Veritas

Water Control in the 21st Century Proposal would create regional authority

While local officials have been involved in a skirmish as to, whether or not, build our own pipeline to Lake Huron, Genesee County could well be caught up in, what is billed as, a Metro-Detroit battle over control of water. For the past two years the debate on building the line has been as much about politics as it has about costs.
Flint’s Mayor Stanley, a primary player in the process, has been leaning toward staying with Detroit in support of his close friend and political ally, Mayor Dennis Archer. At the same time, most County officials seem to lean toward building the line.
Detroit even lobbied to gain public support to keep Genesee County as a “customer,” with even the Water and Sewerage Department head coming to the Association Office twice.
The point of all this relates to the fact that control of public water is extremely important as it relates to dollars, and even political power.
That’s why it was little surprise when the headline on the front page of this past Sunday’s combined edition of the News and Free Press shouted “Race frames Detroit-suburban battles,” drawing attention to an article about who would control water in Southeast Michigan.
As explosive as the water issue is around the Flint area, it’s even more explosive in Metro Detroit as State Senator Bill Bullard (yes, the Bill Bullard who proposed Impact Fees) is pushing legislation that would replace Detroit’s Water and Sewerage Department with a regional authority. However, many of Detroit’s black leaders claim the plan is one more piece of evidence of an effort by the suburbs to weaken the City’s political power.
The facts are really quite simple: More than 4 million people, in 127 communities, use Detroit’s water system, while more that 3/4 live outside the city. So, the representatives of less than 25% of the users control the system, including setting user rates and the department’s budget that’s nearly $300 million. Bullard’s proposal would create an assembly, made up of representatives from all 127 communities, that would elect a 16 member board to control the daily operations of the system. And, many of those communities’ users are paying substantially higher rates than their counterparts in the controlling city.
In other words, it’s an attempt to remedy a situation where a public utility, serving millions of people, is charging those without a political voice, more than those who do.
The Detroit system serves all of Genesee County where municipal water exists, except for the Cities of Davison, Fenton and Grand Blanc, which have their own municipal wells (and, there has been some talk of Fenton joining the system). So, the possibility of regional cooperation may have some direct benefits for the whole Flint area, and may allow for expansion of the water system without the financial burden associated with the building of another pipeline.
Unfortunately, the legislative battle appears to be building up as, both, an urban and racial issue. But perhaps, this time, fairness and common sense will prevail?

Note: On Monday evening (11-15) TV 2 ran an investigative report on Dept of Water and Sewerage employees; finding them running errands, working other jobs, and engaged in recreational activities, all during working hours for which they were getting paid.

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Term Limits? Bring Back the Pros!

As 1999 came upon us and most of the world’s fears related to the potential Y2K crisis, those concerned with the operation of Michigan state government were concerned about a more imminent crisis; the effect of term limits on the House of Representatives. Sixty-five state reps were taking office for the first time, and most had negligible, if any, understanding of state operations. So, who would be watching over the proverbial chicken coop as the foxes, in the form of state bureaucrats and public employees, were free to run amok?
Well, we’ve now gone through close to a year with the “citizen” legislature, and to say reports have been mixed is being generous. The kind of comments I’ve been hearing range from “they don’t know what the #@*% they’re doing” to “their word is as good as an unsigned check.”
But to this point, it’s difficult to tell whether they’ve done any real harm. Since the senate, and the executive branch, is still controlled by “professional politicians,” there remains some semblance of sanity in the capital.....but that could all begin to disappear next year as Senators begin bailing out for new jobs prior to being forced out by term limits.
The problem is, term limits affect more than just the legislature. They shake up the political structure in nearly every community in the state, and already their effects have had local consequences.
Last Tuesday the Genesee County Board of Commissioners passed a rise in Health Department fees for Sewage and Water regulation (see related article) over our strong objection. Now, on the surface, it appears that the building industry merely lost a battle. But unfortunately, what I observed at the Board recently goes way beyond the surface.
On October 26th, sitting in the Board’s gallery, I shocked a longtime office holder by noting that the Commission’s recent turnover was so great, only two members had ever dealt with a deficit budget. Since 1994, 2 Commissioners moved to countywide offices; 2 went to the legislature; 2 more moved out of the area; and 1 retired. Only the remaining two were at the budget meeting in fall of ‘93 when the board found it wasn’t running a deficit for the first time in more than a decade. Unfortunately, those who weren’t present don’t understand that the county’s prosperity result’s from rising revenues, but would rather credit fiscal management. So, if a department head, such as Bobby Pestronk at Health, comes to them with a revenue enhancement request that sounds good for the county’s bottom line, inexperienced commissioners are quick to accept. Forget that the justification is based on faulty figures. If their administrator says it costs $104 per hour to perform, it must be so. And if he calls a 91% rise in costs a “266% rise,” why question? After all, he must know how to use a calculator; doesn’t he?
It was just two years ago we culminated a project with the county treasurer’s office that developed a presentation for Moody’s Investors Service in, what proved to be, a successful attempt to improve the County’s bond rating. The presentation was dramatic in its focus on the growth of taxable property value from 1992 through 1997. Despite a decline in commercial value, the tax base rose by approximately $1.4 billion, of which housing made up $1.05 billion.
During the presentation, current board chair Tim Herman kept referring to strong fiscal management. At the same time, treasurer Dan Kildee, who dealt with those deficits during the ‘80s and early ‘90s, focussed on revenue growth and potential. It was a clear indication of 2 conflicting philosophies; one based on experience; the other on bureaucratic indoctrination. Unfortunately, as in the health department issue, in lieu of the former, the latter will usually get its way.

Barry

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Critical Industry Issues' Update

U.S. auto sales fell dramatically last month, at least in comparison to October 1998, as the Big Three’s share of the market fell from 70.6% to just over 65%. Domestic car sales fell 7.3%, while truck sales were up 4.9%. Imports, on the other hand, experienced a 41% rise in cars and 18.8% rise in trucks.
Still, total U.S. vehicle sales remain on track to break the 17 million unit level for the year, breaking all previous sales records.

The Flint area’s only remaining home based auto-maker, Daimler/Chrysler, may be experiencing marital difficulties as it hits its first anniversary. As Business Week puts it, the partners decided “they’d be better off with separate bedrooms,” referring to the announcement of reorganization that gives more autonomy to the company’s U.S auto operations.
The company is experiencing marital difficulties as its stock is still depressed, despite the market, down 31% from its high.

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

So, what do Americans really think about public campaign financing? Well, we may have a clue from a sampling of recent tax returns.
New IRS figures show that only 11.3% of returns through August checked the “YES” box to allow $3 of the return to be used in the presidential election campaign fund, down from 12.6% a year earlier. And, the percentage of “yes” checks has declined steadily since the early ‘80s, when 29% checked the box.
Did we really like the Reagan/Mondale race that much? Or, are we that reluctant to send money for Al Gore and Donald Trump (after all, George W. will likely refrain from taking Federal money as it would cost his campaign too much).

In an editorial, titled the “Wisdom of Solomon,” the Wall Street Journal referred to the divorcing couple who were in the news for their recent custody fight over a collection of Beanie Babies worth an estimated $2,500 to $5,000. The divorce decree noted that, due to the inability of the couple to settle the problem, it “took the services of a judge, a bailiff and a court reporter. The editorial responded with “And you thought there was no precedent for the Microsoft decision.” Well, if the Judge truly had the “Wisdom of Solomon” he would have threatened to cut each of the dolls in half. And, if he were 21st Century wise, he would have followed through.

It’s really been quite fascinating during the past two weeks as we watch John McCain’s stock soar following the attack, regarding his temper, which appeared in the Arizona Republic. The fact that a poll has him even with George W. in New Hampshire is one thing. But the sudden national media focus on Bush as an intellectual lightweight seems to be taking hold. As an example, we can look at the current issue of Newsweek with a cartoon noting “Foreign Affairs Resume.” It then shows a map of Southeast Asia with the notation “McCain: 5 1/2 years,” and a drawing of an International House of Pancakes with the notation “Bush: 45 minutes.”
The race for the GOP nomination could take a dramatic turn on December 2nd when Bush exposes himself in a debate with the other candidates in New Hampshire. If he doesn’t hold up well, his candidacy could literally collapse, despite his enormous war chest, and before the first delegate is chosen.

Editor’s Note: For the past 16 years I’ve been on the mailing list for IMPRIMIS, a publication of Hillsdale College, which is renowned for its focus on “tra-ditional” family values and conservative economic principles. Then, last week we learned that the Managing Editor of the publication committed suicide, after a 19 year affair with the College’s president, who also doubled as her father-in-law (her husband is a History Professor at the school). Tradition, incest, nepotism, conservatism? I'm confused.

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Association News Update

It’s time to say Thank You to the members who have supported the Industry and Association through a phenomenal decade as the BAMF Board of Directors has set the final Christmas Party and installation of officers of the millenium for a Wednesday evening at the Beech Tree. The evening includes an extensive hors d’oeuvre and cocktail period, followed by dinner, desert, dancing and comedy.
This year’s headliner is comedic hypnotist Jim Hoke, who brings one of the most “awe inspiring demonstrations of The Power of the Human Mind.” Hoke is known around the country for his hundreds of TV appearances that include stints on the Larry King Show (explaining King’s recent and upcoming fatherhood) and the Oprah Winfrey Show (perhaps explaining her weight loss period?).
We’ll also have Dan Mata, back as DJ for the evening, with music throughout the evening and a special new millenium gift for everyone.
And, as with the ‘98 party, a fantastic menu put together by President Lisa Sears, Party Chair Andria Auker-Foy and, of course, Doug Bosley, will complement all the other activities. So, if you’ve not made reservations yet, call the association office immediately........ ....Remember, members’ cost is only $10; guests cost $25.

As was announced at the November General Membership meeting, the 2000 Table Top Exhibit night has been expanded. Set for Wednesday, February 9th, at Bonaparte’s in the Great Lakes’ Technology Center, the event will be able to accommodate at least 50 tables....so, if you were too late in previous years we should have room for you.
The 2000 event will also run a longer period of time, opening right at 5 p.m. It will also have complementary refreshments throughout the evening and the usual (burger, pizza, hot dog, etc) buffet from 6:30 to 8:00.
Call the association office if you want to reserve a table: 6 feet @ $150; 8 feet @ $200.

As we approach the new year (Century, Millenium, etc.) we’re looking at a number of ideas for activities. We currently have an evening at the Flint Generals’ game set for February 23rd, and a couple of General Membership meetings in the works. If you have any ideas for meetings or special events, give us a call!

Economic Update: Fed raises rates; but shifts to “neutral”

When does the Federal Reserve raise rates causing markets to react favorably? How about Tuesday?
It was really no surprise that the Fed lifted the discount rate and the Federal Funds’ rate, each by .25%. After all, the markets had already adjusted for the hike following September’s price reports released over a month ago. The only question was, whether or not the great news on inflation, noted in the GDP price deflator, productivity report, and subsequent price reports may offset the Feds leaning on the issue.
Well, no matter what any PhD may have said, when the unemployment rate fell to 4.1 percent, there was absolutely no doubt that the tightening was coming. What was more enlightening, and played a major role in the markets’ reactions, was the announcement that the central bank was changing its bias from tightening to “neutral,” indicating that another rate hike in the near future is unlikely. The response to the Fed’s Tuesday announcement saw stocks rise dramatically (Dow - 172; Nasdaq - 52), and long term interest rates continue to hold at 6.05%.
Note: Wednesday morning’s housing starts report caused a bond market retreat.

Inflation
October’s price reports appeared good on the surface, but there were some disturbing features. Though wholesale prices actually dipped 0.1% for the month, the core rate of inflation at the manufacturers’ level was up 0.3%, after rising 0.8% the previous month. Still, perhaps more critical to the Flint area is that car prices were the primary culprit (in September it was the secondary culprit to tobacco). Without the car price increase, the core rate was up just 0.1% and the total PPI was down 0.3%.
At the consumer level, a rise of 0.2% was experienced in, both, the core rate and overall rate.
The best news is that the increase in prices over the past 12 months was, despite the CPI rising 2.6%, the core rate is up just 2.1%, barely above it’s 33 year low for a twelve month period.
And, as we’ve frequently noted in this column, import prices, which have competitively put a check on domestic prices for the past 2 years, are continuing their upward trend. In fact, they rose for the 4th consecutive month.

Productivity
However, the other “check” on inflation, productivity, is doing quite well, thank you.
Rising at a much faster clip than expected, worker productivity jumped 4.2%, well above the 0.6% second quarter gain and the 3% analysts had forecast for the July thru September period.
The productivity report was so strong that a number of fed watchers thought the central bank may refrain from raising rates, particularly since Alan Greenspan has put so much emphasis on productivity during the past few years.

Employment
Employment growth resumed its robust pace in October as the economy created 310,000 new jobs while the unemployment rate fell to 4.1%, its lowest level in nearly 30 years. And along with the “Jobs” report, the Labor Department said that wages rose a mild 1 cent per hour, a smaller than expected increase.
Three days after the report came the findings of employment firm Challenger, Gray & Christmas stating that “job cuts at U.S. companies fell by 63% during October. According to the firm, “some 22,814 positions were shed by various company’s last month, significantly less than September’s 61,219 and well below the 91,531 a year ago.

Housing Industry/Mortgage Market Update

Last Tuesday the Genesee County Board of Commissioners, over association arguments, approved the Health Department’s proposed fee increase for Sewage and Water regulation (11-2 Veritas). After challenging the proposal and having it tabled two weeks earlier, the association learned that approval was recommended for the new fee structure on Monday, and it was on the board docket the following morning.
In its justification for the increases (which ran from 100 to 233% and added a plan review fee), the department presented some incredible distortions of figures (see related commentary) to give the impression that the fees were warranted. In fact, they used the Census Bureau’s average new home cost stats to claim “construction costs have risen 262%” from 1980 through ‘98 (see next note) and claimed that the cost of performance in the inspection process was $104 per man hour.
Now, get this! The memo from the County Controller to the Board said that approval of the request will “cover the items listed in the Health Department’s Environmental Health Budget.” And, what were those “items?” Two sanitarians and equipment (cost/$21 per hour).
The fee increases follow:
Soil Field evaluation $25 to $50
Septic Reinspection $25 to $50
Preliminary Plat evaluation < 40 acres average $80 to $250
Preliminary Plat evaluation > 40 acres $120 to $400
Site review for water or sewage average $64 to $100
Site Review for water and Sewage average $98 to $200
And, there’s still a new fee of $300 for Lot/Soil plan review.
The fees are expected to go into effect at the beginning of the year.

Regarding the Health Department’s claim on “construction costs:” In ‘80 the average price of a new home was $76,400; in ‘98 it was up to $181,900, a 138% increase (not the 262% the Health Department claimed). During the period, the size of the average home grew by 24%, while the cost of labor and materials (as a percent of total costs) fell by 11%. So, we can draw a conclusion that the real cost of construction rose just 91% over the 18 year period, roughly 9 points below the rise in the consumer price index.

Mortgage rates continued their decline during the two weeks that ended on November 12th as inflation fears subsided and bond market activity responded favorably.
30 year fixed rates fell to 7.67 percent, on average nationally according to Freddie Mac while Residential Mortgage Consult- ants’ weekly survey of local lenders found 30 year quotes averaging 7.37 percent and a little over 1.5 points. In both cases, rates were at their lowest level since early summer.
Most local lenders were quoting between 7.25 and 7.5, with 2 points last Friday. Still, rates are roughly 3/4 of a point above their level last fall. And, despite the Federal Reserve's action Tuesday, 30 year bonds were at 6.05%, so if today's Housing Starts report is weak, look for rates to fall again.

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