By Doug Gentry, on December 31st, 2010
I can’t believe that my local state representative, whom I’ve met several times and who came and talked with one of my University Seminar classes, will be introducing a rent control law for mobile home parks in the next state legislative session. Technically, the law requires justification of rent increases, instead of an absolute price ceiling, but the impact is the same.
OK, econ students, read this article and predict the impact of a rent control law on the mobile home market if it passes. Understanding that mobile home residents are lower income and probably hard hit by the recession, and certainly deserving of our sympathy, is this the best way to help them?
Extra credit – what will be the impact on other markets (forms) of lower cost housing?
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By Christopher Briem, on December 31st, 2010
Ha. you thought this was going to be about the doings downtown today. Not quite, but everything is related somehow.
Can’t believe I missed this. From the Detroit Free Press: Risky bets cost Detroit pension funds $480 million. and check out their side story: Where the Detroit pension funds went wrong. Note the picture they have there on the right. Look familiar? Their accounting.. a $97 million dollar investment in the casino here is now worth $100,000. That would be called a high risk and illiquid asset. Still wondering what specifically makes up our pension fund’s illiquid assets… and what return current (and past!) private equity investments have garnered in a final accounting. Wonks can dream.
Does make you want to give 200 million working captial to people who make those decision. Doesn’t it.
We all know what one of the ‘bets’ the Detroit pension system made is right? Would be a sure thing casino in Downtown Pittsburgh. That has turned out real well for them. Not. In fact, I really suspect that the bath (euphemistically the restructuring ) the Detoit pension system took on its investment here is why the debt rating of the casino here is considered a “selective default”.
Looks like they have a whole series on the problems the Detroit pension system has. The really really sad thing in all that is that the Detroit public pension system is in far far better financial shape than is the city of Pittsburgh’s pension fund. Really.. by far. Also much more transparent if you believe that even. That’s the thing that gets me about all the pension bruhaha here. Folks on all sides debating over things that are mostly unknown to the public, and even to the folks who are supposed to know what is going on.
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By Christopher Briem, on December 30th, 2010
In order to post something positive and to stick to the knitting, several positive economic notes out there. We’ll start with real estate.
I already mentioned the latest real estate data from realstats. The PG headline was quite negative: Region home sales drop sharply. Unless you are in the real estate biz itself, I am not sure sales is a metric that can be universally interpreted as a negative for a region. That is a topic unto itself.
The bigger issue I also pointed out was that the other numbers mentioned in that story don’t quite add up. It said: “Average home prices rose 3.7 percent, from $138,907 last year to $151,556 last month, according to RealSTATs.” OK. Problem is that by my math a gain from 139 to 145 = +9.1%, not 3.7%. So over on my echo that I mentioned in the last post, the principal at realstats that came up with the numbers actually commented and confirmed the PG’s math was off. Real estate values by that measure did in fact go up by over 9% year over year, and the headline didn’t even notice.
Real estate price appreciation of +9.1% over the year is a huge number by most any benchmark. For Pittsburgh it is quite unprecedented. Should note that those numbers are the ‘average’ prices and it may be more common to compare median prices, but that is interesting in itself. Note that how low inflation is, that is a real real estate price increase. Even if 30 years ago there were some nominal increases that were comparable to that, in real terms those gains were minimal in the face of double digit inflation at the time. Latest inflation data is still virtually nonexistant in the US so that rate of appreciation is significant… for Pittsburgh historic.
Then here is the context that makes it an even bigger story. Not only is Pgh real estate appreciating better than other markets.. almost all other markets are heading downward. So Pittsburgh is appreciating in the face of strong national downtrend. If there is an economic story of note around here, in the real estate data is something worth a lot lot more notice than it is getting.
Trib also covered the data with a headline that also skipped the price story: Region’s home sales fall 36 percent over year. It also noted the other story of note that: “The median price of new homes sold (in the region) rose 13 percent to $275,000″. That’s a pretty remarkable factoid for Pittsburgh in itself. New homes basically appreciated in one year by an amount that far exceeds the median value of homes in many city neighborhoods and more than a few municipalities. So something is up.
For a counterfactual angle to it all. The ongoing, if stealth-like, county real estate mass reassessment is ongoing and starting to make noise. If we are about to enter a phase of unprecedented real estate appreciation around here, it might be good for homeowners to get new values set sooner rather than later. Might be painful for some (and only some) folks to see new higher assessments, but like a lot of things… some pain now will avoid bigger pain later.
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By Russ Nelson, on December 30th, 2010
Okay, this kinda of crap makes me angry, just angry. Go read the article. Do you see what’s wrong with it? I see no distinction between legal prostitution and illegal prostitution. Now let’s look at the difference between legal and illegal drugs. The first you can buy in any store (everybody sells aspirin), in controlled doses with brand names and labels. The police aren’t involved, violence isn’t involved, it’s all up front and everybody knows what they’re getting into when they start selling legal drugs.
So by the principles expressed in this article, because illegal drugs are risky, then, too, are legal drugs. Defending legal drugs clearly says nothing about illegal drugs, and yet the article does not distinguish between legal and illegal prostitution. The two situations are very similar in that the illegality is the CAUSE of the problems that make people want it to be illegal! Circular cause and effect! The solution causes the problem. You see this kind of reasoning everywhere. “Oh, oh, poor people don’t earn enough money, so we will help them by forcing a minimum wage.” and yet that destroys the employment of anyone whose productivity does not justify paying them the minimum wage.
This is NOT to justify any of the horrible activities described in the article. They ARE horrible, and they ARE horrors. But I suggest that all of them are caused by the illegality of prostitution, and I encourage anyone worried by the article to examine the operation of legal prostitution.
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By B.P.T., on December 30th, 2010
At 8:30 AM EST, the U.S. government will release its weekly Jobless Claims report. The consensus is that there were 415,000 new jobless claims last week, which would would be 5,000 less than last week’s number as the employment market continues to show signs of improvement.
At 9:45 AM EST, the Chicago PMI Index for December will be announced. The consensus index value is 62, which is 0.5 points lower than last month, but is still well above the break-even level at 50.
At 10:00 AM EST,the value of the pending home sales index for November will be announced.
At 10:30 AM EST, the weekly Energy Information Administration Natural Gas Report will be released, giving an update on natural gas inventories in the United States.
At 11:00 AM EST, the weekly Energy Information Administration Petroleum Status Report will be released, giving investors an update on oil inventories in the United States.
At 3:00 PM EST, the Farm Prices report for November will be released, giving investors and economists an indication of the direction of food prices in the coming months.
At 4:30 PM EST, the Federal Reserve will release its Money Supply report, showing the amount of liquidity available in the U.S. economy.
Also at 4:30 PM EST, the Federal Reserve will release its Balance Sheet report, showing the amount of liquidity the Fed has injected into the economy by adding or removing reserves.
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By Christopher Briem, on December 29th, 2010
Just fascinating reading the three account of the latest on the pension front. Those from Smydo, Vidonic and Potter. You have to wonder what those future archeologists will think of us when they dig this stuff up.
However, I have to give the award of the day to Vidonic though because once you dug through the chaff that was yesterday, the center of gravity all traced back to what the state has to say on all of this. As best I can tell only he got a hold of the person who both enabled yesterday’s soap opera and will determine the end game to all of this.. PERC(the Pennsylvania Employee Retirement Commission)’s Jim McAneny. Per the Trib’s version of all of this:
“It’s too late,” said James McAneny, executive director of the Pennsylvania Public Employee Retirement Commission. “Even if they got $500 million next year, it wouldn’t change the takeover, unless the General Assembly changes the law.”
There you have it. Given that quote in itself, I am at a loss to figure what yesterday was all about. I am actually kind of befuddled how he even enabled this latest little spat. Did he really give hope to folks in Council that there was some alternative path, and if he did why? My only guess is that he, like many in Harrisburg, are generally befuddled by city politics and whatever comments he made were never intended to enable a scene like yesterday (see above stories, but for the painfil details of yesterday see Potter’s). So in learning of all that I bet he was a bit shocked, which probably is what lead to that quote in the Trib. Just a guess.
and with all that.. there is still that hanging conditional he left out there… unless the General Assembly changes the law. Only beginning to go down the rabbit hole on this. You really have to wonder why the fear of having the state manage the investments of the pension fund is so extreme.
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By Ajay Shah, on December 29th, 2010
Since most of us in India can talk about little else other than corruption, do read this article by Nauro F. Campos and Ralitza Dimova on voxEU which is an interesting meta-analysis about papers which analyze the impact of corruption on growth. I have long heard about meta-analysis, but this one made me sit up and notice.
Anand Giridharadas in the New York Times on Arthur Bunder Road in Bombay.
Roger Bate and Tom Woods, in The American, point to a new dimension in India’s crisis of fake medicines.
II Sc will now use the IIT JEE as their entrance examination for the new Bachelor in Science course. Given that the IIT JEE is a well managed and difficult examination, it would make sense to have more and more schools plugging into it in order to filter their intake. But as you move away from the top .01% of the distribution, the statistical precision of the score on a very difficult exam as a measure of student capability tends to decline. The managers of the IIT JEE will need to shift towards adaptive testing, where the questions are dynamically modified based on student characteristics, in order to retain efficiency across the distribution. Once this is done, the IIT JEE would be useful for sifting through millions of students, and exert a beneficial effect of all of them facing a more demanding high-stakes examination.
Shobhana Subramanian in the Financial Express on C. B. Bhave.
A fascinating article by Nicolai Ourussoff in the New York Times about the attempt to reinvent Saudi Arabia.
Sadness about Europe by Orhan Pamuk in the New York Review of Books, and a tragic perspective on Istanbul by Claire Berlinski in City Journal.
A dystopian future for the world: a story of ageing and depopulation from Amakusa in Japan.
Liu Xiaobo’s beautiful acceptance speech for the Nobel Prize for Peace. A lot of countries of the world, including India, have much to do in order to achieve freedom.
Philippines?
Tourism in Afghanistan by Damon Tabor.
Steven Johnson in the Financial Times on the future of linking to information sources on the web.
With 75% of world GDP in service, trade liberalisation in agriculture or manufacturing is not that important. The really big story is trade liberalisation in services, and there the picture is quite bad. Read this article on voxEU by Bernard Hoekman and Aaditya Matoo on how to obtain progress.
Understanding the rise in currency turnover by Michael R. King and Dagfinn Rime on voxEU.
Anders Aslund, on Project Syndicate, on the remarkable story of the global crisis as it played out in East Europe. Also see this
story in The Economist on the same subject, which is a bit less optimistic. The recovery in East Europe matters for recovery in Europe and elsewhere. It also illuminates our thinking on some of the grand policy questions.
David Alexander points out how Australia is the role model for the world.
Barry Eichengreen, Daniel Gros and Ila Patnaik on the resolution of Europe’s problems.
Devin Friedman in GQ on the strange world of social networking.
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By Christopher Briem, on December 28th, 2010
Since several have asked, my general opinion of the latest news on the PPP front is that the latest plan reminds me of My Dinner With Andre.
Policy and philosophy are not really all that far apart. Or maybe it’s finance and philosophy that are more akin than we think. A promise to pay more into the pension fund is not exactly something new in the big picture. Act 205 pretty much requires the city to pay more into the pension fund in the future. So much more that the pension fund will get to a fully funded state eventually. That is what the law already says, no need for any less statutory ‘promises’. So if you step back from all the competing minutia of made up numbers all around, I don’t see what will be different on January 1st. We will have traveled a long winding road to wind up at the status quo. If this promise is made that is, and the state accepts it to forgo the impending takeover by PERC… we will be exactly where we would have been if none of this ever happened. There will still be a large and growing unfunded pension liability and no state takeover. Like it was all a bad dream. Did it all really happen?
Something more substantive: This plan as I understand it it is that somehow the state will accept a somewhat vague promise of future revenue from the parking authority and meters to meet the mythical 50% threshold in pension funding. Remember the 50% number is arbitrary and notional. Come January 1 the new cycle of actuarial calculation will start and we will eventually learn the current state of the pension fund. With lease payment or without, with notional promise of future parking revenue or not, the new calculation will show that the pension fund will never really achieved a 50% funding ratio.
But something I have wondered about in the past, but really might impact this plan more than others (though I wonder about the others as well). Here is what the law actually states is allowable rationale for setting rates in the parking garages owned by the parking authority.
This is an excerpt of section § 5505. Purposes and powers of the Commonwealth of Pennsylvania Parking Authority Law (Act of June 5, 1947, 53 P.S. § 341 et. seq.) that describes the valid factors such an authorities can use to set rates:
(d) Powers…….An authority has all powers necessary or convenient for the
carrying out of the purposes under this section, including:
……..
9) To fix, alter, charge and collect rates and other charges for its facilities at reasonable rates to be determined exclusively by it, subject to appeal under this paragraph, for the purposes of providing for the payment of the expenses of the authority; for the construction, improvement, repair, maintenance and operation of its facilities and properties; for the payment of the principal of and interest on its obligations; and for fulfilling the terms and provisions of agreements made with the purchasers or holders of such obligations or with the municipality. Any person questioning the reasonableness of rates fixed by the authority may bring suit against the authority in the court of common pleas of the judicial district where the project is located. The court of common pleas shall have exclusive jurisdiction to determine the reasonableness of the rates and other charges. This paragraph supersedes a contrary provision in any home rule charter, ordinance or resolution.
So absent some explicit obligation, as in a bond or loan, then it is permissible for the parking authority to raise rates to just fund the city’s pension obligations? Begs the question of what rates are proscribed in any circumstances by that paragraph, but that is why we have lawyers I suppose.
Do I think it matters? Not really. The law seems to give all legal authority to the local court so who knows how that would turn out if there is not path to appeal. It does seem to give a very broad definition of who would have standing in challenging the rates, something that is usually what trips up folks trying to litigate against tax issues. My non-lawyerly reading of “any person” would imply that even just a rate payer could sue; that it need not even be a resident. Plenty of disgruntled and underemployed suburban-living laywers around who would be more than happy to file something. Someone is going to sue is all I predict. Something that would not be an issue if the PPA decided to sell all or some of its Downtown garages which they are certainly permitted to do.
So who knows where this will all wind up? In my ideal world we would be thinking about these things strategically and not just making policy in this uber-reactive way. There is nothing more reactive than what is going on now with this mad rush to do something, literally anything, to meet an arbitrary deadline based on notional numbers with a deadline now measured in hours.
Strategically to me would be to think through what assets the city should own and what assets it really does not want to own any more. Then see if monetization of the former helps deal with the pension problem and go from there. Anyone notice that the stadiumless authority lives this week. More than a few assets over there on the North Shore nobody wants to talk about. Assets you would think would soon be appreciating as the T extension comes closer to opening.
Hey, let’s start talking about GASB 45.
*****
Wait… I’ve got it. This plan is all fundamentally one big huge TIF. Not really a TIF, more Fee-Increment-Financing. A FIF!
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By Eldon Mast, on December 28th, 2010
U.S. retailers put a bow on a positive 2010 and registered their best performance in five years according to preliminary reports released on Monday.
Holiday sales jumped 5.5 percent as consumers returned to retailers across the board including high-end Macy’s Inc., Tiffany’s. and Bloomingdale’s.
Consumers were out in full forces at most every chain and also increased their spending on the Web. Their spending, which accounts for about 70 percent of the U.S. economy, is a further positive sign for a sustained recovery heading into 2011.
“Increasing confidence has freed up more money from savings,” said Michael McNamara, a vice president at New York-based SpendingPulse. “We are seeing this momentum building and being sustained.”
Apparel sales grew the fastest in the 50 days before Christmas, with an 11 percent gain, more than 10 times the pace of last year.
Reports just before Christmas showed that consumer confidence climbed in December to the highest level in six months and that U.S. jobless claims continue to fall with job openings on the rise.
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By B.P.T., on December 28th, 2010
At 7:45 AM EST, the weekly ICSC-Goldman Store Sales report will be released, giving an update on the health of the consumer through this analysis of retail sales.
At 8:55 AM EST, the weekly Redbook report will be released, giving us more information about consumer spending.
At 9:00 AM EST, the monthly S&P/Case-Shiller home price index report will be released. Given that most economists don’t expect the overall U.S. economy to improve until housing prices end their decline, the market will be watching this number closely.
At 10:00 AM EST, the monthly report on Consumer Confidence for December will be released. The consensus index level is 57.4, which would be a 3.3 point increase from November’s number.
Also at 10:00 AM EST, the State Street Investor Confidence Index will be released, which looks at changes in the amount of equities held in the portfolios of institutional investors.
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