According to federal government statistics, the
Flint area unemployment rate has been running below 5% for over a year, as
it’s steadily declined since the beginning of the ‘90s when the rate was still
in double digits. However, the same reports suggest that there has been a
dramatic decline in the number of area residents actually employed during
the past two years.
A couple of months ago this phenomenon received some significant
media attention as the Detroit Federal Reserve’s newsletter hit on the issue.
Although the Federal Reserve, like the media that focussed on the situation,
accepted the Federal data as gospel, it’s apparent to some of us that the
data is faulty, dramatically understating the numbers of Flint area residents
working outside the traditional metro Flint area. In fact, it almost appears
that someone in the Department of Labor took a look at the data in 1998, and
made a number of completely erroneous assumptions.
The graph below charts local employment data during the month of
February over a five year period. According to the department, the actual
number of jobs in the Metro-Flint area fell by 10,100 between
1998 and 2000, which is very likely considering the number of GM plants that
shut down during the period. However, it also shows that the total number
of area residents employed fell nearly 6% during the same period, while the
unemployment rate was falling 16.7%, from 5.4% to 4.5%.
During the same period, some 4000 owner occupied housing units
were built in the area, most of which were in areas with easy access to economic
opportunities outside of the traditional “Flint” area. And, local retail activity
continued on an upward trend, suggesting the local economy remains strong.
Since figures suggest population is growing in the Metro-Flint
area, there are just a few possible reasons for the apparent discrepancies.
It’s possible, but unlikely, that nearly all the local job losses have gone
to individual that subsequently retired, or moved out of the area. However,
it’s far more likely that the Labor Department has understated the number
of residents working outside of the area traditionally referred to a Metropolitan
Flint.
Fortunately, this is a census year, and if the census is accurate,
it’s likely these discrepancies will be resolved. However, with the record
of the federal government’s ability to count and project, it’s conceivable
we’ll have to find another way to gain accurate employment data.
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Illinois farm
town gives grants to extend “Sprawl”
Surprising similarities between “Flint” and Villa Grove
Twenty-three years ago I had the experience of driving south and west on Highways
57 and 70 through Central Illinois, on the way to my first Executive Officers
Council (EOC) meeting. It was a rather enlightening experience for a city
boy who previously thought the farm belt looked like Shiawassee Co. between
Gaines and Owosso.
From 40 miles south of Chi-cago, all the way to East St. Louis, there was nothing but one big cornfield sprawling across 260 miles,
along with Champaign/Urbana, home of the University of Illinois. And, making
up a small speck of that gigantic corn field is Villa Grove, a small farming
town roughly 14 miles south of Champaign/Urbana, that surprisingly made national
news this past week by offering financial incentives for people to buy a plot
of land and build a house on it.
An AP article picked up by the Detroit News July 9th opened, “In an idle farm field on the edge of this one-stop-light
town Mayor Ron Hunt is sowing the seeds of a rural revival. Where once crops
sprouted from this field, Hunt imagines single- family homes for young families,
condominiums for the retired, new businesses and a sports complex.”
Villa Grove, like many Illinois farming communities, is betting that individuals
will be willing to drive an extra “10 or 15 minutes” to work in order to
give their families the benefits of a rural lifestyle. And they’re anteing
up big incentives to make it happen ... In otherwords, while we’re hit with
a nearly continuous barrage of anti-sprawl and farmland preservation propaganda,
rural towns in the real farmbelt are trying to make development their salvation
at farmland’s expense.
On the surface, it seems like a stretch to draw a correlation
between the plight of metro-politan “Flint” in the ‘80s, and Villa Grove,
with a population of 2,700, today. But looking below that surface, the similarities
are unmistakable.
Farming to Villa Grove is what the auto industry was to “Flint.” And farming’s demise has devastated the town, much in the way GM’s
abandonment devastated the Flint area.
Of course, what was the Flint area is now thriving due to its proximity to the expanding economic region known
as Southeast Michigan. And, without being aware of it, Villa Grove and the
other Illinois towns have adopted the “Flint” renaissance formula for their
own salvation, though obviously on a much smaller scale.
Like Flint, the town’s economy offers little in the way of a future
for younger residents, who’ve left in droves. And, as farmland goes out of
production, there’s nothing to replace it with. So, Villa Grove is creating
its own future by attracting residents, not industry. It’s offering $10,000
to future homeowners which, along with cheap lots, makes the purchase extremely
affordable.
The article also referred to Ohio, IL, a town that’s 20 miles from
Dixon in the Northwest section of the State. In recent years the town has
added 30 families, which has increased its population by roughly 20%.
Noted Jack Piper, the primary leader of the town’s redevelopment
project, “every town used to look for a widget factory to create jobs.” But
the community’s leaders came up with the idea for incentives to attract “families
rather than factories.”
Along with Villa Grove and Ohio, the report pointed to several
other towns with similar plans. And, what they all have in common is a declining
population, due to economic factors.
What’s clear in these towns is that those most affected by the
farming decline are proponents of conversion of farms to subdivisions, as
they’ve recognized that population growth is good for the local economy. It’s
also ca serve as a reminder for the “Flint” area, as well.
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More proof that BAMF serves the public
Over the past few weeks, there have been an extraordinary number of letters
to the Flint Journal regarding housing development. Many were generated by
Burton Councilman Bob Centilli’s call for a countywide moratorium on building
permits, while others responded to Journal articles or projected personal
animosity toward the rapid growth experienced by some communities.
Letters have attacked everything from the Journal’s calling Centilli’s proposal “silly,”
to Detroit area developers who found Genesee County’s “dirt to be golden.”
One letter even had the audacity to disagree with this association’s E.O.
Well, we can take it and “turn the other cheek.” But when a Fenton couple
wrote a letter appearing critical of Henry Green, and the Bureau of Construction
codes, they went too far.
Friday’s letter from Robert and Lori Walker claimed that, after giving final approval on their systems’ inspections, the bureau
subsequently found 11 “code violations.” It also claimed that Henry told them
the “bureau is beholden to contractors.” And, with empathy, it said inspectors
have “workloads that exceed human capability.”
After years of trying to take the pressure off of the Bureau by enticing local authorities to perform systems’
inspections, only Grand Blanc and Flint Townships have done so. It’s obvious
that more needs to be done. Perhaps it’s time that Mr. Green join us in support
of additional ventures.
Barry
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Local control or minority
rule? Cities’ referendum likely to be on fall ballot
The most critical issue facing home building in November may
have little to do with Bush, Gore, Stabenow or Abraham, now that it appears
the Michigan Municipal League has carried out its threat to put the issue
of “local control” on the ballot. Last week the league filed nearly half a
million petition signatures for an initiative that would require a two-thirds
vote in the legislature for any measure that removes existing authority from
municipalities.
The MML’s had pretty rough going from a control perspective during
the past 10 months. First, a U.P. court overruled an anti-smoking ordinance.
Then, the legislature approved a single state building code, restrictions
on farm regulation, limits on fine collections and prohibiting lawsuits against
gun manufacturers.
But what really seemed to set off Michigan’s Mayors was the legislature’s
ban on forcing employees to live within city limits. It was after the passage
of that limitation that the league vowed to pursue relief through a constitutional
amendment.
A business coalition has been forming for several months with the intention
of fighting the initiative, with the state Chamber of Commerce perceived as
its leader. However, some question the validity of the Chamber’s position
because it previously supported the concept of a super majority for any bill
that would raise taxes.
The need for preemption of local ordinances stems from problems caused by municipalities succumbing to small, single issue special
interests, that often interfere with individual, and even constitutional,
freedoms. Now, the cities which are the primary proponents of the initiative,
want to effectively end state oversight.
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Taxation and
Finance .. by Rachor, Purman & Tucker;
Managing Risk Management
Every day, your company faces more risks than you probably realize,
which is why it is so important to have a risk management plan in place. If
your first thought after reading the preceding sentence was, “well, we’re
current on all our insurance premiums,” keep reading.
Risk management is a process for dealing with risks that includes
insurance - but not as its only component. Insurance is only one form of risk
management. The essence of risk management is assessing a risk, and then handling
it. And, there are only a few ways to handle any risk: avoid it; reduce it;
retain it; or transfer it.
The method of managing risk that your choose will depend on the
type and level of risk. You must assess the probability of loss, the possible
amount of loss versus the possible amount of gain and your own risk tolerance.
Avoiding risk in many cases is not a real option. For example,
if the risk is on-the-job employee injuries, you would have to prohibit employees’
working to avoid the risk. Since this is not an option, you must attempt to
reduce the risk. This can be achieved by following safety regulations, training
employees on various types of equipment, and supervising jobs.
Retaining risk entails taking responsibility for it, and paying
for the loss if the risk occurs. One example of retaining risk is the bidding
process. Accurate bidding reduces the risk that a job will not be profitable.
However, if the job turns out not to be profitable after it is finished, you
will make up for the lack of profits with other jobs.
Finally, transferring risk is the insurance component of managing
risk. When you pay insurance premiums, you are transferring risk to the insurance
company. You cannot transfer all of your risk however, because you generally
must pay a deductible when there is an insurance claim, which is an act of
retaining risk yourself.
Creating a risk management plan should entail a process similar to the following
steps:
· Establish program objectives.
· Identify all types of risk.
· Evaluate probability of loss and potential amount of loss for risks.
· Analyze options for handling each risk, and identify one (or more) methodology
to do so.
· Implement methodology
· Periodically review results of the risk management program, making changes
when necessary.
When establishing objectives, you should think about the type of loss
you’re trying to prevent and how you will act in the case of the loss. Pre-loss
objectives could include bonding requirements, preventing workplace injuries,
reducing economic risks and promoting the company’s image.
The most important thing to remember when establishing a risk management program is to set
objectives. Sometimes insurance will provide the answer to risk management,
but there are many risks not covered by insurance and there are many ways
to handle risks outside of insurance.
We would be happy to work with your
construction company to achieve its goals, of which risk management should
be an integral part.
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It’s still
about "Nothing" in particular
There was a rather interesting note in last week’s “From
the Shoulder” column by Tri-County Times publisher Rick Rockman, regarding
Michigan’s pre-school population during the last decade. Nationally, the number
of children under age 5 grew by 8.3% from ‘90 to ‘99. However, our state apparently
experienced an 8.2% decline during the same period.
This takes on particular significance since it means that projected
enrollment in Michigan schools should be expected to decline, while state
education accounts have been amassing monstrous surpluses primarily due to
dramatic rises in new home construction and soaring existing real estate prices.
So, while revenue has risen much faster than projected, enrollments will likely
fall well below projections that were given when Proposal A passed in ‘94.
These number also go a long way toward explaining why local enrollments in districts with substantial housing activity
have only been growing at a rate of approximately seven students for each
100 housing units.
It’s becoming more obvious as every day goes by, that the
state has the funds to pay for capitol improvements to buildings, and it’s
time to pay a visit to this issue before tax payers are hit with additional
millage requests.
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Association News and Events
As we’ve noted in the past four issues, the Golf
Outing is full, with 144 golfers and a waiting list of five foursomes.
However, anyone wanting a dinner ticket or a hole sponsorship should
call the association office no later than Monday, July 24.
The first Parade of Homes deadline is coming on Monday,
the 24th ... after that date the entry fee for the October 7 through 22nd
event will rise to $2,700. If you’re planning on entering and don’t have your
paperwork, please call the association office immediately.
Also, though the final deadline is roughly a month away,
if you want a full color Housing Quarterly ad for the fall issue,
please let us know ASAP.
Gil Cramer was formally installed as the new association
Secretary at the July 11th Directors’ meeting. Gil was appointed as Jeff Doyle’s
replacement. Jeff, as previously reported, moves to Oregon this month. Although
Gil is filling the vacant officer position, there remains a vacancy for a
builder on the board. If interested, call Barry.
Economic Update: Slowing signs
continue; inflation nil ...
Although the Consumer Price Index for June won’t be reported
until tomorrow (July 18), inflation appears to have been well under control
last month, despite exceptionally large rises in oil prices. With the exception
of the energy sector, prices at the wholesale, and even import levels, remained
amazingly well behaved.
Preceding the inflation reports was the month’s employment figures which also suggested growth is slowing. And, another report further
suggests that, despite the highly publicized labor shortage, salaries do not
appear to be rising at a burdensome rate.
But perhaps the most important event since the most recent issue
of Veritas was Federal Reserve Chairman Alan Green-span’s speech to
the National Governors’ Conference on July 11th. In the address, the Chairman
returned to tout the value of productivity in this technological age, and
offered no hints of an imminent rate increase.
So, over the past two weeks, we’ve seen strength in all the financial markets and experienced
mortgage rates falling to their lowest level this year (see page 6). And,
since long term bond rates fell through most of last week, it’s likely that
mortgage rates will be lower when reported this Thursday.
Why the U.S. beats Europe
In his remarks to the Governors, Greenspan did have one interesting
point that we don’t remember hearing in the past. He credited the comparatively
low cost of firing workers as a primary reason the U.S. expansion
has so dramatically outpaced Europe and Japan.
In an explanation of why we have expanded so well in our adaptation to new technologies, the Chairman said, “the rates of return
on investment in the same new technologies are correspondingly less in Europe
and Japan because businesses there face higher costs of displacing workers
than we do. Moreover, because our costs of dismissing workers are lower, the
potential costs of hiring and the risks associated with expanding employment
are less.” In other words, the high costs involved with firing workers in
other countries inhibits employers from taking advantage of potentially risky
opportunities which may fail down the road, requiring layoffs. So, as odd
as it may seem, the low cost of firing is an incentive for hiring, and has,
according to Green-span, been partially responsible for the low unemployment
rates of recent years.
Inflation
How often can you call a 0.8 percent rise in import prices and a 0.6 percent rise in wholesale prices “good news?” Not
often, but that’s what the June reports were labeled, since oil prices, which
subsequently declined dramatically, were totally responsible for the increases.
In fact, without the inclusion of oil and food prices, both the import and
wholesale indexes actually fell 0.1 percent for the month.
Also, for inflation worriers, the release of retail sales data was encouraging. Although up 0.5%
for the month, most of the increase was due to auto sales which soared due
to dramatically lower prices because of dealer incentives.
Indicators/Jobs
The modest pace of growth in the Index of Leading Economic Indicators continued
in May, as the index fell 0.1%. During the past six months, the index is up
just 0.3%. And, although the Unemployment rate fell to 4%, the economy created
just 11000 jobs in June, adding confidence to rate conscious investors.
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Housing Industry News’ Update
One can’t help but feel for the shattered dreams of Tom and Jenny
Smith. The Sillycon Valley couple was actually considering lowering
the price on their 2 bedroom “beautifully landscaped bungalow” since it didn’t
sell, in its first 3 weeks for its listed price of — $1.55 million.
How ego deflating... In an area that’s been known to get a million
for “fixer-uppers and tear downs,” the Smiths’ picture perfect “bungalow”
can’t even bring an additional half million.
Well, according to a recent Wall Street Journal feature,
the Smiths aren’t alone. In fact, there are a number of communities around
the nation where real estate markets have turned from white hot conditions,
where buyers are bidding over the asking price, to temperate conditions where
values are actually falling. A look at first quarter comparisons from 1999
to 2000 finds median prices up just 1.6% across the nation according to National
Association of Realtors’ (NAR) statistics. However, for the same twelve month
period, the value of the average home in the U.S. rose 6.5%, according to
the quarterly analysis of Fannie Mae and Freddie Mac data by the Office of
Federal Housing Enterprise Oversight (OFHEO). More than being affected by
rising interest rates, this discrepancy suggests that the upscale market has
taken the brunt of the downturn in stock prices, which had previously bolstered
the demand for luxury homes.
However, there may be another lesson, as it applies to Sillycon
Valley, in particular. Much like the dotcom companies that drove the
area’s real estate market, there was little residual value behind the explosive
growth in market prices. Like dotcom stock, demand is solely responsible
for the value of the home ... take away the new wave of millionaire buyers,
and the “brick and mortar” value’s gone.
Anyone ready for a game of dominos?
An interesting home marketing story came from the oasis
of Palm Springs (new home of former Flint City Administrator David Ready)
last Thursday in the Wall Street Journal. West coast based housing
giant Kaufman and Broad held their first, large-scale property auction on
the internet, successfully selling 10 homes and 9 lots in the first phase
of a new subdivison. The sales prices ranged from $159,000 to $174,000, all
less than actual value and some as much as $15,000 below expectations. But
a Kaufman and Broad spokesman noted that it costs as much as $80,000 each
month to market a new subdivision and, because of the interest generated by
the auction, believes it will knock roughly six fewer months to sell out the
75 lot development than it would have taken without the auction.
In operating the auction, the company required bidders to register and clear a credit check
in advance. It also set minimum bids for each property in the auction to protect
against potential losses.
About 60 people participated in the auction, which
lasted approximately two hours.
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