Category Archives: Economics

Oil bust bad news for many states

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Rock bottom oil prices have been a boon for drivers.

But for states dependent on the oil industry, it’s an unfolding economic disaster.

Here’s a graphic warning about undue reliance on a single industry. It was part of an email analysis emailed to clients of Charles Schwab.

The graph, distributed shows the percentage of state tax revenues from oil and gas production in 2015. These are known as severance taxes. It shows that two states, Alaska and North Dakota, get more than half of their tax revenues from taxes on oil and gas.

I suppose that’s great, at least for state budgets if not for the global climate, during periods of oil boom.

But during an oil bust, like today, it’s likely to be bad news as those oil and gas revenues slump.

The resulting economic pain is obvious. Unemployment is now high in many of these areas.

Schwab warns that smaller counties or cities in the oil dependent states could have trouble keeping up interest payments on their municipal bonds, increasing the risk of defaults that could ripple through the economy.

And I’n wondering about the political impact of this kind of meltdown during the presidential campaign. Economic pain is a potent source of political motivation that candidates will be trying to harness.

Anyway, more to think about.

Source: Charles Schwab

Good series on road maintenance by the Star-Advertiser

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Star-Advertiser reporter Marcel Honore deserves credit for his excellent package of stories on the sad state of island roads, which was also well illustrated and presented to readers.

The stories went beyond a catalog of issues and feel like they got a lot closer to the underlying issues

After years of neglect, crews race to fix roads

Oahu behind the times, road repair experts say

‘Roads in limbo’ compound upkeep problems on island

There are familiar patterns here, and you can almost feel the common factors emerging.

And I especially liked the way Honore undercut the way road repair issues are usually spun.

Here are the takeaways that I found very useful.

1. Hearing elected officials bragging about how many potholes they’ve filled is not good news.

Filling thousands of potholes is “not anything to be proud of,” said Larry Galehouse, director of the Michigan State University-based National Center for Pavement Preservation.

The repairs are temporary, stopgap measures to keep failed roads afloat, and in large numbers they indicate that an agency isn’t keeping up with maintenance, Galehouse and other experts say.

And:

the city’s 37-member pothole-repair team is scrambling to complete tens of thousands of annual repairs across Oahu.

To keep up, the team uses the fastest but least-durable methods to patch potholes on aging streets still waiting to be repaved. That often means it has to return to potholes it fixed because the problem has resurfaced.

“We’re not repairing them in a fashion that you would normally repair defects. We don’t want to fall too far behind,” Department of Facility Maintenance Director Ross Sasamura said.

2. Chronic budget shortfalls have hampered both state and city road repair efforts.

(DOT spokesman) Sakahara said in an email that DOT’s Highways Division “does its best balancing its limited budget and time to ensure that it can meet its highway related duties.” Its needs have “historically exceeded its resources, which is a trend that is expected to continue,” he wrote. DOT officials did not respond to requests for further information.

3. The State Department of Transportation continues to lack transparency and accountability, despite Gov. Ige’s rhetorical support for increased transparency.

The state DOT did not respond to Honolulu Star-Advertiser requests to interview Edwin Sniffen, who heads the highways division, or to emailed questions over the past several weeks.

Refusing to respond for “the past several weeks”?

Hey, the legislature is in session, maybe legislative committees can get more answers? In the past, the problem has been that much of the funding for highways and airports is dedicated funding, and doesn’t rely on routine legislative largess. So DOT has learned that it can essentially ignore pressure from legislators.

4. Poor management is a big part of the problem with road maintenance. A proper maintenance program needs careful planning.

Simply put, local maintenance officials need to do a better job (or in some cases, any job) extending the life of roads by treating them regularly with rubberlike sealants — materials that other places have used for more than 40 years, the experts say.

Moreover, maintenance crews need a detailed program to manage all the work, as well as the leadership and budget to ensure it’s done right, industry experts add.

Remember the UH maintenance backlog? Until relatively recently, maintenance requests were tracked manually using index cards. That’s a management issue.

Anyway, thanks to the S-A for a job well done on this. I definitely recommend wading through the stories.

City’s explanation of discrepancies in real property tax assessments don’t satisfy

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Thanks to Star-Advertiser business writer, Andrew Gomes, for his story on Sunday about the discrepancies between the selling prices of high-value Oahu homes and their often much lower appraisals for property tax purposes (“Home price, taxable value can diverge“).

Here’s the basic thrust of the story:

…in the upper reaches of the island’s housing market where trophy properties shine, it’s not uncommon for city appraisers to value a home well below what a new owner paid.

Sometimes city appraisers can’t justify purchase prices as a “real” value. As a result, an owner’s property tax obligation can be based on land and building values far below what they sold for, resulting in less revenue for the city.

“Sales price and cost is not equal to value,” said Gary Kurokawa, the city’s deputy director of budget and fiscal services.

The difference for a multimillion-dollar home can amount to tens of thousands of dollars not flowing to the city.

Some of the examples are eye-popping.

Gomes cites the example of a Black Point mansion that sold a few years ago for $16.5 million, and then got a $1 million facelift. It was assessed for tax purposes at $9.5 million in 2015, but dropped for 2016 to $8.4 million, a 50% discount off its selling price two years ago.

Gomes reported:

“Sales price and cost is not equal to value,” said Gary Kurokawa, the city’s deputy director of budget and fiscal services.

I admit that I’m confused. Here’s an excerpt from the applicable city ordinance.

Sec. 8-7.1 Valuation–Considerations in fixing.
(a) The director of budget and fiscal services shall cause the fair market value of all taxable real property to be determined and annually assessed by the market data and cost approaches to value using appropriate systematic methods suitable for mass valuation of real property for ad valorem taxation purposes, so selected and applied to obtain, as far as possible, uniform and equalized assessments throughout the county.

It seems pretty obvious to me that the best “estimate” of a property’s actual market value is the price someone has just paid in an open market transaction.

You don’t have to look far to find agreement with this proposition.

“The only real measure of market value is what a particular house sells for. Period,” according to the website CREonline.com.

Could something be amiss with the city’s standard methodology? Under what circumstances do appraisers walk past an actual sales price to assign a dramatically lower (or higher) assessed value, which by law is supposed to approximate the market price?

Perhaps there needs to be a better explanation from the city’s end of just how they actually made the assessments that Gomes cites in his story.