Veritas

“Urban Sprawl” is becoming a primary concern for the people of Michigan, according to one panelist at a “Town Hall Meeting” on that subject. However, one would be terribly hard pressed to justify the statement by the numbers that turned out for the event. Realistically, you’d be hard pressed to tell that anyone cares about the issue, that is, except for the panelists themselves.
Last Tuesday’s event, which was sponsored by WFUM at Flint U-M’s University Center, was attended by eleven non participants. However, that included six students and an instructor from one college class. In other words, only four “civilians” were on hand, and one of those is a known supporter of “SPRAWL.”
Of course, the malcontents who believe the growth the Flint area is experiencing is a threat to their well being, politically or financially, won’t be swayed from pursuing an anti development agenda ... after all, as long as they can continue to distort facts publicly without retribution, their evident lack of community support will hardly serve as a deterrent. And, be it political or financial, they have so much to lose.
The meeting opened with a seven minute video taped presentation from U.S. Senator Carl Levin, who talked about the usual perceived “problems” created by sprawl: Traffic congestion; losing farmland and open space; costs of infrastructure to taxpayers; and response time for emergency workers.
Then, Levin quoted the Governor of Maryland who says that it “costs $200,000 for a mile of sewer line, and $90,000 for a new school classroom.” Now, the figures used by Levin were supposed to sound expensive. However, at even the lowest priced sewer tap-in fees in the county, less than eight taps per year to finance the sewer line on a 12 year bond. And, the new classroom could be funded by the windfall, not the whole state allocation, generated by roughly 3 new students.
Levin did, however, end his presentation by calling for choices rather than mandates. Levin made it clear that he was against any
constraint of choice, noting that we “can’t stop urban sprawl by constraining consumer preferences” (It’s unclear if he took that message to his friend, the Vice President).
The remainder of the session sounded amazingly like every other conference on “Sprawl,” “Smart Growth,” “Green space” or Farm preservation. There was nothing new, and most of the talk regarded “good” development, which apparently appeals to everyone but the home buyer. And, like the others, it was geared to whatever governmental policy could do to bring these “good” concepts to fruition through incentives.
However, one member of the panel, David Poulson, a Booth Newspaper reporter who writes about the environment, at least had the guts to suggest what the others were thinking. Drawing a correlation between the issues of air/water pollution and sprawl, Poulson openly questioned if incentives could work, and suggested there was likely a need for mandates (perhaps the Booth papers are finally fitting the Veritas mold, at least in the bizarro sense).
The Town Hall meeting was the second public forum on the sprawl issue in a six week period. The earlier one, a March 1st debate at the International Institute, had approximately 75 people in attendance. So, why didn’t any of the March 1st attendees show up Tuesday? Hearing the other side of the issue, they obviously understood ... SPRAWL is GOOD!

There was another local conference on “SPRAWL” last week, taking place Friday at the Troy Marriott. This one was sponsored by the “Michigan Smart Growth Coalition,” an organization founded by the BIA of Southeast Michigan.
What was interesting about this conference was the media’s view response to it. A report in Saturday’s Free Press said “a conference of builders & planners agreed that so-called smart growth strategies can ease the burdens of urban sprawl,” and listed an “array of tactics for easing the burdens of growth.” The tactics were the same as those at every “Sprawl” meeting.
Now, despite a supposedly pro-growth panel, put together by a pro-growth organization, the publicized outcome was the same as that for events put together by the opponents of growth ... and, it referred to growth as a “Burden.” Could “smart-growthers” actually be urban coalition hermaphrodites?

Back To Top

Business Briefs: With local industry impact

Ironically, the day Genesee County received word of its bond upgrade (see related article), a press release from the Sierra Club claimed “taxpayers from non-sprawl areas have to subsidize sprawl since areas with the worst sprawl don’t generate enough tax dollars to pay for services they consume.”
Of course, the club, like so many special interest groups, took extreme instances and used them to generalize for the nation as a whole. Is it any wonder why targets of so many distortions are skeptical of groups in general?

More good news from the auto industry: Last Thursday General Motors reported first quarter earnings of $1.8 billion, easily exceeding forecasts, as vehicle sales were up 11% in total, and trucks were up 20% for a new company record. Then Ford announced its 1st quarter earnings also beat estimates at $2.1 billion, based in part on sales rising 8.3% from the same period in ‘99. Despite forecasts of a downturn in 2000, sales have been exceptional all year long.

Back To Top

Where Government Appreciates Housing

Despite the recent barrage of attacks on the housing industry in the form of anti SPRAWL rhetoric, there still are times when housing receives the recognition it deserves for its positive impact on communities as a whole. Monday morning was one of those times.
Last Friday, Genesee County was notified that Moody’s Investors Service issued its third upgraded bond rating in the past two years. In its announcement, Moody’s noted three primary factors for the upgrade:
· Decreased reliance on GM, coupled with a decrease in the variance between the county unemployment levels and state and national levels;
· strong management strategies, evident in its recently adopted strategic plan;
· moderate growth in taxable values due to increased residential development.
Upon receiving notification, County Treasurer Dan Kildee and County Board Chair Rick Hammel decided to announce the good news at a site that clearly illustrated the County’s fiscal health ... so, they chose a local subdivision for a Monday morning press conference.
At the conference, hosted by Kildee, Hammel and Board Finance Chairman Tim Herman, and in the release announcing it, the press was told of the contribution of housing to the fiscal stability of the community, and how its growth offset so much of the decline in the county’s industrial tax base. And continuously updated housing data, following a tour of local new housing developments were credited for stimulating a new awareness of the regional oriented base of the Flint area’s economy. Fortunately Moody’s, and many of the County’s elected officials, have first hand knowledge of the positive fiscal impact of a strong home building industry. Unfortunately, that knowledge, at least among public officials, seems to be the exception rather than the rule.
All too often, when preaching the housing gospel, my words are viewed with the skepticism usually reserved for special interest advocates. After all, if I maintain that housing more than pays for itself from a governmental perspective, and present the data to back up the claim, my credibility is immediately in question because it’s my job to promote the housing industry.
This skepticism has been evident at the national, local, and, to a lesser extent, state level throughout my 23 years of serving this industry.
However, the one place the usual skepticism has, historically, been put aside the Genesee County administration building. And, that’s why Monday morning was “one of those (special) times.”

Barry

Back To Top

QPRTs Freeze Property Values by Rachor, Purman & Tucker, CPAs

Homeowners are looking for ways to freeze the value of appreciating assets in their estates. Housing prices have more than doubled since 1980. The appreciation in the value of housing spawned one popular technique called the qualified personal residence trust (QPRT). In such an arrangement, the owner of a property transfers a remainder interest in the home to someone else (usually an adult child) in trust , while retaining possession of the residence for a specified period of years.
Although the annual gift tax exclusion may not be used to shelter a QPRT transfer, the transfer usually requires no payment of gift taxes. This is because the value of the transferred remainder interest reduces the unified estate and gift tax credit. The credit ($650,000 in ‘99) is available to shelter assets from taxes during life and at the time of death. Taxpayers who use QPRTs assume that the appreciation of the property to be removed from their estates will exceed the tax resulting from the use of part of their unified estate and gift tax credit.
Property that can be placed in a QPRT includes a primary residence or a vacation home if personal use exceeds 14 days per year, or if it is rented out 10% of the year. Property that has been placed in a QPRT may be sold during the trust term. The trustee has two years within which to reinvest the proceeds in a replacement residence.
A 1997 change to the IRS regulations prohibits the grantor of the trust from buying the property from the trust during its term. This was a common practice in the past since it gave the trust beneficiaries cash in exchange for a residence with a low tax basis. Nevertheless, the remainder beneficiaries can buy the property just before the trust terminates in exchange for a promissory note. Then, upon termination of the trust, the note is distributed to a child (or children) and disappears as a liability. The income tax basis of the child in the property will equal its purchase price. The parents avoid capital gains on up to $500,000, sheltered by the exclusion, now available for a married couple, on the sale of a primary residence.
This article offers only cursory information, highlighting the structure and some of the possible advantages of establishing a QPRT. You should contact your accounting or legal professional if you would like a more detailed discussion of the advantages and drawbacks of qualified personal residence trusts and their suitability in a specific situation.

Back to top

It’s still about "Nothing" in particular

This issue we dedicate the page, formerly known as the “Seinfeld” section to, perhaps, America’s top comedian of the 21st Century ... Bill Clinton’s ability to deliver one liners and react to an audience, may well make him the most successful former President in history — that is, unless he becomes “1st Gentleman.”
Two weeks ago, as the news establishment was shaken by the Disney News Network decision to have Leo DiCaprio interview Mr. Clinton, it was time for the President’s annual appearance at the Radio and TV Correspondents dinner, and “ABC” people in attendance knew they were in for a long night when Clinton was introduced with the “Theme from the Titanic.” Regarding the network, Clinton questioned if “all their attempts at damage control are really worth it ... it’s like rearranging the deck chairs on the set of Sam & Cokie.”
Then, he turned to the audience and asked, “Don’t you news people ever learn? It’s not the mistake that kills you .. it’s the cover-up.”
No one was exempt as a Presidential target, including Al Gore, who he hit several times including a mention of the Veep’s claim that he was drinking Iced Tea in the Buddhist Temple, and was probably in the bathroom when the “transactions” were made. “I drink coffee and Al Drinks Iced Tea,” said Clinton. “Well, I would have drank ice tea too if I knew there was such a thing as the Iced Tea defense.”
Clinton also talked about the Census, GOP and George W...

Back to top

Association News and Events: Parade; Builders Council; Golf Outing & more

Only one builder was required to post a bond after the Parade’s “5 week inspection,” so we expect that all 42 models will be available when the event opens to the public on May 13th. In fact, most of the homes were well beyond the five week stage and, quite frankly, this looks like it’s shaping up to be a phenomenal event ... and, regarding Spring promotions, Housing Quarterly should be available no later than Monday, May 8, if anyone wants additional copies to distribute. The issue ended up at 104 pages, rather than the earlier announced one hundred ...

The Home Builders Council meeting, originally set for last week, is now set for Thursday, April 27th, in the association office at 3:00 in the afternoon. Although we set a number of items for discussion, the primary issue relates to the (IRC) International Residential Code, which will likely be adopted, nearly in entirety, as Michigan’s single state code, with the beginning of next year as the targeted effective date.
Joining us at the meeting will be Kirk Richardson, current President Genesee County’s Building Officials’ Association. Kirk recently returned from the International Code Council conference in Birmingham, AL, and will have an update on alterations recommended on the code at that meeting. Furthermore, there will be discussion regarding training sessions on changes in building practices that may be required once the new code comes into effect ... the meeting’s open to all members!

Important! The Golf outing is set for Tuesday, August 1st ... at Captain’s Club ... tee times available May 16th.

Economic Update: “Inflation is back!” says Disney News

According to the network, more people get their news from ABC than from any other source. So last Friday, after the financial markets ended their freefall, “more people” got to hear Disney News’ top anchor, Peter Jennings, proclaimed “inflation is back!” Perhaps it’s his heritage (he could be angry that “Blame Canada” was nominated for an Oscar), but for some reason Jennings seems more eager than most to proclaim an end to America’s expansion. After all, in ‘98 he proclaimed the expansion over when the second quarter GDP report was released. And, as in ‘98, he’s likely wrong again.
Admittedly, this column occasionally reminds readers of present inflationary pressures. However in those reminders it was always noted that little evidence of inflation heating up has materialized. And, despite the March Consumer Price report that sent the markets reeling last Friday, there’s not much reason to believe that inflation is steam-rolling.
First of all, much of the 0.7% hike was related to oil, along with energy sensitive items; and energy prices began receding at the end of the month, and continued a downward trend to the present. Secondly, recent price data, including the closely watched price deflator in the Gross Domestic Product report, indicated little evidence that inflation was heating up. And finally, first quarter inflation in 1996 grew faster than this year’s first quarter, without the energy excuse, but prices settled down later in the year. However, if there was any disturbing news in the CPI report, it related to the core rate of inflation, minus the volatile food and energy sectors. The core was up 0.4%, and rose at a rate of 3.2% for the first three months of the year, which could be a signal of potential trouble ahead.
The first quarter rate was the highest since the same period in ‘96, a year the CPI rose 2.9%, while the core rate was up 2.7%, both more than we’ve become accustomed to lately, but hardly in a runaway state.

Wholesale Inflation
Although wholesale prices rose at a faster rate than the CPI (1%), the release of the Producer Price Index had no negative affect on financial markets, primarily since the core rate remained at a mild 0.1%. However, in the Labor Department’s report was the disturbing news that price index for finished goods was up at an annual rate of 8.2% for the first quarter.
Still, the PPI rise was almost totally related to oil.

Corporate Earnings
At the beginning of the week a series of corporate earnings reports brought a surging recovery to Wall Street as the Dow Index recovered roughly 2/3 of Friday’s loss by the end of trading Tuesday, and the NASDAQ exchange virtually recovered all of its 355 point free fall. With so many companies beating earnings estimates, a calming effect was restored to the markets.

Other Reports Mixed
Most of the other economic reports over the past 2 weeks were more of a mixed bag than usual. Job growth was up last month, as the economy created 416,000 new jobs and the unemployment rate held steady at 4.1%, while wages rose 5 cents per hour (0.4%), a relatively subdued rate. And retail sales were up 0.4%, a modest rise in comparison to previous months, but above analysts expectations. In fact, sales were held down by the auto industry, which couldn’t match its record setting numbers in February. Also, the Manufacturing Index showed that the sector is still accelerating, despite its decline from February. However, the Index of Leading Economic Indicators fell for the first time in four months according to the Conference Board’s monthly report, with 8 of the 10 indicators declining ... and giving some credence to the belief that the Federal Reserve’s series of interest rate increases may be having an effect.

Housing Industry News’ Update

“Housing Starts Plunge indicating that rising interest rates during the past year are beginning to slow demand for new homes.” The above quote came from CNN’s internet headline Tuesday morning, in reference to an 11.2% drop in housing starts during the month of March ... but a look at the breakdown of the Commerce Department report shows the quote to be utterly absurd.
So, why did we print it verbatim? To show one more example of just how pathetic the national news media can be, when analyzing economic data (see Economic Update).
The problem with CNN’s analysis is found in within its report where it points out that “starts on single family homes were virtually unchanged, up marginally, to a 1.31 million unit rate. The problem here should be obvious: If demand for new homes is slowing due to higher interest rates, why is the most rate sensitive sector of the housing industry holding steady?
The fact is, the rate of new, single family housing activity in March was less than 2% below 1999’s all time record high of 1.335 million units, an incredibly strong figure from an any perspective ... but, of course, the headlines suggested otherwise.

NAHB’s Housing Market Index rose slightly this month after falling to its lowest level in more than 2 years during March. Still, its level of ‘62’ is high by historical standards, since any number above 50 suggests more builders see market conditions as favorable than unfavorable.
Of the three components of the index, current sales and anticipated sales were slightly higher, while traffic in models fell by a point.

Local building permits are up more than 8% for the first quarter of the year according to the monthly survey by Housing Consultants of Clarkston. Genesee County’s building authorities issued 395 single family and condo permits through March, up from 365 the first quarter of ‘99 ... and, as has been the custom since 1985, Fenton and Grand Blanc Townships continue to lead the way. More on the 1st quarter in the 5/2 Veritas.

Look Here for Previous Issues of Veritas