Veritas

“You’ve reached the $500,000 plateau, and still have one lifeline left,” said a solemn Regis Philbin. “Here’s your final question for one million dahlahs: What use of 100 acres is most fiscally advantageous to a municipality?
A) 120 homes paying property taxes;
B) Mobile home park with high density;
C) Farming, since cows don’t go to school;
D) Auto industry theme park for tourism.”
“Well Regis,” said Steve, the attorney contestant, “I think I’ll call my friend Phil .... he’s a professional planner.” After answering the phone, Phil told Steve that he learned in Remedial Planning that “it’s C, farming, because cows don’t go to school,” which Steve gave as his “final answer.” But unfortunately, Phil was wrong, costing Steve $968,000 (see epilogue). Planners of the “anti-sprawl” mode have been using the cow/school analogy for years in continuous attempts to show that housing doesn’t pay for itself, a totally ludicrous concept, particularly in Michigan where per pupil funding comes from the state. But a report in the Flint Journal shows us just how ludicrous, since people living in new homes in Genesee County’s fastest growing suburbs, like cows, aren’t adding to school populations. In fact, in those suburbs, the ratio of new students to new homes is less than 9 to 100 during the past four school years, ranging from a high of eleven new students per 100 homes in the Fenton* (includes Lake Fenton and Linden) area, to a low of 2.5 students per 100 homes in Davison with its strong condominium market. And those figures don’t take into account hundreds of apartment units and mobile homes.
The anti-sprawl argument indicates that new housing puts a fiscal burden on growing communities, along with the regions as a whole. However, it’s been easy to counter on infrastructure improvements like water, sewer, and municipal services, that user fees and property tax revenue more than pay the bill in full. However, the question of the burden on schools has been more difficult to counter, particularly since ‘94, as most direct costs of K—12 became the responsibility of the state.
Since the rules implementing “Proposal A” prohibit the use of state, per pupil, dollars for capital expenditures, there probably is a burden on school districts needing to expand their capacity, despite the fact (as we’ve frequently displayed) that windfall revenues from new students far exceed the costs of capital spending. But the March 21st Journal story shows that new homes don’t necessary mean additional students. In reality, even the 6 mills to the state on the new homes in those districts creates over $3 million in annual property tax revenue, or $6,900 per new student on an annual basis (not to mention the additional sales tax revenue) ... so, the growth actually means windfall revenues at all levels of government, effectively countering even the school funding argument.

Epilogue: Steve sued Phil’s alma mater, receiving $1 million in compensatory damages, then earned $1.666 million, winning a $5 million judgement for Phil, convincing a jury the school was responsible for his (Phil’s) public humiliation.

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Business Briefs: With local industry impact

Some interesting data appeared in FedPoints, a semi monthly newsletter published by the Detroit Branch of the Federal Reserve. According to the Fed, the Flint area lost nearly 2% of its jobs last year, and has lost 0.8% of its employment base since 1996. However, during the same period, its unemployment rate fell 1.4%.
Last year’s loss is relatively easy to explain, due primarily to the closing of “Buick City.” However, are these lost jobs or do statistics understate the number of commuters working in other metro areas?
According to Bureau of Labor Statistics’ data, the Flint area had 184,700 people employed in the area in December of ‘96. However, at the time, it showed 191,900 area residents employed. By December ‘98, those numbers were up to 185,000 jobs in the area, and 196,000 residents employed.
Then, somehow, the data for ‘98 was revised down, to 177,600 and 188,400 respectively. Then, the most recent data shows 171,400 local jobs and 181,700 workers.
According to the data, residents working actually fell 4.9% from 1996 to ‘99, while the number of local jobs fell 7.2%.
So, its rather obvious that the area is in deep recession and we might as well close up shop: right? Not so fast!
What appears to be happening is government data haven’t caught up to transferred commuters. The only data that seems to remain constant is the ten to eleven thousand employee differential between workers and jobs in the area. These estimates (and they are just that) have been holding the differential at the 10,000 + level, despite the thousands of GM employees transferred during the last half of the ‘90s.

At a recent debate on Sprawl, a representative from the anti-growth side said that Agriculture was the second largest employer in the state. So, we decided to check it out and found, in 1998, there were 36,300 “self employed” workers and 23,800 hired workers making up Michigan’s farm labor force in 1998.
The same year, data suggests the 43,000 single family homes created 110,500 jobs, while the 9,700 multifamily units created another 11,900. That’s 60,100 v 122,400...you be the judge ...

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Mr. Gore: It’s Still“The Economy Stupid!”

Nearly eight years has passed since Bill Clinton and Al Gore took the highest offices in the land due to a campaign based on the candidate’s exclamation, “it’s the economy stupid!” Since that time, administration policy has solved the financial institution and commercial real estate industry’s crisis, led the nation to its first balanced budget in a generation, and served as shepherd for the longest economic expansion in the nation’s history.
Now that Mr. Gore is running for the presidency on his own, one would expect that he’d be basing the campaign on the economic virtues of the Clinton/Gore administration and the importance of continuing the expansion rather than placing it in jeopardy through risky Republican tax schemes. But the candidate seems to be intent on playing politics with a few issues that may be important to certain segments of the electorate. In fact, it seemed that he was running for President on education (which is primarily a local/state issue), abortion and gun control.
Then, last week he took pandering to new level, braking with the Clinton/Gore administration over, off all things, the Elian Gonzalez case, by supporting legislation to make the young Cuban a permanent U.S. resident. And he did it only to remain competitive for Florida’s electoral votes.
What’s ironic is that the day of his announcement came the report from the Commerce Department that the economy grew at a 7.3% pace in the 4th quarter, its fastest pace in sixteen years.
Now this is powerful news for a Vice President seeking the highest office. The phenomenal growth came at a time the nation was entering its 10th year of expansion, unlike 1984 when it was coming off the worst recession since the Great Depression. And the GDP Price Deflator, the measure of inflation tied to Gross Domestic Product was at 1.9% for the quarter (1.6% for the year) in comparison to ‘84’s inflation rate hitting 4.3%.
But rather than making economic expansion the issue of the day, the media’s attention was focused on a six year old alien, a defiant Florida based Cuban community, and a Vice President pandering for votes.
As when he ran for the presidency in 1988, Al Gore has little going for him personally. His only political assets are the Clinton administration’s popularity, which is due to little other than the country’s current economic condition, and the GOP’s apparent willingness to jeopardize it on risky fiscal policy.
Gore’s campaign shows that he continues to serve as a symbol of putting politics ahead of sound policy. Of course, his opponent’s also shown that he’s, at least, equally symbolic. So, the choice will ultimately be, who’s the least dangerous? And the answer to that will likely relate more to which party is likely to control the House.

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Equity v Savings; Plastic Timber; & More

According to the monthly report on income and spending, the money Americans put aside in savings fell to an all time low in February. And all recent reports showed savings at historically low levels. But do these figures really mean that Americans are frivolous?
Think about it in these terms: The nation’s median household earned $47,900 in ‘99. The median priced home was worth $130,300 at the beginning of the year, and its value grew 6.4% in 1999. So, by the end of the year, its value rose by $8,340 ... which became equity to the average home owner, giving him the equivalent in savings of 17.4 percent of gross income ... a rate that isn’t all bad.

In years passed, this news-letter has joked about environmental regulations forcing the industry to build “Plastic Homes,” and questioned how well the environmentalists would like that. Well, apparently environmentalists aren’t as anti-plastic as we once thought, because they’re supporting the company in this note ... The manufacturer of an ersatz wood product made from recycled plastic “is thriving,” according to a recent article in the Wall Street Journal, by making “lumber” for backyard decks, boardwalks, ocean piers and railroad ties. U.S. Plastic Lumber Corp. had revenue of $138.5 million last year, according to the article, and recently Georgia-Pacific and Weyerhaeuser agreed they would carry the company’s line of SmartDeck products.
With all the environmental opposition to harvesting old growth forests, along with the stringent regulations on redwood and cedar (traditional deck materials), demand alternative wood products is high, and growing rapidly. It may already account for 5% of the U.S. decking market, which would make it a $150 million business this year.
How long will it be before we build with plastic studs?

Perhaps the first builders to use plastic will be Centex and Kaufman and Broad. The two home building giants recently agreed to “stop buying products from endangered forests,” in response to pro-testing environmentalists.
The decision was a big victory for environmentalists’ recent switch to pressuring the buyers of wood products, instead of focusing solely on the lumber companies and sellers of forest goods.

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It’s still about "Nothing" in particular

The Disney News Network (a.k.a. ABC) incurred the wrath of “traditional” news personalities by announcing Leonardo (Leo to his friends) DiCaprio is going to interview President Clinton during some Earth Day celebration. Leo, best known for ending the drudgery of the “Titanic” (by finally freezing to death in the icy Atlantic), is apparently a leader of the celebration, therefore putting objectivity, as well as journalistic credibility, at risk.
Then again, anyone who’s been watching Disney News lately (where more Americans get their news than from any other source), seeing Barbara Walters with the Ramseys; and Dianne Sawyer with Elian Gonzalez; may well think that Leo, and the Titanic, are symbolic of the direction of ABC in general.

Then there’s that General Electric network, known as NBC, buying a $30 million stake in World Wrestling Federation Entertainment, the parent company of Vince McMahon’s World Wrestling Federation (WWF), as part of a deal to broadcast the latter’s XFL (Extreme Football League), on Saturdays beginning next February. Remember, NBC was the last network out, losing its NFL games to CBS.
The new league will be viewer friendly (locker room, sideline and helmet cameras, along with microphones on players and coaches) and created for action (short intermissions, no fair catches on punts, less time between plays), all in WWF style. And, in an apparent shot at the NFL’s recent problems, the WWF’s McMahon has made it clear that “no one with a criminal record will be playing in the XFL.”
Still, no word on when Stone Cold Steve Austin replaces Tom Brokaw or if Y2J and Chyna are taking over the Today Show.

Hillary v. Rudy? Or Rick? Now that Mayor Rudy Guiliani’s campaign seems to be going down hill in New York, Long Island Congressman Rick Lazio is once again gaining attention as the best Republican to beat the 1st Lady in November. Lazio appeared on ABC Sunday morning and said he was ready to run if party leaders “send a message.”
Lazio, a well respected moderate, was originally the favorite of Governor Pataki, but the Governor went along with the conventional wisdom that Guiliani would be the stronger candidate due to his strength in the City. After the most recent police killing however, Guiliani’s polling just 28% of the city.

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Association News and Events: Parade; Land Dev & Builders Councils; & more

Well, it looks like the Parade will open with the 42 models reported in the March 15th Veritas. However, when we received all the documentation, we found there was a change in the anticipated location of some of the models. The Grand Blanc area leads with 18, followed by the Fenton/ Linden area with seven; Flushing/Flint Township with seven; and the remainder in Davison, Swartz Creek, and Clio. The Parade opens Saturday, May 13th, and runs until Sunday, May 28. This weekend, five week inspections will be performed. All homes must be drywalled and sanded....larger homes must be trimmed.

After a successful meeting with the County Road Commission last Tuesday, the BAMF Land Development Council has another meeting set for April 18th, also a Tuesday, in the Association Office at 2:30. This time the guests will include Drain Commissioner Ken Hardin, along with three of his senior staff members.
As area housing starts and subdivision development continue to exceed their historic peaks, the cooperation we’ve been able to achieve with several county agencies has been critical ... and with growth becoming an even more serious issue locally, it’s imperative that we keep this era of cooperation continuous. So, we urge all members who deal with the Drain Commission to attend.

Then, on Thursday, April 20, we’ve scheduled a meeting of the Home Builders Council for 3:00 p.m. Although there will be several items on the agenda, the primary issue will relate to code developments, including the concept of joint training with the local building officials and architects regarding International Code Commision developments that will impact Michigan builders in 2001. Remember, the state has targeted January 1st for having the new code in effect state wide. Both Dennis Smith and Kirk Richardson are expected back from the ICC convention for the meeting ... see you there.

Housing Quarterly magazine will likely be published with 100 pages this spring, with the tentative mailing date of May 5th. No advertising space is available. However, there still is the opportunity to submit articles for publication.

Economic Update: 4th quarter surge strongest since 1984

During last year’s 4th quarter the nation’s economy grew at its fastest pace in 16 years, as American, and even foreign, consumers continued to fuel exceptionally strong demand for U.S. products and services.
Gross Domestic Product, the primary measure of American economic activity, surged an annual rate of 7.3% from October through December. The last time growth was that strong was during the first quarter of 1984, when GDP was up 9%. However, there is little comparison between today’s economy, and the one at that time.
When growth was at nine percent, the nation was just beginning to recover from its worst recession since World War II. When we reached the fourth quarter of ‘99, the economy was within a few months of the longest expansion in its history, was already 104 months old, and had just come off a quarter with 5.7% growth.
Last Thursday’s GDP report shows an economy that can’t seem to be slowed by three Federal Reserve interest rate increases last year (or even the two additional ones that followed). But, despite the phenomenal growth, inflation still appears under control.
The GDP Price Deflator, a key inflation gauge watched closely by regulators, rose at a 1.9% rate during the quarter, and just 1.6% for all of ‘99. And the economy grew 4.2% for the year, which was just one-tenth of a percent below its performance in ‘98.
A primary factor in the outstanding growth during the last half of the year was surging exports. Despite our severe trade imbalance, exports surged at a 10.1% rate in the fourth quarter, following an 11.5% rise during the previous three months.

‘00 Forecasts Raised
Even prior to the final revision of last year’s economic growth data, analysts began raising their projections for 2000. Under the realization that, despite the best efforts of the Fed, the economy is showing no evidence of a slowdown, the Wall Street Journal reported that most analysts decided to “boost their growth estimates for the year.”
According to the WSJ, analysts polled by the “Blue Chip Economic Indicator newsletter now expect 4.1% growth,” while others project growth of at least 5%. In January, most were expecting growth in the 3% range.
Also, analysts who have “long projected a slowdown to begin in the second quarter, now say the strong pace may continue until the waning months of this year.”

Spending Tops Income
Last Friday the Commerce Department reported that personal income rose 0.4% in February, while spending was up 1.0%. The continuation of consumer spending, though good for economic growth, means that Americans are no longer saving, a concept that disturbs some policy makers at the Federal Reserve.
In fact, during the month, savings hit an all time low of 0.8% of income. The fear is that the low personal savings rate and high debt levels could spur a crisis if the economy receives a major shock, which is why the Fed has taken tightening action five times in the past year. However, the rate increases have done little to cut the insatiable appetite of the American consumer ... look for more to come.

Inflation Indexes
Since the Labor Department’s price reports were out later than usual last month, the 1% rise in wholesale prices, their biggest rise in over nine years, is old news. However, it was almost entirely due to energy prices, as the core rate was at 0.3% (which followed a 0.2% drop the previous month). At the consumer level, prices were up 0.5% (0.2% without food or energy). Most interesting is that neither report brought about a negative reaction in the financial markets.

Housing Industry News’ Update

Responding to rising interest rates, NAHB’s Housing Market Index (HMI) fell eight points in March to 61, its lowest reading in more than two years. The HMI, derived from a monthly survey of builders, found each of its three components off sharply. The gauge of present sales fell the sharpest, down 10 points from February, while expected sales and model traffic fell six and four points respectively.
Still, with the exception of “traffic,” the components remained well above average as any score above 50 suggests more builders believe conditions are “good” than bad, and the “sales” scores were 67 (present) and 68 (next six months).

Regarding home sales in general, the “Realtors” reported a 6.7% rise in the resale market during the month of February, following January’s revised decline of 13.4%. The first month revision was the biggest decline in 5 years.
February sales were at a rate of 4.75 million units, up from 4.45 million the previous month. The median price of an existing home was $131,100, below January’s level and just 2.34% above the median price a year earlier.
Sales in all regions were up, except for the Northeast, which experienced a 7% decline. The Midwest was up 5.7%.

However, sales of new homes fell slightly during the same month, down 0.5% to an annual rate of 919,000 units, still a remarkably high sales pace which was well above the forecasted rate of 875,000. The more fascinating news regarding sales was the revision of January’s statistics. The Commerce Department initially reported that sales fell 4.2% for the month. However, Wednesday it said that sales had actually risen 0.3%, meaning that, for the past three months, homes have been selling at a nearly 922,000 unit pace, which is amazing considering the fact that interest rates were expected to negatively impact the housing market.
Inventory remained at a low level (4.1 months supply), suggesting that low supply was responsible for shifting buyers to resales. *Midwest sales led the way, up 15.6% for the month.

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