Home builders pull support of tax cuts over mortgage interest deduction

A group that may be viewed as generally in favor of fewer taxes – the National Association of Home Builders – is not happy that the mortgage interest deduction could disappear in the Trump tax cuts:

That’s because one day before, House Ways and Means Committee Chairman Kevin Brady (R-Tex.) informed NAHB that he would not be including a homeownership tax credit as part of the new tax legislation, which will be released on Wednesday.

NAHB’s chief executive, Jerry Howard, had spent months working on this new tax provision with Brady’s aides, but House leaders wouldn’t allow its inclusion, Howard was told. The next day, Howard and other NAHB officials gathered on a conference call and debated what to do. They agreed unanimously — kill the bill…

The home builders are seen as among the most influential Washington corporate forces, not only because they have members everywhere but are often big fundraisers for politicians and have a close connection to the economy, development, hiring and economic growth.

They are incensed about proposed changes to tax law that, they believe, would eliminate the need for almost all Americans to itemize their tax deductions, an adjustment they think would nullify the need for middle-class Americans to deduct their mortgage interest from their taxes. They are also incensed that the bill would strip away the ability of Americans to deduct their state and local property taxes from their federal taxable income. Both these changes, NAHB argues, would raise the cost of buying and owning a home.

This part of the tax code has been debated in recent years (ranging from fiscal cliff issues to 2010 post-housing bubble discussions). And, more broadly, the United States is the only developed country that subsidizes mortgages in the ways that we do.

It is not a surprise that certain interest groups would oppose changes to the tax code that they perceive could affect their business. At the same time, any perceived effect on housing – not only a major part of the economy but also symbolically important as a marker of the middle-class lifestyle – is going to draw a lot of attention. And this area also involves the interests of fairly wealthy Americans:

But this national wealth-creation policy has several negative side effects. Since tax benefits are most useful for people with taxable income, U.S. wealth-creation policy is predominantly for people who already have wealth. These high-income households don’t consider their tax benefits to be a form of government policy at all. For example, 60 percent of people who claim the MID say they have never used any government program, ever. As a result, rich households can be skeptical of public-housing policies while benefiting from a $71 billion annual tax benefit which is, functionally, a public-housing policy for the rich. As Desmond writes, “a 15-story public housing tower and a mortgaged suburban home are both government-subsidized, but only one looks (and feels) that way.” In short, an asset-building, wealth-creation, or welfare policy that’s run through the tax code can hurt the overall push for more direct forms of welfare—like simply giving money to the poor…

But more generally, people need money to buy houses. The United States still lags almost every advanced economy in the amount of money transferred from the rich to the poor. One major reason is that the tax code has become a vehicle for incentivizing wealth-creation among households who already have the most wealth, even as the government has soured on policies that spend money directly on the poor. It’s hard to find a better exemplar of this sorry fact than the juxtaposition of America’s affordable housing crisis and the untouchable sanctity of the mortgage-interest deduction.

In other words, the interests of the NAHB are not necessarily with the Americans who most need housing but with those who can purchase more expensive new homes. Thus, the mortgage interest deduction is just another piece of evidence regarding a bifurcated American housing market.

Las Vegas willing to pay record public subsidy to have NFL

How much power does the NFL have? Enough to have major cities commit incredible sums of public monies:

Las Vegas appears poised to claim the mantle of World’s Most Expensive Stadium from East Rutherford, New Jersey, where the Jets and Giants play in the $1.6 billion MetLife Stadium. (Los Angeles Stadium, Stan Kroenke’s project that will host the Rams and Chargers, is estimated at $2.6 billion—but that cost includes parts of the surrounding entertainment district.*)

Clark County taxpayers will contribute $750 million to the new arena, a record for a sports facility—about $354 per resident, taken from an increased tax on hotel rooms. That tax currently pays for schools and transportation, in addition to tourism-related expenditures.

Stanford economist Roger Noll said it was the “worst deal for a city” he had ever seen…

The state’s figures to justify that new tax are… ambitious. Its forecasts suggest 450,000 new visitors every year drawn by the 65,000-seat stadium, spending an average of 3.2 nights per visit. About a third of tickets are supposed to be purchased by tourists, although no other city manages 10 percent. Why half a million people would fly across the country to watch a team that no one wants to pay $20 to see in Oakland is not clear.

Even with the studies that show stadiums don’t contribute anything to cities, it seems that someone is always willing to pay. In this case, it wasn’t just Las Vegas: Oakland tried to put together a last-minute deal that they claimed would require even less of the team:

Schaaf told ESPN Friday she believes Oakland’s new stadium plan is viable.

“At the end of the day, this is the decision of the Raiders and the NFL,” Schaaf said. “What I am confident about is, if the Raiders want to stay in Oakland, we have a viable plan to build them a stadium with no upfront money from them, in financial terms that I believe are more favorable to them than the terms in Las Vegas — what we know of them.”

I’m still waiting for a city mayor or other big-name official to publicly bid a major sports franchise good riddance when they ask for a lot of local money. Perhaps that would be bad form – local officials are usually in the business of trying to attract everyone they can – but it could also send a strong signal about how private interests cannot overrule the long-term public interest.

Sociology prof behind San Jose measure to raise business taxes

Sociologist Scott Myers-Lipton has worked to raise business taxes in San Jose:

With little discussion, the council unanimously approved putting a November ballot measure before city residents that would double annual business tax revenue from $12.7 million to $25.4 million. But the business tax voters will decide differs significantly from what Scott Myers-Lipton, the San Jose State University sociology professor who had led a successful 2012 campaign to raise the minimum wage in the city, had proposed last year.

Myers-Lipton was close to gathering enough signatures to qualify his measure for the ballot, but withdrew it to allow for the city compromise measure.

The measure the council approved for the ballot would increase the annual “base rate” businesses pay by $45 and then charge companies with three or more employees $30 to $60 for each worker, depending on the company’s size, capping at $150,000 a year. It would include inflation adjustments. The city’s current tax is $18 per employee for companies with eight or more workers without inflation increases and caps at $25,000.

Myers-Lipton’s proposed measure would have charged large companies based on their gross receipts, either 60 cents, 90 cents or $1.20 for every $1,000 in revenue. The model, he argued, has been successful in other large cities like San Francisco, Oakland and Los Angeles. A city study estimated the change would put an extra $39 million annually into the city’s pocket for services like public safety, roads and libraries.

It sounds like a typical political conversation about taxes. On one side, proponents argue that businesses should pay more, particularly when needed local services are on the line. On the other hand, proponents suggest businesses will leave and/or not locate in San Jose and instead locate in places with cheaper taxes.

Yet, does it make any difference that this tax proposal was brought forward by a sociologist? Conversations about public sociology sometimes suggest that sociologists have limited ability to bring about policy change. This would seem to be a positive example: sociologist who helped bring about a raise in the minimum wage now has a chance to help pass an increased tax on businesses. Both measures could be viewed as moves toward lessening inequality; this is a cause that many sociologists would support. At the same time, do Myers-Lipton’s moves differ much from typical liberal proposals?

Perhaps many businesses in San Jose can afford such an increase with the wealth in the area. Such a tax may not hurt very much in a thriving area compared to a struggling Rust Belt city.

Why would we want to promote more HOAs with a tax break?

A new proposal in Congress would allow members of a HOA to deduct their association fees from their federal taxes:

Upward of 67 million people live in these communities — ranging from sprawling master-planned subdivisions down to individual condominium or cooperative developments. As of 2014, they contained nearly 27 million housing units. Their homeowners associations often provide the functional equivalents of municipal and county services, and residents nationwide pay roughly $70 billion a year in regular assessments to fund road paving and maintenance, snow removal, trash collection, storm water management, maintenance of recreational and park facilities, and much more.

The same residents also pay local property taxes to municipal, county or state governments. But unlike other homeowners, only their local property tax levies are deductible on federal tax filings. Their community association assessments that pay for government-type services are not.

Now a bipartisan group of congressional representatives thinks that’s inequitable and needs to be corrected. Under a new bill known as the HOME Act (H.R. 4696), millions of people who live in communities run by associations would get the right to deduct up to $5,000 a year of assessments on federal tax filings, with some important limitations…

The bill’s primary author is Rep. Anna G. Eshoo, D-Calif. Co-sponsors include Reps. Mike Thompson, D-Calif., and Barbara Comstock, R-Va.. Though the bill has little chance of moving through the House or Senate during this election year, it sends a message to the legislative committees now working on possible tax code changes for next year: Congress needs to acknowledge the role the country’s community associations play in providing municipal-type services. The way to do it is to allow deductions on a capped amount of the money residents are required to pay to support community services.

It will be fascinating to see what sort of formula is used to calculate these deductions as the fees paid to associations do not cover all sorts of municipal services used outside of the association.

At the same time, won’t this promote more HOAs, or at least make them more attractive? And do we really want more? They certainly are popular but they continue a trend that is not necessarily good for society: privatizing municipal goods and helping neighbors guarantee their property values. For the first, instead of paying a municipal government, a new layer of private government is enabled to take care of certain services. Americans tend not to like more and more layers of fees and government. However, this might be outweighed by the second factor: the HOAs help keep the neighbors in line without owners directly having to interact with other neighbors. Instead of possibly having to live next to the neighbor who paints their house purple and starts a garden in the front yard, the HOA polices this. In other words, this tax break might help more and more Americans work out civic life through private associations that they see as a necessary evil.

Given all of the HOAs, is there any analysis that shows they pay off financially in the long run either for the property owners or the municipalities?

Taxing McMansions and other buildings by roof size to cover stormwater costs

Want a McMansion or another building that covers a lot of ground in Mississauga? You will have to pay more for stormwater costs:

In a move that’s a first for the GTA, Canada’s largest suburb and its sixth largest city will soon charge home owners and businesses for storm water costs based on how much of their property is covered. If you have a very small house that causes little run-off water, you will pay nothing. But if your home is in the highest of five size categories, it will cost $170 in 2016 for your share of the city’s storm-water management costs. It’s an approach that Toronto is also looking at ahead of its 2016 budget process, according to a city spokesperson…

Councillor George Carlson, council’s resident environmentalist, has championed the innovative approach since it was first examined in 2011. He recognizes the impact of climate change, but said development trends are also at the root of the problem. “You can’t use pipes the size of Dixie straws when we need massive concrete culverts,” he said after the meeting. “There were streets in Mississauga that looked like Venice in July of 2013 (when a major storm event wreaked havoc across the GTA).”

“But look at all the asphalt and parking lots and McMansions in this city. All of that covered land is sending more and more run-off water into pipes that were probably already too small. I can see the king and queen needing to live in a castle, but does every third person have to?”…

Charges to businesses will be based on a formula that measures the total covered amount of space, but they will be able to save up to 50 per cent of their fee by putting in measures such as catchment basins and permeable material to prevent storm run-off.

It will be interesting to see how this works out. The Councillor quoted above said he thinks this could have an impact on building sizes down the road. Communities with lots of sprawling development often have water problems and solutions range from permeable pavement to green roofs to taxes like these. But, many of these solutions are after the fact which can get quite costly (just see the massive Deep Tunnel project in the Chicago area).

If the real estate pressure is there to build McMansions, I wonder if there are ways around such a fee. (To be honest, $170 a year doesn’t sound like much for the types who buy McMansions.) What if people built underground to get extra space and to minimize the roof size (a la the luxury underground facilities in London)? Presumably there are height restrictions in the community that would limit building up.

Lesson of Glendale, Arizona: don’t put so much public money into sports stadiums

The Super Bowl will be played in Glendale, Arizona but the suburb’s push to become a sports center has not exactly paid off:

As the Coyotes and Cardinals sought new facilities in the early 2000s and efforts failed to build them in other parts of the Phoenix area, Glendale stepped in. The city helped pay for the Coyotes’ arena with $167 million in bonds in 2003, and as the hockey team’s finances began to fade during the recession, Glendale went all-in to keep the team in Arizona. The city dished out $50 million earlier this decade to keep the team and continues to make annual payments toward the arena, but the money it is getting in return has not met expectations.

The football stadium was built in 2006, but Glendale was not on the hook for the costs of the $450 million retractable-roof facility. It was funded primarily with new taxes on car rentals and hotels in the Phoenix area, but that financing hit a snag last year when a judge ruled that the car rental tax was unconstitutional, leaving a major funding source for the Super Bowl venue in jeopardy. The issue is still being argued in the courts.

Glendale is far from alone. Cities and states nationwide have long struggled with how much public money to spend on stadium projects. The effort to build a new stadium for the Minnesota Vikings became embroiled in controversy over a financial commitment by the state that opponents said was excessive. The St. Louis Rams are at the center of a debate over whether to spend public money on a new stadium. Topeka, Kansas, is immersed in a fight over a motorsports track that has drawn comparisons to hockey in Glendale…

In the case of the Super Bowl, he believes the city is paying dearly. He said Glendale will actually lose a “couple million dollars” by hosting the event. It’s spending huge amounts of money on overtime and police and public safety costs associated with hosting the Super Bowl but getting very little in return.

Super Bowl visitors are mostly staying in Phoenix and Scottsdale and only showing up in Glendale on game day, meaning the city won’t see much of a boost in tax revenue. And the city was hoping the state would reimburse Glendale for its police overtime costs, but lawmakers have scoffed at the idea.

Teams and cities typically sell stadiums as engines for economic development. Think of all the fans who will be there! You can build around the new facilities! This will put your city on the map! But, such stadiums come with big costs including tax money that is often used as well as a whole host of other infrastructure concerns (from police to building hotel rooms). And the winners in such schemes are often the team owners who don’t have to pay completely out of pocket for facilities that can immensely boost the value of their team. (A thought: just imagine a team owner selling the team for a big profit – and many current sports franchises would turn such a profit today – and having to reimburse the community for costs incurred.)

But, if Glendale hadn’t built these stadiums, some other community might have fallen over themselves to make it happen…

Debate the data: are millionaires leaving New Jersey in large numbers?

A new report suggests some millionaires have left New Jersey:

New Jersey lost roughly 10,000 millionaire households, but those affluent families who remain still account for 7 percent of the whole state, the researchers said…

A high tax rate for top earners may have led to some migration out of the state, according to David Thompson, the lead researcher.

By losing those 10,000 millionaire households, the Garden State returns to third, where it was ranked from 2010 through 2012. Since the last report, Connecticut lost only 1,000 millionaire households, as it vaulted to the second spot, the group said.

And alternative interpretations:

“If millionaires were truly trying to flee NJ’s top income tax rate, we probably would have lost a lot more when the rates were higher,” Whiten said. “But during the 2000s NJ almost doubled the number of tax filers above $500K at a time when the tax rate was increased on them, twice.”Wealth has been reported leaving the Garden State before, however. In 2010, a Boston College team found that in a five-year period some $70 billion in total wealth left for other parts of the U.S.

Last year, a report by the Morristown-based Regent Atlantic wealth management firm released a report entitled “Exodus on the Parkway” that claimed so-called “tax migration” began in 2004, with the state’s passage of the “millionaire’s tax.” The report found that a couple with an income of $650,000 who moved to Pennsylvania would save some $21,000 per year in taxes, adding up to $1.65 million over 25 years, if invested. Most families with incomes of $500,000 per year or more were departing New Jersey for either the Keystone State or Florida, the Regent Atlantic authors added.

“The phenomena is there, that people are leaving – but people in New Jersey have high incomes,” said Joseph Seneca, professor of economics at the Edward Bloustein School of Planning and Public Policy at Rutgers University.

My interpretation: no one really knows whether 10,000 millionaire households leaving is a big number or not. If the true figure was 5,000, might those who oppose higher taxes still argue that taxes are pushing a large number to leave? And if the true number was 15,000, would this be enough evidence that taxes really are making a difference? Because this appears to be an ideologically laden debate, each side can look at the 10,000 figure and make a reasonable interpretation.

Here are two ways around the issue that both make use of comparisons. The first way would be to compare the New Jersey leavings over the years. Is the 10,000 figure more or less than years past? The second would involve comparing the leaving rate across states. This new report looks at millionaires per capita across states but why not compare the leaving rate per capita across states? Then, people in New Jersey could decide whether they are concerned with having similar or different rates compared to states with other policies.

Miami fights climate change with fees derived from new waterfront condos

Miami can could lose big with the consequences of climate change but in order to fight the consequences, the city needs to approve more oceanfront development:

The more developers build here, the more taxes and fees the city collects to fund a $300-million storm water project to defend the shore against the rising sea. Approval of these luxury homes on what environmentalists warn is global warming quicksand amounts to a high-stakes bet that Miami Beach can, essentially, out-build climate change and protect its $27 billion worth of real estate.

The move makes budgetary sense in a state with no income tax: Much of South Florida’s public infrastructure is supported by property taxes…

By 2020, Miami Beach plans to complete 80 new storm pumps that will collect and banish up to 14,000 gallons of seawater per minute back into Biscayne Bay. Construction started in February. The goal is to reduce sunny day flooding — which frequently invades streets at high tide whether or not it is raining — and prepare the community for future ocean swell…

The $300 million project is ambitious for a city with a $502 million annual budget. A new stormwater utility fee on homeowners, hotels and stores helped Miami Beach save enough money to borrow the first $100 million.

The project started before planners worked out all the funding. It’s unclear how the city will raise the rest. “We don’t have time for analysis-paralysis,” said Levine. We are going to have to get creative.”

It is hard for cities to turn down development when the luxury market is hot. Not only does an overheated housing market attract new residents, a hip reputation, and the interest of developers, it can also generate money for the city through taxes, fees, and increased spending.

Yet, development isn’t simply a game where more equals better. Whether the consequences are flooding or gentrification or a lack of affordable housing, cities tend to approve such projects that bring in money and growth. But, this ignores the bigger picture and the broader consequences that could affect everyone. The money may be pouring in now but what happens if this leads to flooding and a hampered tourist and investor economy for decades to come? What if avoiding the question of affordable housing contributes to other social problems or causes needed workers and citizens to move to other communities? As urban sociologists have asked for decades, who wins when big development takes place? Usually not the normal citizens. Instead, the growth machines – the powerful businesspeople and politicians – tend to profit.

Of course, funding to combat future problems is not easy to obtain. No state income tax in Florida helps contribute to hot housing markets. Should the federal government help pay to alleviate climate change? Should there be state or federal policies that do not allow building such expensive developments right on properties near the ocean (similar questions are raised about floodplains around major rivers)? Cities and other governments have a long way to go in order to figure out this issue.

Local governments staring at higher salt prices ahead of winter

The supply of salt is tight, leading to higher prices for local governments:

Replenishing stockpiles is proving challenging, especially for some Midwestern states, after salt supplies were depleted to tame icy roads last winter. And price increases of at least 20 percent have been common in places including Boston and Raleigh, North Carolina…

Some local governments are avoiding the problem thanks to multi-year contracts or secured bids. Chicago, for example, used roughly three times more salt last winter — 436,000 tons — than it did in 2012-2013, but the city has locked-in rates based on a contract negotiated a few years ago.

Other states aren’t so lucky.

In Ohio, where more than 1 million tons of salt was used on state roads last year — a nearly 60 percent increase over the average — last year’s average price was $35 per ton. This year, 15 counties received bids of more than $100 per ton, and 10 counties received no bids from suppliers…

For road officials, that translates into having to conserve and be creative. In many places, brine is added to salt to boost its effectiveness. Officials also are buying trucks that can, among other things, spread salt in the morning and clean streets later in the day.

I’m sure a lot of these governments are hoping for less-than-normal snowfalls. At the same time, it is also a good time for creative solutions to getting snow and ice off roads. I hope the long-term answer isn’t what we often saw in northern Indiana: just don’t completely clear the roads at all during the winter. This may have been due to the higher amounts of snowfall due to lake effect snow on the east side of Lake Michigan and it wasn’t terrible because of a lack of hill. Still, such a general strategy would slow down a lot of road travel.

I haven’t seen this suggested anywhere but is anyone thinking of some sort of special and/or temporary tax to cover road salt? These are public roads and the funds have to come from somewhere. Such ploys wouldn’t be popular with motorists but it could be more desirable than taking your life into your hands anytime driving during the winter.

The difficulties of merging or dissolving local governments in Pennsylvania

Pennsylvania has the third-most local governments but there is difficulty in trying to merge or dissolve these bodies:

Lawmakers are considering a bill that would allow dissolution and limit municipalities’ stay in the state’s distressed program. Thirteen cities have been stuck with that designation for at least a decade, and fragmentation at the local level makes it harder to turn them around, said Matt Fabian, managing director at Concord, Mass.-based research firm Municipal Market Advisors…Some localities have shrunk so much they may be unable to operate, according to Ross. The communities are stagnating as Pennsylvania’s economy is falling behind, with job and population growth trailing most states, said Standard & Poor’s…

In Pennsylvania, every square inch of land must be incorporated, preventing dissolution. Municipalities in Connecticut, Delaware, Hawaii, Massachusetts, New Hampshire, New Jersey, North Carolina, Rhode Island and Vermont also restrict dissolution, said Michelle Wilde Anderson, who studies distressed communities as an assistant professor at University of California Berkeley School of Law…

The path of merger or consolidation is often unavailable because municipalities are reluctant to take on neighbors, which may be distressed.

This sounds like a two-step process:

1. Providing the legal means for dissolving local governments. Residents may not think about it much but a group of local residents can’t simply declare themselves an incorporated community or start collecting local taxes – this process has regulations and procedures.

2. But, even if such moves were legal, the article hints at another difficult issue: getting communities or governments to agree to merge with others. Americans are generally unwilling to give up local control, even in difficult financial times, or to take on the problems of nearby local entities that might threaten their quality of life. As an example, see the shift in the late 1800s as suburbs stopped desiring annexation from big cities.

Given the financial difficulties a lot of local governments face, I suspect stories about this will be more common in the coming years. Yet, consolidation or dissolving is not a quick process and generally requires consent from all parties involved.