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The tax revolt of 2010 (cont...)

By Fester:

People are in pain right now. Twenty million homeowners are underwater, a systemic debt reduction effort is underway, the employment picture now just sucks instead of horrendously sucking, any productivity and compensation gains are getting eated up by health care premiums and energy prices have bounced back up after an easy first half of the year.

In November 2007, I thought one of the dynamics that we would be seeing in 2009 and 2010 would be a property tax revolt. Property owners in bubblicious areas would see their homes go underwater as values and the regional economy that was built on bubble building deflated, and these property owners would be in pain and in a political position to do something about some of their pain:

People who are stuck with mortgages and houses that they can not sell, refinance or service will be looking for help. They will be looking for refinancing deals, special breaks, holds on foreclosures, delays on credit reporting, and most significantly at the local level, assistance on minimizing the quasi-fixed costs. That means support for more heating and energy assistance, lobbying for lower insurance limits for flooding and hurricanes in disaster prone areas with the hope of either dodging the bullets, or shifting those costs to someone, somewhere else, and most importantly, constant and downwardly revising re-assessments without concurrent increases in millage rates...

Homes are the primary asset for most people, and right now homes are under systemic threat as a symptom of a greater problem. People want to make that pain go away without the costs of fixing the greater problems, and engaging in a local government financial death spiral and micro-local education arbitage seems like a decent short term fix, so we'll see a full scale tax revolt in 2010 or no later than 2012 as the last round of housing bubble junk Option ARM mortgage resets will be hitting in 2010/2011 --- what we are seeing now is just the tip of the iceberg

We have seen refinancing deals, special breaks, and holds on foreclosures as federal policy. These efforts have probably brought marginal relief but they have not addressed the systemic problem of way too much debt and not enough carrying capacity. Local governments are just starting to get slammed as the combination of a decent first half of FY 2009 on revenue collection and short term reserves have made the FY-09 budgets austere but not dramatically shrunked. Those reserves are no longer in place for most states as they face massive budget deficits. Balancing those state budgets will often mean school and local jurisdictions that rely on state funds will see a significant hole in their budget that can either be filled by new taxes or spending cuts.

Local taxing authorities will want to maintain assessed values from the bubble peak years and fight like hell against appeals for lower, closer to market values. Politically it is easier to have a low millage rate on an artificially high base than to have a high millage rate on an accurate base. The New York Times reports on this fight:

Homeowners across the country are challenging their property tax bills in droves as the value of their homes drop, threatening local governments with another big drain on their budgets....

The pain at the state level is trickling down to county and local governments. To compensate, about 10 percent of large counties are raising the tax rates associated with home values to minimize the revenue loss, the county association said....

The revenue losses are coming as homeowners prod towns for new assessments, and as municipalities conduct regular revaluations of their real estate. While declining residential values weigh heaviest on many governments, the value of commercial real estate is also sliding as businesses shut down and move out of storefronts or shopping malls....

Mr. Kramer, the assessor in Contra Costa County, said homeowners started swamping his office with requests for new assessments in December. As many as 500 people would call in one day. His voice mail message now begins: “If you’re calling to request an informal review of your property value due to the declining real estate market.”

Contra Costa has now reduced the recorded value of more than a third of the 350,000 privately owned properties in the county....

I still think that there is a significant political opening for demagogues who call for tax cuts uber alles as that will seem to alleviate some of the pain for a little while and when people are getting beaten down, a breather and a break is a very attractive promise.

Dear Sarah, WTF? (Update: An Embezzlement Scandal?)

by Jay McDonough

Sarah Palin announced today she would resign her responsibilities as Alaska governor at the end of July.  She will turn over the responsibility to govern the state to Lt. Gov. Sean Parnell.

The speculation is Ms. Palin abandoned her responsibilities in order to concentrate on a 2012 Republican presidential nomination run. Here's the governors announcement.

Visit msnbc.com for Breaking News, World News, and News about the Economy

The news comes the same week as the release of a devastating Vanity Fair profile of the governor and the leaking of McCain campaign emails.

Honestly, this is the lamest excuse for abandoning elected office I've ever heard.  "I'm a lame duck so I'm just gonna bag it now?"

I'm sure all the Palinphiles will put on their game faces and feebly attempt to argue Ms. Palin is doing the right thing for Alaskans.  The rest of us are just gonna see a narcissist who's bailing from her job midstream in order to pursue yet another office she's unqualified to hold.

Update: by Steve Hynd

Several blogs are leading with speculation that an embezzlement scandal is about to engulf Palin and is the direct cause of her resignation. Brad Friedman writes that:

I've now been able to get independent information from multiple sources that all of this precedes what are said to be possible federal indictments against Palin, concerning an embezzlement scandal related to the building of Palin's house and the Wasilla Sports Complex built during her tenure as Mayor. Both structures, it is said, feature the "same windows, same wood, same products." Federal investigators have been looking into this for some time, and indictments could be imminent, according to the Alaska sources.

The BRAD BLOG has not been able to receive confirm from any federal sources on this. Our information comes from local Alaskans who follow Palin, and who have been keeping an eye on this for some time, while keeping it quiet at the request of federal investigators.

Think Progress adds that:

The gist of the rumor is that an Alaska building company called Spenard Building Supplies (SBS) was awarded a contract by Palin to build a hockey arena in Wasilla, AK, and in return, SBS helped construct Palin’s home

Update 5 July: The FBI's Alaska spokesman says "There is absolutely no truth to those rumors that we're investigating her or getting ready to indict her."

Option Space and Suicide Seats

By Fester:

Over at 2 Political Junkies, there is some fun and very well justified slagging of Rep. Tim Murphy (R-PA-18) truthiness on repeating a disproven GOP talking point on the costs of cap and trade. One of the commenters asks the reasonable question about the probability of a serious Democratic challenger against Murphy in 2010. I think the probability of a serious challenger is low for a variety of reasons:

I doubt that there will be a strong challenger in 2010 --- the district last cycle went for McCain by a good margin and has a single session PVI of about R+9. That is a tough seat for a Dem to win.

Add onto the fact that if a Dem was to win that seat in 2010, they are going to be severely squeezed in 2012 as Harrisburg has to collapse the five Western PA Districts (3,4,12,14,18) into four districts. Smashing together either 4 and 18 or 18 and 12 with moderate adjustments to everyone else is the most likely incumbent protection redistricting plan possible. So the Dem challenger would be looking forward to one hell of a tough race in a neutral(ish) political environment year and then a fight to the death in the 2012 redistricting.

My political memory is a bit short for this question. Is there a decline in "serious" challengers in the '10 cycle because the shadow of the future and the probability of re-election of a successful challenger declines because redistricting rescrambles the rules in the next cycle?

My theory on this is that as states redistrict, uncertainty increases; uncertainty on whether or not Town Y is included in a district and with it a net 20,000 opposite party registrants or is my house included in a new district by a line that is fifty eight feet wide and fourteen miles long or am I facing an incumbent of the same party in a mashed-up district? I think that these incentives are strongest in states where there is a highly probable loss of districts (which include Pennsylvania) as states that are adding districts opens up the option space while fewer districts restricts option space.

Rumblings from Somalia

By BJ Bjornson

Some interesting stories coming out of Somalia recently that aren't directly related to piracy.  The first is a report from the BBC a few days ago that Ethiopia has sent troops back across the border four months after leaving.  The Ethiopians are denying the reports, but they've certainly done the same thing before, particularly before they launched the major invasion in December of 2006 after the Islamic Courts Union had virtually consolidated their control of southern Somalia and the US and Ethiopian-backed transitional government was about to be overrun.

Also arguing in favour of increased Ethiopian involvement is the fact that said transitional government, whose membership was in neighbouring Djibouti for their own protection last I checked, and whose troops controlled only a few buildings in Mogadishu where they cowered behind a few thousand AU peacekeepers, have suddenly launched an offensive against Islamic forces in the capital over the last couple of days.

Pro-government forces in Somalia have launched a major attack against Islamist militants controlling parts of the capital, Mogadishu.

The forces said they had made some progress during fierce clashes - a claim denied by the opposition leader.

. . .

The BBC's Mohamed Olad Hassan in Mogadishu says most of the fighting is focusing on one of the city's main routes, Wadnaha Road.

"This is a large military offensive against violent people," military spokesman Farhan Mahdi Mohamed told AFP news agency.

"The government will sweep them out of the capital and the fighting will continue until that happens."

The pro-government forces said later on Friday they had made some progress against the militants and then retreated for strategic reasons.

But opposition leader Sheikh Hassan Dahir Aweys said his fighters had been holding ground after repelling the attack.

Coinciding with these two moves is a call from the African Union to impose sanctions on Eritrea for its support of the Islamists in Somalia.  The Eritreans deny this charge, but that is another claim I wouldn't put much weight on given the considerable animosity between Eritrea and Ethiopia.

The BBC's Martin Plaut says the AU's call for sanctions against one of its member states is an unprecedented development.

. . .

A statement from the 53-member organisation said the UN Security Council should "impose sanctions against all those foreign actors, both within and outside the region, especially Eritrea, providing support to the armed groups".

The AU also calls for the imposition of a no-fly zone and a blockade of sea ports "to prevent the entry of foreign elements into Somalia".

. . .

Calls for an air and sea blockade of Somalia and for sanctions to be imposed on Eritrea have already been made by the East African regional grouping Igad.

With the whole of Africa now speaking with one voice the demand for sanctions can go forward to the UN, says the BBC's Elizabeth Blunt, in the Ethiopian capital Addis Ababa, where the AU is based.

Somalia's neighbours hope the international naval flotilla stationed off the Somali coast will use its warships and planes to enforce the embargoes, our correspondent says.

Somehow I doubt those sanctions will include the arms sent to the so-called "government forces" or the presence of Ethiopian forces in the country.

Take all three of these stories together and it starts to look like a coordinated effort to undermine the Islamists' control of southern Somalia.  The last attempt by the Bush administration and their Ethiopian proxies ended disastrously, with a bloody occupation and insurgency ultimately convincing the Ethiopians to leave and resulting in a more hard-line Islamist force with greater hatred of the US than the one they had overthrown, not to mention a couple of humanitarian disasters among the worst on the face of the planet for the civilian populations of southern Somalia and the Ogaden region of Ethiopia.

It also coincided with a major uptick in the incidence of pirate attacks, one which the reassertion of Islamist control along the Somali coastline looked to be about to reverse.

At some point, you'd think people would learn to leave well enough alone, but the interventionist impulse to "do something" appears far too strong.

Rising Oil Prices, Rising Stability?

By Fester:

For the past year, I have been banging the drum that governments that depend heavily on energy exports would be facing a significant cash flow and potentially balance sheet issue.  Energy prices were declining, and traditional forms of bridge capital were being shut down by the global credit crisis.  Even well hedged states such as Mexico had only short term hedges for FY09 and would be facing market exposure in FY10. 

The drum banging may need to quiet down a little bit as the dip down back to the mid 30's per barrel looks to be over and even reduced demand caused by the global recession is creating significant seasonal price pressures as the Northern Hemisphere high demand driving season starts this weekend. 

From the LA Times:

Oil rose above $60 a barrel Tuesday in Asia after investors took heart from signs the U.S. recession is easing.

Most of the oil exporting nations' budgets balance at a price between $ 50 per barrel (Saudi Arabia) and an estimated $80 per barrel (Iraq FY 10).  Oil moving back into the this zone reduces significant stress for oil exporting nations that do not have large foreign reserves as they no longer need to make as many tough decisions between attempting to access foreign capital or reducing spending and pissing off local elites whose patronage machine is being squeezed. 

Assessment food fight

By Fester:

The very big news for the very small community of Western Pennsylvania financial wonk bloggers (we meet monthly in the phone booth at the Monroeville Mall by the Dairy Queen --- plenty of space for new faces) this week is the Pennsylvania Supreme Court affirmed Judge Wettick's order that Allegheny County can not use the 2002 base year system for property taxes as that system is fraught with errors and violates the uniform taxation clause of the Pennsylvania Constitution. 

"[T]he Allegheny County scheme, which permits a single base year assessment to be used indefinitely, has resulted in significant disparities in the ratio of assessed value to current actual value in Allegheny County. The disparity is most often to the disadvantage of owners of properties in lower-value neighborhoods where property values often appreciate at a lower rate than in higher-value neighborhoods, if they appreciate at all."

The base year property assessment system was not declared unconstitutional as the Courts are kicking it to the Legislature to figure out how to fix things.  My bet is two fold:  First Harrisburg will attempt to duck the issue for as long as they can and then some more, secondly, whatever mangled compromise that no one claims credit for passes, it will be declared unconstitutional. 

So what does this mean.  On the very practical level, it means that Judge Wettick will be ordering a re-assessment of all property in the county.  New values will be calculated and new tax bills will be prepared.  And then the fights begin.

This is political dynamite as property owners (who are high propensity voters) do not like to see their assessed values increase as that means their taxes will increase without any other actions taken.  Pissed off voters make for very scared elected officials.  County Executive Dan Onorato is one of those very scared elected officials, especially as he is strongly rumored to be ready to run for the Democratic nomination for governor.  His angle would be the only candidate from Western Pennsylvania and as a pragmatic executive who did not raise taxes on old people during his time in office.  He has vowed to fight the re-assessment and delay it for as long as possible.

On the more pragmatic level, a reassessment within the next eighteen months blows a massive hole in the county budget.  The best guesstimates say a complete re-assessment will cost the county more than $30 million dollars in general revenue funds.  The county is effectively broke right now and it can not afford that type of payment without dramatic cuts in general revenue expenditures such as the police and courts.  The drink tax is a potential source of revenue if the County can get the Legislature to give it permission to raise the drink tax back to 10% from the current 7% and devote the increment to re-assessment.  If that proposal was approved,two years of incremental drink tax revenue would be sufficient to pay for the reassessment.  I would wager that the courts would allow for tri-annual or quadrennial re-assessments as constitutionally valid, so a smaller tax increment may be possible. 

The biggest story that has yet to be talked about is the impact that this ruling has on other counties in the region.  Most of Pennsylvania uses the base year system.  The surrounding suburban and exurban counties use the base year system.  Most of the counties have assessed no more than once in my lifetime.  This gives them a massive advantage on giving new development low assessment values instead of something approximating fair market value assessments, so it is an implicit subsidy from older. pre-assessment built-up properties to new properties.  Requiring regular re-assessment removes this implicit subsidy which should marginally help Allegheny County attract new retail and light office developments near the county lines. 

Be ready for one hell of a food fight on this issue over the next three years....

Swine Flu Mania

By BJ Bjornson

Outside of certain vice-presidents and much of the mainstream media, a lot of people are starting to put this whole "Swine Flu" thing into perspective.

If I were to say that this year 30,000 Americans would die from the flu, you’d probably think I was offering an alarmist take on the current swine flu outbreak. In fact, I would be offering an extremely optimistic take on influenza in 2009. According to the Centers for Disease Control, the country sees about 36,000 flu-related deaths in a normal year and around 200,000 hospitalizations. It’s standard for between five and twenty percent of the population to contract the flu in any given year.

Given all that, not only do we face the risk of an unusually bad pandemic of “swine flu” we also face a risk of panic. Apparently, very high levels of flu-related hospitalizations and deaths are actually pretty normal. But the media doesn’t normally cover them as national news stories. The heightened awareness of swine flu risks, however, means that anything flu-related is going to get dramatically inflated attention.

I think avoiding panic is one of the biggest concerns right now, and its nice to see most now using the WHO numbers for Mexico rather than the much larger "suspected" figures. As the above quote shows, even the suspected cases wouldn't count as a major surprise for an ordinary flu in a country of Mexico's population, but the way it is being treated by the media makes it sound far worse than it probably is.

Not that it hasn't kept certain people from taking advantage of the situation. Though I will have to disagree with John in that it would only be a gaffe if they didn't intend to say it. With this crew, the "kepp-the-dirty-brown-people-out" is unfortunately completely on-message, even if it is entirely ridiculous.

All that said, I'm forced to admit that this story had me shaking my head.

Three young Port Perry women who are Ontario's first confirmed cases of swine flu returned from Cancun on Friday with symptoms but spent the weekend at the local casino and visiting friends because their local hospital never advised them to stay home.

And even after 21-year-old Justine Stevenson was informed on Tuesday afternoon that she has the virus, no one has told her mom to close her home daycare business.

I can't wait until they just quarantine North America.

Wither the Opposition?

By BJ Bjornson

Fester and Ron have already covered the defection of Senator Specter to the Democrats.  The only thing I could add is that in the battle of which party's base is driving its leadership further to the extreme fringe, the Republicans have taken a major lead.  The progressive base of the Democratic Party hates their "Blue Dogs", but they have the sense not to drive away the ones in conservative districts.

With today's op-ed in the New York Times, Olympia Snowe has created some speculation regarding how long she and fellow Maine moderate Republican Senator Collins might remain in the Party of Limbaugh themselves, particularly given the latter's efforts to kick out John McCain as well.

Of course, the situation for Snowe is quite different from that of Specter.  As of the moment, she's in no danger of losing her party's nomination to a far-right ideologue in a blue and trending bluer state, (a truly bone-headed maneuver by the Republican base.   At least when the Democratic base looked to purge a "moderate" from their midst, they picked a Senator from solidly blue Connecticut).

However, the Republicans, who are facing irrelevance in the House, are now staring that same irrelevance in the face in the Senate, which means that the true balance of power, which had previously went to moderate Republicans like Specter, Snowe and Collins, now goes to the afore-mentioned "Blue Dogs", who become to some extent the true opposition party to the more progressive wing of the Democratic Party.  Under such circumstances, and particularly if the Republicans continue their death spiral towards a more and more ideologically pure and irrelevant party, the temptation for someone like Snowe and Collins, who were already slightly to the left of Specter, to "cross the floor" in Westminsterian-speak, in order to remain relevant to the decision-making process becomes very strong indeed.

Such an alignment probably wouldn't last long-term, but it could run for several election cycles, and wouldn't that be interesting?

Tweeting Transparency

By Fester:

The FUD Tax is back and closed loop, non-transparent information dissemination is exacting a cost:

From ABC News on the reaction of New Yorkers who saw a jumbo jet flying low with fighters in an escort position on the jet:

A photo shoot involving a 747 used as Air Force One and two fighter jets flying at low altitude led to hundreds of frightened calls from residents and workers in Lower Manhattan this morning, triggering memories of 9-11 as many evacuated their offices....

According to officials, the flight -- authorized by the FAA -- came in as low as 1000 feet to 150 feet above the city as it made a large circle over Manhattan, Staten Island, and New Jersey. The plane used was the back up presidential plane.

Self-evacuations of buildings in lower Manhattan and New Jersey, including the New York Mercantile Exchange, took place during the fly over.

People did not know what was going on, they saw something that resembled a known threat and they took reasonably intelligent actions (evacuating tall buildings and high value targets) that in the absence of good information, was probably the correct thing to do. However providing good information most likely would have been a fairly inexpensive proposition and would have high societal pay-offs in avoiding fear, uncertainity and systemic doubt. A very informed little bird twirped to me the value of a public safety Twitter feed so that office information junkies could be used as the local transmission nodes of a systemic information dissemination network to tell people that high credibility sources (NYPD, or NY OEM etc) were telling people not to worry. This is a different information mindset than the current top down approach where information is most valuable when it is tightly restricted.

Swine Flu Spreading

By BJ Bjornson

It appears that the swine flu is expanding its reach internationally.

Nova Scotia and British Columbia have confirmed cases of swine flu, while new cases of the infection have been found in New York City, as health officials around the world test for a virus linked to a more serious outbreak in Mexico.

Nova Scotia's chief public health officer, Dr. Robert Strang, said Sunday the National Microbiology Laboratory in Winnipeg confirmed late Saturday that four young people in the province are recovering from "relatively mild" cases of the disease.

. . .

B.C.'s Centre for Disease Control on Sunday confirmed cases of swine flu involving two people from the province who recently returned from Mexico.

. . .

New Zealand Health Minister Tony Ryall confirmed on Sunday a group of Auckland college students who returned from a three-week visit to Mexico on Saturday "likely" have swine flu.

"Ten of the 13 students who had flu-like symptoms have proven positive for influenza A and the swine flu is a subset of influenza A," he said. So we're going to send the swabs to Melbourne for further analysis. We should have that information in a matter of days, but our officials here think it's highly likely they have."

This is likely to be for more widespread than already reported due to the relatively large number of people who travel to Mexico. So far, however, I haven't seen any indication that the cases outside of Mexico are proving fatal, which is good news and may indicate that there are other environmental factors responsible for the Mexican fatalities.

If not, this could get pretty ugly, as unlike the SARS outbreak in 2003, we know that flu is pretty easily transmissible.

Anyway, most of this is speculation at this point. Over at TMV, the resident doctor has a good run-down of advice for everyone. Top of the list: Don't Panic!