to make it even more beneficial to exhibitors.
   Space reservation forms will be mailed to previous exhibitors by the middle of this month, and placed in the first January issue of Veritas. However, if you did not participate last winter, but wish to in 2001, call 603-2200 to be included in the December mailing.

Economic Update: Is the Fed getting ready to cut rates?

   With the economy continuing to show signs of cooling (nearly every report for the past two weeks adds credence to that belief), and with third quarter cost of living data looking good, a growing number of analysts are talking about the likelihood of the Federal Reserve reversing its focus and lowering interest rates as early as this month.
   Despite continued growth in consumer spending, all economic data released in November suggests an economy that seems to be slowing down, but a look behind the raw numbers gives cause to hold all bets.
   For example, personal income fell 0.2% in October, its first decline in two years. However, that was on the heels of an exceptionally strong rise of 1.1% in September. So, despite October’s decline, personal income is up more than 0.8% from August.
   Durable goods orders took a dramatic drop (5.5%) in October, but the decline was fueled by a nearly 16% reduction in transportation equipment orders.
   And, the first revision of the third quarter economic growth estimate showed Gross Domestic Product up 2.4% (the original estimate was 2.7%), the slowest growth since the 1996’s 3rd quarter. But even this report contained a proverbial “silver lining.” In the Commerce Department’s first look at corporate profits for the quarter, it found that earnings per dollar of sales remained extremely high, suggesting that companies continue to reap strong productivity gains. Furthermore, personal spending by consumers continued its rapid pace, growing 4.5% during the quarter, up from 3.1% in the second. And, the the GDP report also showed that inflation fell to its slowest pace in a year.
   It’s the inflation reports, more than any other data, that may allow the Fed to take a certain amount of simulative action this winter.
   There’s been a lot of talk about a, so called, “soft landing” for the economy .... a slowdown without recession. Actually, that’s what we probably had (though unlabeled) in 1995, when the economy grew at 2.7%. The difference between then and now, are expectations. At that time, we were only four years out of recession, and had experienced 1 year of 4% growth. Now, we’re more than 9 years out of recession, have had four consecutive years of greater than 4% growth, and four quarters of 6% growth.

   The inflation rate slowed, both last month and in the 3rd quarter. Consumer prices were up a mild 0.2% in October, as was the core rate of inflation (minus food and energy). The price data put the CPI up 3.4% for the past 12 months, while the core rate was up 2.5% for the same period. But, perhaps the best news came in the 3rd quarter GDP report. The GDP’s “price deflator,” its gauge of inflation, showed prices increasing at an annual rate of 1.9%, down from 2.4% in the second quarter and at its slowest pace of the year.

Consumer confidence also declined to its lowest level all year, according to the Conference Board’s monthly survey.
The survey of 5,000 households found that, although consumers don’t seem to be overly concerned about economic factors, they did show significant fears about the uncertainty of the presidential outcome ... and that shouldn’t last much longer.

Note: Over the past week, there have been a number of articles in the local media regarding concerns about the Southeast Michigan economy. Most of it relates to the auto industry. We’ll report on this in full in the 1-4-01 Veritas.

Housing Industry News’ Update

   Housing permit activity in the Metro Detroit area (includ-ing Flint and Ann Arbor) is running 7.4% below 1999’s level for the first ten months of the year, according to the Department of Commerce. The drop noted in the federal government’s data is in line with the 7.1% downward swing evident in Housing Consultants October survey of local building departments.    In the area’s Flint region, total permits are off 13.6%, while single family activity is running 8.4 percent below 1999’s level. The sharpest decline in the “Flint” area is in larger (rental) buildings where the number of units is down 31.5% in comparison, from 669 units through October last year, to 458 for 2000’s first ten months.
   Excluding rental units from the mix, Grand Blanc Township still leads Genesee County with 201 units, followed by Fenton Township with 182, according to the Housing Consultants survey.
   Although the two townships continue to lead the county in activity, their combined permit numbers are off by 202 units in comparison with the 584 units authorized during ‘99’s January through October period.
   Unless there’s a surge in permits (similar to 1996 when the announcement of new code adoption spurred an onslaught) in the final two months, we can expect 2000’s activity to end up in the 1,900 unit range for single family and condominium units, roughly seven to eight percent below last year. Of course, that would still make the 2000 data the second strongest in more than 27 years.

From a national perspective, housing starts remained virtually unchanged in October, running at an annual rate of 1.53 million units according to data released by the Commerce Department. Single family homes were started at an annual rate of 1.229 million, down slightly from September, while multi-family edged up by 4,000 units. Regionally, starts were up in the Midwest (6.7%) and South (7.6%), but down in the Northeast and West. Permits rose slightly, up 1.3% to a 1.54 million rate, keeping the industry on target to build nearly 1.6 million units for the year, less than 5% below last year’s exceptional rate of 1.67 million.

   Also in October, sales of existing homes fell slid to an annual rate of 4.96 million, but was up from October of 1999 when sales hit a record level, according to the monthly report from the National Association of Realtors. The October numbers are keeping the industry on track for its second consecutive year of five million plus sales, a level that had never been reached prior to 1999.
   Home sales fell in every region of the country, except for the South. Midwest sales were off 4.5% from September, but up 1.9% from a year ago, at a rate of 1.07 million.
   Nationally, the median price was up 4.3% over October of ‘99, at $138,200. The Midwest actually experienced a slight decline in median price, down 0.1% to $120,000.

The NAR also reported that housing affordability fell in the third quarter as “higher home prices offset rising incomes and declining interest rates.” The association’s “Housing Affordability Index” was down 1.6 points for July through September, and 7.2% below the same period of ‘99.
According to the index, half the nation’s households had 25% more income than necessary to purchase a median priced existing home.

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