Veritas

Today, the “Ultimate Land Use Conference” concludes at the Kellogg Center on the campus of MSU (see Business Briefs). It’s, at least, the fourth state wide conference focussing on “sprawl” since last fall, and its far from the last in 2000.
Tomorrow evening (3/1), the “Flint Area Public Affairs Debate Committee” presents “Urban Sprawl! Are the Costs Worth It???,” at the International Institute.
In April, U-M Flint is hosting a focus on the problems of “sprawl,” and in the near future the Flint Journal is expected to print a written debate for and against regional planning.
All of these incidents are/or were, expected to target such concepts as infrastructure finance, evaporating farmland, disappearing green space, and financial burdens on local units of government.
But interestingly enough, these events come on the heels of reports stating the benefits of what some individuals disdainfully refer to as sprawl.
Two weeks ago Genesee County’s Board Chairman, Rick Hammel, gave the annual “State of the County” address and clearly credited the home building industry for the county’s sound fiscal position, noting more than 2,000 housing starts worth more than $400 million, in 1999 alone.
Subsequently, there were a number of Journal articles that referred to Flint’s financial problems bringing about a likely degrading of its bond rating, while the County was in the process of working to obtain another series of upgrades, due to its outstanding fiscal health. Yet, the county has also been damaged by the area’s declining industrial base. Why the disparity?
Well, county officials point to the residential base and its long term value to the community as a whole....and, that base is a result of “sprawl.”
And, what about vanishing farmland? The February 16th issue of Veritas noted the fight in Washington regarding this year’s farm bailout, pointing out that agricultural subsidies are costing the taxpayer at least $25 billion annually. It makes some people believe that converting farmland to tax paying (not tax consuming) property, is a benefit by itself.

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Business Briefs: With local industry impact

General Motors expects 2000 to beat 1999’s record of $4.8 billion in earnings, generated from its American auto business. Their expectations result from forecasted sales in the high profit light trucks and SUV market.
Despite the belief by most analysts that sales of cars and trucks will fall this year, they also suggest that GM will benefit due to a “more profitable” mix of vehicles sold. Furthermore, industry sales beat forecasts in January, and this month’s (February) sales seem to be exceptionally strong.

Despite the economic drag of the the agriculture industry, it’s still apparently a popular concept to keep farmland out of the hands of Michigan developers. It’s not enough that Congress support agriculture with some $25 million each year...now, according to an article in last Saturday’s Free Press, they want money from developers as well.
Today (2/29), the “Ultimate Land Use Conference” is concluding at MSU’s Kellogg Center and, according to the Freep, one of the “solutions” to the disappearing farmland “problem” is the “sale of development rights.”
This isn’t the usual purchase of development rights concept where taxpayers pay farmers to keep their land in production. This concept would have developers pay farmers for the right to have higher density developments nearby. The idea, suggesting that municipalities would authorize higher density developments in exchange for a payoff to an area farmer, as repugnant as it sounds could, however, set a new standard for public/private extortion.

According to Michigan’s Unemployment Agency’s “Monitor,” the state is cutting unemployment taxes by $200 million this year, “the fifth consecutive year of such cuts. One of the biggest beneficiaries is the Construction Industry, which is experiencing a reduction in the unemployment tax rate from 6 to 5.7%. The reduction reflects lower layoffs in the industry (and, for those who qualify for the 10% tax decrease, the rate’s just 5.1%).
Michigan’s healthy unemployment fund surplus is reminiscent of state funds around the nation. In its February 28 issue, Business Week reports that state coffers are “bulging with $48 billion in unused funds.”

Citing a recent poll it commissioned claiming 76% of a thousand registered voters support banning development on some 50 million acres of national forest, the Heritage Forests Campaign, an Oregon based environmental group, is pressuring the Clinton administration to protect the nation’s remaining roadless wilderness areas from development. Of course, the group didn’t release the script from the survey that, more than likely, may well have skewed the results.
The intent is to follow a Clinton proposal that would, more than, double the amount of protected wilderness areas in national forests, in keeping them free from logging and mining.

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Policy v Politics: The Latter Usually Wins

The voice on the telephone said “Barry, what the hell are ya doin in Washington?” My response: “Well Mr. Vice President, I’m here to stop this big mistake you’re calling tax reform!” That’s how a roughly 20 minute conversation between myself and George (the father) Bush began.
Recently, I’ve reflected a lot on the conversation that took place 14 years ago, perhaps because Bush was in Flint as the guest speaker a local GOP fundraiser, but more likely because it’s symbolic of the need to separate policy and politics.
On the back page of this issue are two quotes which, with good reason, blame poor public policy for economic ills from an historical perspective. Unfortunately, George Herbert Walker Bush may well serve as the best representative of office seekers putting politics over policy.
For those of you not old enough to remember, Bush entered 1980 as a moderate Republican who was pro-choice on the abortion issue and called the Ronald Reagan plan to cut tax rates by 30% and still balance the budget, “voodoo economics.” That summer, as Reagan’s running mate, Bush adopted Reaganomics, and by the time he was ready to run for President on his own, he could even pass the GOP pro-life litmus test.
My conversation with him came at a time when nearly all of Washington was Policy v Politics....was focussed on the Tax Bill of 1986, sound politics but an economic disaster in the making. The bill was politically popular as it set two levels of tax rates, cutting the highest marginal rate to 28%, and raised revenue by several measures including the phasing out passive loss deductions for commercial and residential rental real estate. Many of the measures were circumvented through entrepreneurial ingenuity, but the elimination of passive loss deductions all but killed commercial real estate values, and nearly took down the lenders who had financed such ventures.
It wasn’t like they weren’t warned....it merely became politically prudent. So prudent that only three senators, and a handful of representatives, voted against the bill.
Amazingly, after a recession, much of the ‘86 bill, was repealed as a majority of senators (including ‘86’s sponsor) reversed themselves in favor of the Clinton deficit reduction package in ‘93 ....and, commercial real estate helped invigorate an unprecedented economic expansion.
The reason for the reflection? George W. Bush, the real reason the former president appeared in Flint, is following in his father’s footsteps with an ill advised tax plan that appeals to his party’s faithful, but would put the nations expansion in jeopardy....and my guess is, like his father, he knows better.
Since the ‘80s we’ve seen, time and again, how politics triumphs over policy, with each major party having their own battery of litmus tests. Fortunately, in the ‘90s, divided government has prevented many a disaster from taking place...... which is the real reason this expansion continues at record levels well into its 10th year.

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The Seinfeld Section (it’s still about Nothing ; in particular)

After pushing Michigan’s GOP primary up to mid February to create a “Firewall” to protect George W. Bush’s candidacy, a solemn John Engler was attempting to put the best spin possible on the impending defeat on the early evening News networks last Tuesday. So, there was the Michigan Governor, continuously telling CNN, MSNBC, et.al. that, despite the loss of the popular vote, Bush would still win 32 of Michigan’s 58 convention delegates. In other words, McCain would win only three congressional districts (6 delegates) plus 10 delegates for winning the popular vote.
But, when all the votes were counted, McCain had 52, as he carried all but 3 districts.
Though he seems to be taking some heat from the political pundits, what actually killed the “Firewall” concept was hardly the Governor’s fault. In fact, from a historical perspective, Engler was right on target.
George W. Bush was supposed to be running from the center, where he would be positioned to beat the “liberal” Al Gore in the fall. And Michigan’s GOP’s always backed centrists in their primaries. However, after his poor showing in New Hampshire, the Texan was forced to become the candidate of the far right to cover himself in South Carolina, making him susceptible to the kind of attacks that kill candidacies in Michigan.

Has Bradley become the latest convert to the Gore campaign? After ignoring the Democrats since New Hampshire, the media seemed to love the seemingly heated Gore v Bradley debate at Har-lem’s Apollo Theater in last week. During the debate, no less than half a dozen times, Bradley referred to Gore’s supposedly “conservative voting record” in the U.S. Senate.
Now, that may sound like an attack in front of a crowd that’s likely to vote 90+% for Hillary Clinton in the fall, but it seems more like a personal decision to enhance Gore’s prospects nation wide (particularly since the debate preceded the Michigan primary and Bush looked like the sure GOP nominee). So, as McCain pushed Bush to the right, Bradley seems intent on giving Gore the centrist appearance that would make him more electable in the fall.

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Association News and Events: Directory/Website update; Parade Deadline

Each year the association receives several calls following the mailing (to members) of the BAMF Directory, and the question’s always the same: We’re in the member listings, but how come we’re not in the classified section?
The association has the following problem: We know the primary services most of our members provide, but we don’t know all of them....so, to protect from errors in an industry where companies are continuously adding service and product lines, we need to update information continuously (if we take it on ourselves, we’ll surely omit a number of companies from one or more classifications that they would like to be listed in)....In this issue is an orange flyer for website and directory updates. Please, fill it out and mail it in!

Well, we passed the first “deadline” for the May Parade of Homes and, as of today, we have 26 builders/ 30 homes, registered. With the final deadline approaching, we need to remind everyone planning to participate to get their entry in by March 10.. ...remember, the rate is now at $2,700. At least 8 additional builders that have indicated their intention to participate, however, it won’t be a surprise if several more enter. So far it appears there’s at least twelve in the Grand Blanc area, six in Flushing and five in Linden.

Housing Quarterly reservations for full color ads have been coming at a record pace, ...so it’s already apparent that we’ll add at least eight additional color pages to accommodate the demand. We’re coming up on the first deadline of March 10...the final deadline for full payment and submission of your ad is April 1st.

Prosecutor Art Busch is still scheduled to speak on Wednesday, primarily on his office’s check fraud enforcement program....however, we can be sure he will fill us in on any new items of criminal or political interest (or any combination of both)...

Economic Update: looking for reasons to be “dismal”...........

Last week we found that, despite the economy burning up at an incredible 6.9% rate of growth in the fourth quarter and with the lowest unemployment rate in thirty years, inflation at, both, the wholesale and consumer levels remains tame. And this, despite the fact that oil and gasoline prices are up more than 32% during the past 12 months.
However, with the longest economic expansion in American history now in its tenth year, the jitters that have been a plague on the nation’s economic psyche since the jobless rate fell below 5% have a number of economists returning to the thoughts that made their discipline the “dismal science.”
With productivity outpacing wage and benefit increases, those economists are making a big issue of energy prices, and their ripple effect on the costs of production and delivery....but one has to wonder, where were these analysts when Ross Perot was pushing a 50 cent per gallon gasoline tax?
Other economists looking for dismalities point to the poor performance of non-high-tech stocks, the record trade deficits, soaring gold prices, and the rate disparity between short and long term bonds. But each of these items has a logical, and reasonable response.
Yet, last Tuesday, reports from the National Association of Business Economists and the Philadelphia Federal Reserve agreed that the fundamentals that have kept the economy booming during the past nine years remain in effect. And both projected economic growth of 3.8% in 2000, and 2.9 to 3% in 2001.

Gross Domestic Product
Talk about HOT! The first revision of 1999’s 4th quarter GDP showed the economy posting its fastest period of growth in more than 3 years, soaring 6.9%, well above the original 5.8% estimate the Commerce Department previously reported. At least equally as important, the revision of the GDP price deflator, a key measure of inflation, rose at a 2% rate, the same as originally reported.
So, for the entire year, the economy grew at a 4.1% rate while the price deflator was up by 1.6%....so, it may still sound like a broken record, but who can argue with surging economic growth and no evidence of accelerating inflation?
The report did, however, show one possible area of concern. Government Spending rose at a revised 9.2% annual pace, the fastest rate of increase in 14 years.

Inflation Tame in January
The price reports at both the wholesale and consumer levels remained tame in January as Labor Department Reports showed the Producer Price Index was unchanged from December, while the Consumer Price Index was up a modest 0.2%. The core rate of inflation (minus food and energy) at the consumer level was also up 0.2%, however, the wholesale core rate actually fell 0.2%. Two noteworthy items in the CPI: Costs for transportation were up just 0.1%, following a 0.8% rise in December, as a decline in new vehicle prices helped offset a 1.6% rise in gasoline costs; and housing costs were up 0.3%, due to rises in shelter, fuel and utility prices.

Income, Spending Rise in January
Personal income rose 0.7% last month, up dramatically from the 0.3% rise in December, while consumer spending (up 0.5%) continued its upward trend, though at a rate much slower than the revised 1.1% growth in December.
What was interesting about January’s income rise was that it was primarily due to federal pay increases, agricultural subsidies and other U.S. Government payments. Private sector wages were up marginally.
Still, the rising wages suggest further rises in spending, and bodes well for an economy that has two-thirds of it growth based on consumer activity.

Housing Industry News Update

Housing starts were substantially stronger than expected in January, as they rose 1.5% to the third highest monthly level since ‘86. The January activity came on the heels of a surprising December, when starts had risen 5.1%. Good weather conditions and a surge in multi-family housing were responsible for the 1.78 million unit annual rate.
Single family starts fell 2.1 percent to “still robust figure of 1.4 million units” for the month while multi-family activity rose by 17 percent to a rate of 379,000 units.
Permits for the month rose 8.7% to an exceptional rate of 1.76 million units, including a single family rise of 6.1%, to 1.3 million. In response to the Commerce Department report, NAHB noted that the surprisingly strong showing is partially due to the fact that “the effects of higher interest rates on buyer demand have been moderated by a shift to ARMs, which now account for 30% of all new mortgages.

The National Association of Realtors reported a 10.7% decline in existing home sales for January as winter storms and rising mortgage rates slowed the sales process. However, another possible reason for the decline may be the lack of inventory. At the end of the month only 1.15 million units were available nation wide, a three month supply, which represents a record low inventory level.
The January decline set home sales at their lowest level in more than 3 years.

When you’re at a loss for explanation, blame the weather? The previous 2 notes tell amazing stories. Housing starts were up in January, partly due to good weather... as existing sales plummeted, partly due to winter storms in the Northeast (of course, sales fell far more severely in the Midwest and West).

Although it didn’t blame the weather, NAHB’s HMI (Housing Market Index) fell 3 points in February as rising mortgage rates exacted a “toll on builders’ views of current sales and expectations for upcoming sales of new homes.” Still, the 68 reading shows strong sentiment for the near future, as any number above 50 suggests favorable conditions.

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