Wednesday, December 31, 2008

Assessment vs. Property Tax

It's tax season. People are receiving their property tax bills for the January 1st, 2008 assessment. So there is a lot of chatter about values, property assessments, budgets, and the like. A common complaint I hear is, "I couldn't get that value if I tried to sell it now." This may be true. But the value is of January 1st, not as of the day you received the bill. The assessed values are produced early in the year. Assessors analyze data (sales) from the previous year to see where the market is trending. They arrive at a value for January 1st of the year. Property owners receive a notice in late April, they then have the first three weeks in May to formally object to this value. This seems to be ample notification and time given to homeowners for them to present their case for a discrepancy in the assessed value to the local assessor’s office.

[Since 2008 saw a national slowdown in economic activity during the last quarter, assessors may weigh sales during that period more heavily in their analysis to reflect such for their January 1st, 2009 assessment.]

By state statute, assessments are conducted to determine the fair market value of a property as of January 1st. It’s “as of” such a date because of the complexities and vagaries of the market place. Stability for this municipality revenue-producer, as with any operation, is needed for budgetary and planning constraints. Having some type of moving-target date would allow endless arbitration, court costs, and gridlock.

If a compelling case can be made by a property owner for much-needed repairs (provide a written estimate for the repair), an adverse adjacent influence, or other encumbrances that may detrimentally affect the value of the property, I don’t know of an assessor who wouldn’t make the adjustment to the property value to reflect these negatives.

But the usual thing I hear is “the market.” The market is bad and the property owner wouldn’t receive the assessed value if he tried to sell it. As if assessors aren’t paying attention to the market. Sale of the subject property, or a comparable property, gives the best indicator of the market value of a property (also by state statute). An assessor wouldn’t believe the value of your property either if he or she didn’t have the sales of that property or other similar properties indicating the value.

Assessors follow sales throughout the year. They can see trends, increases and/or decreases. They can see if recent purchases are the same, higher, or lower than the present assessment. If most valid, arms-length sales of a specific type of property in a specific area of a city are moving in one direction or another, it’s relatively easy to see.

Too often homeowners use anecdotal and incomplete information to jump to conclusions from one market to another. Yes, a housing bubble popped. But, as with all bubbles, some areas are affected more than others. Wisconsin towns and cities did not see the stratospheric rise in prices that was witnessed on the Coasts. Also, Wisconsin banks, in general, were nowhere near as invested into the Ponzi-schemes that the financial industry created over the last few decades. Arizona, California, Florida, and Nevada are taking most of the hard hits in the deflation of the housing bubble. Does that mean we won’t experience any aftershocks? Of course not. But it also means that thirty-five percent declines in the Las Vegas property market do not equate to thirty-five percent loses in the Milwaukee property market.

Valid, open-market, arms-length sales are the number one indicator of value. And, the sales must be comparable. Don't reference the homes in bad condition, that are one-thousand square feet smaller than your home, that just sold for a lower amount than your assessment. This isn't a comparable home. Compare apples to apples. Don't just search for homes that sold at lower values than your assessment and reason that your home is only worth that much.

The assessed value is used in your property tax equation. But what you’re assessed at matters much less than what the needs of the locality are, and the budget to fund such operations, in determining what your tax bill will be each year. Your assessment may go down, your tax bill can still increase. Alongside budgetary downturns are usually increased needs for public provisions – food pantry, shelter, etc – which increases city, county, and state budgets. Also, the public (MPS) and technical schools (MATC) need funding, the State takes a share to redistribute to areas of the state where the funds are needed even more, the County uses part of this money to fund it’s operations, MMSD gets part of the money to manage our sewage, and the City uses the rest for it’s day-to-day functions.

The bill for the total of these budgets is divided by the total assessed value of all the parcels in the city to determine a mill rate. Your property’s assessed value divided by one thousand, then multiplied by the mill rate will give you your property tax bill.

The bottom line comes down to: what kind of a society do we want, with what kind of quality-of-life, and what is the fair distribution of the tax burden to provide such an existence. The total bill is quite a bargain for all it provides. I would even like to see it increased so we can provide an infrastructure spending plan and create jobs, and also to provide a heightened quality of service provision throughout the state. But, I also feel that the bill does impose too heavy a burden on working and middle class families as a percentage of their income.

Making corporations pay their fair share and getting rid of many exemptions, tax breaks, depreciation schedules, and other pointless giveaways to the well-to-do would balance the budget and provide the long-term funds and infrastructure needed to attract and maintain business and assure a good quality of life that Wisconsinites have come to expect.

Wednesday, December 24, 2008

Bailout Bewilderment

Rachel Maddow explains more on the double-standard of the bailouts and exposes the backroom shenanigans whereby Wall Street is stealing, in collusion with the Treasury, more of our money. Laura D'Andrea Tyson, in usual economic jargon, tries to placate Rachel's questions/concerns. It was the usual - don't worry, we've gotten everyone into this mess, we know the best way out, there should be some strings attached, but we must lend billions quickly without too many questions. Tyson learned all too well, during her time in the Clinton administration how to appease the bond traders.

Maddow follows up on her discussion with Laura D'Andrea Tyson (whom provided excuses for the firms involved and blamed the Treasury for the lack of transparency) the next day. As a professor she knows about ethics in disclosure and research. Her action would be similar to a journalist writing a glowing piece on Apple without disclosing that he/she has millions in that company's stock. The problem isn't that she didn't know enough to disclose the connection. The problem is that all the major players in our society have entanglements and connections, which rarely any of them reveal, nor are there legal repercussions for such indiscretions. This cronyism and opaqueness throughout the system are glaring factors in the culmination of the current crisis (and throughout our country's history of class warfare).

The Treasury assuredly deserves some blame. But when all we've heard for the last thirty years is, "leave he market alone" and "the market knows best," it's difficult not to fall back on those bad habits, give firms the money they claim they need, and believe they can straighten up the mess. It's especially hard when the characters running the Treasury and their advisers are former investment bankers, Wall-Streeters, and hedge fund managers.

The CEOs, managers, brokers, and their ilk should be stripped of a major percentage of their assets (which are ill-gotten gains) to help pay for their mess. The private jets should be sold and their options given to the Treasury (to cash-in when the companies stock prices increase). Salaries and bonuses, going back years, will be automatically turned over to the Treasury.

If this were Joe Sixpack caught in illegal activities swindling money in nefarious ways, he would, no doubt, be stripped of all of his assets and face jail time. Just for good behavioral economics sake, the fine should fit the crime. Removing even ninety percent of hedge fund managers, and the other bozos, wealth still leaves them with an absurd amount of wealth to operate from...when they get out of jail.

Tuesday, December 23, 2008

Free Market Collapses (Again)

Within the last century our economy has experienced peaks and valleys punctuated by (now) two depressions. Presently, we're not (neither, officially, is the NBER) yet referring to what we're experiencing as a depression. Although, if we add together the list of things we need to accomplish and/or repair - unemployment, poverty, educational inadequacies, health care, housing, financial regulation, manufacturing, farming, needed infrastructure maintenance, climate change, to name just a few - it is a daunting task, and nothing but "depression" can describe it.

It's also interesting to note that both of the worst economic times in our recent history occurred after bouts of, what I like to call, "free market flu." The belief that the market is somehow a lone, all-knowing entity. That it is not somehow merely a creation of, or lack thereof, laws and regulations and societal institutions (laws and regulations are kind of like the game-board upon which our actual lives are played). Each time we've allowed ourselves to reach a fever pitch of the ole' laissez-faire attitude - culminating in 1929 & 2008 - we've collectively destroyed far more wealth with our greed (once the bubble pops) than we gained from the short-sighted speculation beforehand.

Let's also keep in mind that the gains go to mostly a top, select few. "Free" market practices as preached by it's disciples have never produced the gains, growth, or shared prosperity that they claim. Our employment is basically the financial speculators' insurance plan. Keep enough rats running on the wheel so that we can still provide something worthwhile to sell in the global market, just to keep up enough credit-worthiness for Wall Street's movers-and-shakers to get Chinese loans to make highly-leveraged and risky financial bets on everything under the sun. But then everything blows up. The managers and brokers keep their bonuses, salaries, and options. The loses incurred because of their poor management are paid by the U.S. Government (us). They get a meal. We're just left with the bill. This is criminal.

This is what happens when a country believes a bit too much in it's own hype, and forgets to give respect to the professions that provide the real long-term capabilities for the Country to do quality research and development, to manufacture it's own necessities, to provide for it's own energy and transportation needs, and to have the intellectual capacities to make technological innovation possible. This isn't just economic security, it's national security.

When the shit hits the fan, everyone comes with their hand out to Uncle Sam. (Suddenly socialism and redistribution aren't such dirty words.) The U.S. Government is supposed to sit idly by while the Masters of the Universe * (aka The Fortune 500 & Wall Street) pontificate about how they can create financial innovations to reduce risk, increase credit, provide high-yield returns, and make everything it's utmost efficient because of a magic place called the market, where everything is Utopian if you just leave it alone.

But when you leave the market alone, if it should happen to destroy retirement accounts, pensions, jobs, or employment opportunities, you must simply step in to cover the market's debts (aka private speculators loses) and leave it be. If you try to regulate, the next time will only be worse. Even though the market is supposedly somehow always moving toward an optimal state without regulation. Supply-side economics: one incorrect economic assumption after another in circularly infuriating logic.

It's been the cause of two depressions. The effects of the misguided supply-side theories have impoverished generations. Can we please let go of the chatter as if this is some sort of credible economic theory? We know what works. We know what gives modest returns, predictable growth, and stability. Can't we just do that and stop appeasing the discredited free-marketeers?

Sunday, December 21, 2008

Corralling the Corporate Kleptocracy

Corporations (which have rights like authentic people – they gain such through being chartered by obtaining a certificate of incorporation) are bad citizens. They don't pay their fair share of taxes if they pay at all. They also impose costly negative externalities upon society. And, they corrupt our political processes for their own gain. We can change this.

Watch The Corporation.

The Big 3

The recession we're in at this point is an opportune time to commence three interrelated initiatives.

1) Campaign Finance Reform
2) Universal Health Care
3) The Green Economy

Changing our way of financing campaigns – getting private money out – would go a long way toward reforming our broken government, illusory democracy, and fraudulent corporate culture. The national discourse would suddenly change from whoever has the most money to get their viewpoint or issue to the top of the national spotlight, to what is in the best interest of the majority of the nation. This is the quickest route back to a politics of, by, and for the people.

With all the talk of globalization, competitiveness, and manufacturing these days, one obvious way to make the U.S. more viable is to enact universal health care and remove the cost from our employers. Also, with a reinvigorated medical establishment focusing more on preventable disease and providing services to more citizens, we would have a healthier, better educated, and more productive labor force. And, in the end, this would save money, which could be reinvested in more productive uses.

And, finally, as a way to recreate some of the well-paying jobs lost to globalization and outsourcing (and corrupt political & private dealings) we need to reconfigure our manufacturers to build technologically advanced, sustainable, "green" products desired the world over. I can’t think of a better way to reestablish our automakers. By downsizing their line-ups – making fewer brands and fewer styles – U.S. automakers can concentrate on fuel economy and quality. The excess productive capacity can be used to begin generating more solar panels, geothermal, wind turbines, etc. Not to mention, this last initiative also helps save the planet – which we kind of need.

Friday, December 19, 2008

Foreign-owned: Yes. American-owned: No.

Greg LeRoy, Good Jobs First’s executive director, proclaims, “And while proposed federal aid to the Big 3 would take the form of a loan, the vast majority of subsidies to foreign auto plants were taxpayer gifts such as property and sales tax exemptions, income tax credits, infrastructure aid, land discounts, and training grants.”

These state and local subsidies for foreign-owned auto assembly plants total approximately $3.6 billion.

Just more of the beggar-thy-neighbor, zero-sum development policy we're pursuing in the U.S.

This whole - make the automakers sweat - episode is really just cutting off our own nose to spite our face.

The Pabst Farms Mirage

I warned against Pabst Farms back in February 2008. Another retail wonderland is the last thing Wisconsin needs to be publicly-funding at this - or for that matter, any other - time. Such subsidization merely realigns spending away from existing shopping destinations toward the newer, shinier destination. A colossal waste of public (and private) resources if there ever was one.

But wait a minute, things aren't going as planned.

I thought this was a slam-dunk economic development initiative?

One of those unstoppable catalysts that was necessary, creates jobs, and spurs further development.

So why can't the developers even sign tenants?

Maybe it has something to do with the duplicative, sprawling, inefficient, environmentally unsound, and bribery-laden path of our urban planning & economic development. Sites compete for capital, subsidizing businesses to locate in less than optimal locations. This increases productive inefficiency, whilst hamstringing the unsubsidized competition. All this slows growth from what it would be without the subsidization. It also decreases municipal tax revenue which reduces the provision of public services (which are crucial to quality of life indicators) and encourages labor force contraction.

I can only hope Obama's appointment of an Urban Czar can correct some of these deficiencies.

Saturday, December 6, 2008

Doing Development Right

James Rowen, of the Political Environment (an excellent blog), gave kudos to John Kovari, of the Public Policy Forum for a blog he posted regarding regional development. While it's great that the Journal-Sentinel raises this issue, and that Rowen and Kovari are engaging in a discourse about such, it's seems there is much context missing from the discussion. If we really want to tackle the problems of sprawl and other urban issues we need to operate from a much bolder paradigm, rather than tinkering around the edges of a system and models that do not work.

John Kovari opines, "There has been little empirical evidence linking regional cooperation initiatives or regional governing bodies with clear economic benefits." In the Midwest region, alone, Indianapolis and Minneapolis are shining examples of regional governance done correctly. The problem isn't a lack of empirical evidence supporting regional governance, but NIMBYist parochialism and a lack of political will to put such plans into operation.

Mr. Kovari reports, "There is much economic research, based on the “public choice” theory of Charles Tiebout, that argues that local competition is more efficient than regional cooperation." Tiebout's model is based on highly restrictive assumptions, which rarely pan out in the real world. The model places much reliance on the invisible hand of the market to steer decisions, somehow, toward Pareto optimal outcomes (which are assumed the apex of outcomes, but again are based on an unreasonable framework of theoretical idealism). The model assumes that every person can move whenever and wherever they wish. It also presupposes that local government public goods provision is known and stable. All of which are highly dubious assumptions.

Kovari writes, "Strong, tangible incentives from individual municipalities (along with state tax breaks) draw the first-class corporations." This is a roundabout, and very kind way to describe our system of economic development, which is basically bribery by businesses pitting one city against another, driving up their bounty. Numerous studies by Peter Fisher, Greg LeRoy, et al have shown the inefficiency of this system.

Near the end of the posting, he states, "Regional cooperation in building specific infrastructure projects, such as public transit or intermodal freight stations, has been found consistently to raise local property values." Yet these basic infrastructure improvements, other than highways, seem to take lower priority in budgets year after year. Maintaining the public infrastructure in itself is a sound public policy for providing jobs and attracting business.

As more tax code is written which allows corporations to avoid taxes, and as more cities give exemptions and breaks to business, obviously homeowners pay more. There is a minimum standard of public goods and services people expect, this is why people (with the means to move) choose a community. If cities strangle their taxpayers pocket books to provide reduced public service provision -- due to uncollected corporate taxes, and costly and unnecessary business incentives -- this is a sure way to drive away residents.

A crucial component to solving our urban issues is federal directives ending the "war among the cities" and redistributive policies that give taxpaying homeowners a break, by removing some of the exemptions, tax breaks, and unnecessary TIFs and such littering our landscape.