Tuesday, November 30, 2010

Michigan Cities Set to Default on Bonds

From Bloomberg:

Cities and towns across Michigan have had property-tax collections plunge as much as 20 percent in the past year, the steepest drop since a 1994 state tax rewrite, forcing scores of communities to choose by March whether to borrow to pay bills or risk default on bonds.

The municipalities rely on property taxes for as much as 60 percent of their revenue, according to the Michigan Municipal League. State support typically makes up an additional 20 to 35 percent of city budgets has been slashed by almost a third in the past year.

The end of a three-year federal stimulus that sent $3.1 billion to Michigan -- a sum roughly equal to two annual budgets for Detroit -- will force “fundamental decisions,” according to a memorandum from the Michigan Senate Fiscal Agency.

“This gets real bad in about 90 to 150 days,” said Robert Daddow, deputy executive of Oakland County, which has a per-capita income 147 percent of the state average. “The question becomes whether they can secure enough cash from banks and whether banks are willing to lend in a credit-crunch situation.”

The value of taxable housing in Oakland County, which is home to the headquarters of Chrysler Group LLC, fell about 12 percent this year, Moody’s said in a Nov. 23 report. It will drop 10 percent further in 2011 and 5 percent more in 2012, Moody’s said.

Challenged Region
“Declining housing values and a growing unemployment rate within the county demonstrates the county’s exposure to the challenges in this region,” Moody’s said.

The state in October trailed only California and Florida in its number of foreclosure filings, according to RealtyTrac Inc., an Irvine, California-based data firm. A total of 19,288 properties in the state, one in 235 households, got a default or auction filing or were seized by banks last month, the company said. The rate was up 17 percent from a year earlier.

“It’ll take us a decade or more for cities to be collecting what they were a decade earlier,” Summer Minnick, director of state affairs for the Ann Arbor, Michigan-based Municipal League. Some have seen property-tax revenue drop by a fifth, she said. “Right now, we have several communities on the brink of severe problems.”

At the Edge
The recession has pushed many U.S. communities to the edge of Chapter 9 bankruptcy, or, in the case of Vallejo, California, into it. Harrisburg, Pennsylvania, averted a bond default only because the state accelerated an aid payment.

Under state law, Michigan has the final say on whether a municipality can enter bankruptcy. None ever has, according to the state Treasury Department. Detroit said in March it was considering moving toward a filing. Hamtramck, where General Motors Co. manufactures the Chevrolet Volt, has also pressed state officials for a bankruptcy, saying that Detroit, which largely surrounds it, owes it money.

Bond Request
Southfield, an Oakland County city with what Moody’s in 2008 called a “satisfactory financial position,” estimates $19.9 million from its general operating-tax levy this fiscal year, a 16.7 percent drop from three years ago, when it budgeted for $23.9 million. Its administrator and treasurer asked the state Legislature in September for permission to sell $50 million in bonds to cover operational costs.

A Southfield general-obligation bond maturing on July 1, 2023, was valued on Nov. 29 at 100.736 cents on the dollar to yield 4.195 percent, according to data compiled by Bloomberg. The security was insured by Financial Guaranty Insurance Corp., whose parent, FGIC Corp., sought Chapter 11 bankruptcy protection in August after suffering losses from the drop in the U.S. housing market. The bond-insurance unit wasn’t part of the filing.

Brad Reynolds, chief investment strategist for LJPR LLC in Troy, Michigan, is “keeping an eye” on the cash crunch, he said today.

“I see a lot of red flags, but hear very few fire alarms,” said Reynolds, whose firm holds about $100 million in municipal bonds, 90 percent of them from Michigan issuers.

Under a 1990 law, a Michigan governor can declare a financial emergency for a city and install a manager to run its business. Of the seven such declarations, four have occurred since December 2008.

Facing Collapse
“Hundreds of jurisdictions” in the state may face financial collapse in the next three to five years, Rick Snyder, Michigan’s newly elected Republican governor, said Nov. 19.

Nationwide, the value of defaulted municipal securities fell to $2.48 billion through October, compared with $7.28 billion in 2009 and a record $8.15 billion in 2008, according to Richard Lehmann, publisher of Distressed Debt Securities Newsletter.

Lehmann told Bloomberg News last week there may be a “new wave” of defaults in 2011 as federal economic-stimulus aid declines and budget pressures mount.

The number of local governments on Michigan’s three-year-old financial watch list, which measures stresses by debt, tax collections, cash flow and population changes, totaled 68 in 2008, the most recent accounting.

Rich and Poor
Cities on the state Treasury Department’s list include the industrial centers of Detroit, River Rouge, Jackson and Benton Harbor. Suburbs are also in danger, Minnick said.

“These are upscale suburban bedroom communities that had new homes and tremendous price spikes,” Minnick said. “Some are communities you would not have expected.”

The Michigan Legislature has cut revenue-sharing payments to localities by almost one-third in the past year and by $4 billion in the past 10 years, the Municipal League said.

The financial strain on cities is compounded by voter-approved constitutional limits on the growth of property taxes, which restrain annual increases to 5 percent or the rate of inflation, whichever is less.

Falling property-tax collections will create gaps starting next year in the “hundreds of millions of dollars” for cities and townships, said Eric Scorsone, senior economist for the Michigan Senate Fiscal Agency.

Michigan counties reimburse local governments for unpaid property taxes and charge fees and interest as the county attempts to collect delinquent amounts for three years, Scorsone said. If the county cannot collect, the city or township can be billed for the uncollectable tax value.

Scorsone said the financial liability is “certainly going to be a big number and it’s going to hit a lot of places that aren’t aware of the problem.”

“A lot of governments are going to get squeezed pretty hard,” Scorsone said.

The fall in property-tax collections comes even as Michigan is beginning to emerge from a long economic slump. The University of Michigan on Nov. 19 forecast a net increase in jobs in 2011, the first gain in more than a decade. The state’s economic activity in September reached its highest level since June 2008, driven by resurgent manufacturing, according to a Comerica Bank report.

Dangerous Mix
Meanwhile, the combination of foreclosures, falling tax revenue and unfunded municipal pension liabilities is becoming unmanageable, said Charles Moore, senior managing director at Conway MacKenzie Inc., which works with municipalities on financial restructuring.

“I think there’s a very high likelihood we’ll see defaults in 2011 and I expect it will only increase in 2012 and 2013,” said Moore, based in Birmingham, Michigan.

Communities are trying to persuade the Legislature to refinance their bond debt that was initially sold on the assumption that property values -- and property taxes -- would continue to increase at pre-2008 levels, Minnick said.

“I hope we can do the refinancing so we can prevent defaults. I don’t know if, at the end of the day, that will be enough,” she said.

Friday, November 26, 2010

But they give us insurance for that now.

In July, I spent 3 days in the hospital.  A bill hasn't arrived, but a few days ago I received an "Explanation of Benefits" from my insurance company.  The charges from the hospital were $24,103 (this doesn't include charges from the emergency room's physician and anesthesiologist, physical therapy, follow up doctor visits, etc.).  The insurance provider discount for being in the network was $9,265 for a net balance paid to the hospital from my insurance of $14,838.  The first item on the insurance summary is "Accommodations - Room & Board" of $3,900.  $2400 after the provider discount.

I've read numerous stories of people born in the 1940s, 50s, & 60s finding the hospital bill from when they were born.  After a week long stay in the hospital with no insurance, their parents paid cash in the $50 to $60 range.  Adjusted for inflation that is less than $1000 to as low as $370 ($60 in 1940 to $50 in 1960).

I mentioned the above info to a friend to help illustrate how everything the govt does ends up leaving us worse off.  She stated, "yeah, but they give us insurance for that now so we are better off".

Some days it is hard to be thankful.  Happy Thanksgiving anyway!

Thursday, November 25, 2010

Linux And Anarchy - Daily Anarchist

Linux And Anarchy - Daily Anarchist

How can you feel violated by airport security?

A friend's facebook status update and comments (I also know those who wrote the first three responses, the fifth response is mine):
I haven't flown recently, but I don't understand why people are so upset about the pat downs and body scanners at the airport. It's for safety! If you've ever had a gynecological or prostate exam, how can you feel violated by airport security? Is there anybody out there who's been through it that can explain?
  • I don't get what the big deal is either. I was scanned twice in the last week and it took about 5 seconds. I didn't feel violated.
  • agreed...
  • ~ I get scanned AND the pat down EVERY time I fly becauseI have metal in my body...I just wish that I had my choice of people to pat me down - like maybe a cute marine...
  • I agree with you, Jen. Actually, I feel worse for the people DOING the pat-downs than the ones GETTING them!! Yuck!!
  •      Anyone with even a rudimentary understanding of security knows that anything the TSA does is not for security, it is for control.
         Anyone with even a rudimentary understanding of common decency or God given human rights would be concerned over either procedure.

This country is a lost cause.

Thursday, November 11, 2010

Disagree with LRC about TSA porno scanners

I've been reading with interest the LRC columns and blog entries regarding the porno scanners. While I, too, refuse to subject myself to such grossly humiliating invasion, it seems that several of the LRC writers hold mixed and/or contradictory premises.

Either the airlines are private companies who are themselves victims of TSA rulings, or the airlines are quasi-private agencies subsidized by and complicit with the governmental rulings.

In the first case, it does not make sense to punish private companies who, in order to continue to provide any air service at all, are forced to obey the privacy-invasion laws. Yet Kathryn Muratore is doing just that (see here, here, and her new blog here for more background). In short, she purchased tickets to visit relatives across the country before she was aware that the TSA scanners would be introduced at the airport from which she was departing. When she found out about the scanners, she expected US Airways to either refund her ticket or to pay for a rental car so she could drive to a non-scanner airport and take a connecting flight. If airlines are private entities that are forced to obey the TSA rulings, then a ticket refund is a double-assault against the company.

She takes it a step further by expecting Orbitz, the third party agency from whom she ordered the tickets, to provide the refund. Orbitz has nothing to do with the TSA rulings; Orbitz is the "wrong tree" upon whom to express the grievances.

Then Muratore writes,

"Because of [my husband's] work schedule, he cannot commit to any of the alternative travel arrangements that I am considering. That is why, if I don't get a refund, I want to be on the same flight... with him."

Not only does she demanding an alternative flight, but she expects the alternative flight to be the same one that her husband is taking. Yet her original flight was separate from his, so why does it matter if her alternative flight is separate from his? Travel companies are in the business of selling tickets for airline flights, not in the business of coordinating family schedules.

Arthur M.M. Krolman further extends this punishment of a private company unrelated to the airline. As most families get to Disney World by flying, he writes to Disney,

“Now that you are aware that children must submit to nude photography or inspection of private parts in order to enjoy the Disney experience (and on the way home), your silence on this issue may be seen by many as passive agreement with this new pathway to your business…”

Does Dunkin Donuts passively agree with brute force because they serve food to policemen? Does Toys ‘R Us passively agree with public education because they sell toys to public school kids? Does Amazon passively agree to Marxism because they sell books on the philosophy? If Mr. Krolman is consistent, he will have to answer “yes” to these questions, in which case he will be unable to participate in society. Because our economy is mixed rather than free, I can think of no business that is entirely morally clear. Is Krolman willing to make the decision to leave society and live in a cave? To the extent that he is not, then, by his own admission, he is guilty of supporting government intrusion.

Disney responded to his letter, indicating that, "We don't regulate what the airport rules are regarding transportation security administration."

Krolman writes a second letter,

“My children, like thousands of others, are regularly enticed by Walt Disney Company advertising to request a trip to Walt Disney World. Other companies, like McDonald's for example, advertise to children too. Ronald McDonald, Playland and Happy Meals are enticing devices to get kids to plead with their parents to pay a visit to McDonald's. But unlike the Walt Disney Company, McDonald's Corporation does not solicit children to go to their business in full knowledge that they will be surprised with a dose of ionizing radiation and inspection of their private parts on the way. … Bad for business or not, and regardless of your power to regulate the United States government, please accept this letter as my request that you cease advertising to my children about visiting Disney World with no warning of the ionizing radiation and gross indecency they must expect on the way to your business at the airport.”

To be consistent, he will also have to assert that McDonald’s needs to warn kids about trans fats, video game packages need to warn kids about seizures, and cigarette packages need to carry a lung cancer warning. LRC ought to be ashamed for posting this drivel.

Both Muratore and Krolman hold that some aspect of the first premise is true. By appealing to the companies’ profit margins, they indicate their belief that the airlines are private industries that are concerned with staying in business.

Now, suppose that premise is not true. Rather, airlines and the travel industry are government-supported entities that benefit from privacy intrusions. Paradoxically, Muratore and Krolman also seem to believe this premise, as indicated by other parts of their letters. In her second letter to US Airways, Muratore writes,

“Don’t tell me that this is not your fault: you are, by definition, complicit in the TSA actions. The airline industry has not stood up for your customers in decades by allowing warrantless bag searches, the frisking of passengers with medical devices, as well as the more recent humiliations and inconveniences of airline travel in the last decade.”

I find it confusing that she acknowledges these repeated invasions, yet admits to subjecting herself to them by flying in recent years. If she were truly against fascist industry, as libertarians and/or anarchists allegedly are, it is unusual to become alarmed only now, only once the body scans are in place. All ye who bemoan the porno scanners, yet have continued to fly for the last 10 years—despite having to take off your shoes, despite having to throw away your water and lotion and scissors, despite being subjected to massive delays and exorbitant taxes and fees—it is through your continued financial contributions to the airlines, and therefore through your most grievous fault, that the privacy invasions and terrible service have escalated to the level of porno scanners. The time to boycott was years ago.

Another puzzling statement from Muratore’s second letter to US Airways is this: “… I was in tears earlier today as I contemplated the corner that the airline industry has backed me into.” If one admits that airlines are part and parcel with the government and that this is a bad thing, how can one in good conscience simultaneously act like a government collectivist by believing one is entitled to fly? In reality, the airline industry has not “backed” anyone into any corners. Flying is not a right, and we are not owed a flight just because an airline exists. I do not believe it is rational to mourn the loss of the ability to fly, when flying is not an entitlement in the first place.

So my appeal to LRC and Mises writers and readers is this:

Do you believe that the airlines are private companies, and are hapless victims of TSA policies? If so, it is morally appropriate for you to not fly in order to avoid the scanners. However, be aware that you are harming an innocent company by doing so.

Do you believe that the airlines are fascist companies, who are willing participants in the TSA scanner policy? If so, why have you continued flying for the last 10+ years, why do you eat agribusiness food, why do you have your money in banks that received bailouts, why do you buy cars from Chrysler and GM who received bailouts? It seems rather unprincipled to support these companies for so long despite the knowledge that they are part of the fascist system, and only to begin to complain once you are directly inconvenienced.

Friday, November 5, 2010