Friday, May 30, 2008

The Maine Mantra: Relief to Taxpayers

Taxpayers everywhere, not just in Maine, want relief.
But Mainers, more than most, may be entitled to it. Year after year the Tax Foundation has ranked Maine among the two or three most heavily taxed states in terms of the combined state and local tax burden as a percentage of per capita income. Maine's figure of 14% compares to the national average of 11%.

Governor John Baldacci would like Maine to retreat to the middle of the pack. In 2005 he signed LD 1, a measure to limit year-to-year increases in public spending at all levels--municipalities, school districts, counties, and state. Formulas were devised to calculate for each budget a Growth Limitation Factor, itself a function of changes in average personal income and property valuation. Each town must calculate its own GLF, which is the maximum percentage increase that may be applied to its Property Tax Levy Limit. Any spending above the limit must be approved through an override vote.

My town, good old Peru, Maine, will act on a proposed 2008-09 budget by referendum on June 10. For the first time, Peruvians will be asked by the Selectmen to override the LD 1 cap. Actually, the Selectmen nearly forgot to ask. When it was pointed out to the Board that the municipal budget would expand by 9.2% with passage of all articles, somebody said uh-oh! and called the Maine Municipal Association for guidance. Hence Article 3-A , a late insertion to the warrant that first appeared in the annual town report.

At a public hearing last night, the Selectmen justified the juiced-up Levy Limit by insisting that the budgets for 2006 and 2007 were artificially lean and that you cannot run a town for so little money. I happened to chair the Board during those two cycles. So if anyone deserves scorn for holding the line, it is I. [Never mind that the merger with SAD 21 was growing Peru's school spending by double digits annually, effectively starving the rest of the budget.]

If Article 3-A and all subsequent spending articles are passed, the municipal budget for 2008-09 will reach $583,400. Together with an expected $1.3 million school assessment and a $76,853 county assessment, total appropriations will fall just shy of $2 million. The total tax commitment will come in at roughly $1.555 million, which, according to Selectman Jim Pulsifer, may raise Peru's mill rate from 14.3 to as much as 16. Bon appetit.

Monday, May 26, 2008

Bates College Commencement, May 25, 2008

Brett Hine, Bates 2008, B.A., Music
Posted by Picasa

Wednesday, May 21, 2008

Drinking Water in Short Supply

Pictured above is the reservoir for the city of Barcelona, Spain. So where is the water, you ask? And what's with the building? Submerged when the reservoir was commissioned 40 years ago, the building once again sees the light of day, thanks to human thirst and climate change. Barcelona now imports water on tanker ships.

Dwindling water supplies are also a problem in parts of the U.S. Last week the San Francisco Chronicle reported that the East Bay Municipal Utility District is now rationing water to its 1.3 million customers. After two dry years and the driest spring on record, the District has declared a water-shortage emergency and instituted a drought management program that would cut overall use by 15 percent. The rest of California may soon follow, as the Sierra Nevada snowpack is only 67 percent of normal. Orange County began rationing to its 330,000 customers last year.

Drought has also hammered the Southeast, where reservoirs are dangerously low. There are even rumblings of a border war between Georgia and Tennessee over rights to a part of the Tennessee River. Elsewhere efforts are under way to make brackish water potable.
Albuquerque, Las Vegas, Orlando, San Antonio, and San Diego are all currently considering desalination plants.

Reading stories like these, Mainers are quickly reminded that they are sitting on an increasingly valuable resource: clean, fresh water. It is an asset which multinational corporations are eager to monetize, and they are blitzing local planning boards with large-scale proposals to pump groundwater, bottle it, and truck it outta here. To their credit, some communities are resisting. Perhaps Maine should consider legislation similar to what Vermont passed last month,
declaring the state's groundwater a public trust and establishing a permitting process for high-volume users.

Thursday, May 15, 2008

So THAT'S What They Mean by Self-Storage!

Sometimes you have to get out of rural Maine
to recognize broad cultural trends, especially emerging ones. In June 2001 my daughter and I hit the road to look at college campuses. We exited Maine on U.S.-2 and wended our way across northern New England and into New York for our first stop, Skidmore College. All told, we visited ten colleges in seven states over eleven days. We saw a lot of the upper Midwest.

There were three things that we saw too many of: single-occupant vehicles (particularly SUVs), golf courses, and the newest of the three, self-storage facilities. Let me dismiss the first two quickly. We all know about Americans' over-reliance on the automobile. Idling in congested commuter traffic on Chicago's freeways (there's a misnomer) reinforced my conviction that cheap gasoline is a curse. As for golf courses, they swallow up wildlife habitat and farmland to benefit relatively few people. They are an ecological scourge.

So what about self-storage units? At the time we joked about how Americans have so much STUFF that they cannot fit all of it in their domiciles anymore. There are houses for people and now houses for their stuff. Remote storage seems a tacky testament to modern consumerism and excess.

Now for the newest trend, reuniting people with their stuff. This is no joking matter, as explained in the N.Y. Times earlier this week. People facing foreclosure on their homes need to park their stuff temporarily, so they turn to self-storage units. Problem is, the people who cannot keep up with their house payments also tend to fall behind on their storage rentals, thereby running the risk of having their stuff auctioned off. The solution for some people is to walk away from the house and move in with their stuff (storing themselves, as it were), which must drive local code enforcement officers crazy. My suggestion: put car pads next to the storage units and use retired SUVs for housing.

For more on the booming storage industry (and on the vultures who descend on the property auctions), go here:
Losing a Home, Then Losing All Out of Storage

[update, May 14, 2009--]
James Quinn at Minyanville has calculated the following: "Americans have accumulated so much stuff that their McMansions can’t contain it all. In 1984, there were 6,601 self-storage facilities with 290 million square feet space; in 2008, there were 51,250 “primary” self-storage facilities representing 2.35 billion square feet - an increase of more than 2.0 billion square feet. There's 7.4 square feet of self-storage space for every man, woman and child in the nation; thus, it's physically possible that every American could stand -- at the same time -- within the space we've allotted to self storage."

Tuesday, May 13, 2008

Mother, Meet Meredith

Meredith Whitney is today's E.F. Hutton: when she talks, people listen. And what she is saying today about four of Wall Street's biggest firms will not please shareholders. The Oracle of Oppenheimer describes the outlook for Merrill Lynch, Goldman Sachs, Lehman Brothers, and Morgan Stanley as "far more bleak than that reflected in the market." She has cut 2008 earnings estimates for the group in half and singles out Mother Merrill for an "underperform" rating.

Whitney first made a name for herself last October 31, when she pointed out that the biggest U.S. bank of them all, Citigroup, had insufficient cash flow to cover its dividend to shareholders. Unless it slashed the dividend, raised capital, or sold assets, it was on a path to bankruptcy. Within a week Citigroup's CEO was gone. By January Citigroup was implementing the measures recommended by Whitney, who by then had received death threats for telling it like it is.

This was a classic the-emperor-has-no-clothes shift in perception. Investors were forced to accept that valuations were spun out of thin air. Balance sheets were (and still are) stuffed with derivative dark-matter that is illiquid and hard to price--marked to myth, not to market. How can anyone figure out what these firms are worth? "You can't really know,'' says Whitney. "The financial disclosure is terrible. They're all either liars or they don't know--but I assume they really just don't know.''

And for that company executives have been paid mega-millions, way more than what Whitney makes as a lowly analyst.

Sunday, May 11, 2008

Bull in a China Shop

In its zeal to solve one problem, Congress has created another. Lawmakers thought they were doing the right thing last year when they mapped out a timeline for increasing the supply of biofuels in the U.S. The goal: reduce our dependence on foreign oil. The strategy: expand domestic production of renewable fuels five-fold to 36 billion gallons annually by 2022. Corn farmers will be the big winners in the early going, as annual production of corn-based ethanol will double to 15 billion gallons.

It has been just five months since President Bush signed into law the Energy Independence and Security Act of 2007, supported by all four members of Maine's congressional delegation. Already the ethanol mandate is coming under fire. Last Wednesday the Senate Homeland Security and Governmental Affairs Committee examined whether the rush to corn-based ethanol is contributing to higher food prices. Susan Collins of Maine, the senior Republican on the committee, thinks so. The week before she had joined 23 other Senate Republicans in drafting a letter to the Environmental Protection Agency (EPA) calling for a change in the mandate. In the words of presidential candidate John McCain, "this subsidized program--paid for by taxpayer dollars--has contributed to pain at the cash register, at the dining room table, and a devastating food crisis throughout the world."

Did he say subsidy? That's right, ethanol blenders qualify for a federal tax credit of 51 cents a gallon for helping to meet the Renewable Fuels Standard (RFS) mandate passed in 2005. That comes to $2.5 billion a year. Corn growers get their own subsidy, and they are further protected by a tariff on imported ethanol of 54 cents a gallon. That keeps Brazilian sugar-based ethanol out of our market, to the consumer's detriment. Ethanol from corn costs $1.05/gal. to make with a per-acre yield of 400 gallons. Ethanol from sugar cane costs $0.81/gal. at 590 gallons per acre. Which business would you rather be in?

All told, corn ethanol is subsidized to the tune of $1.45 per gallon. But a gallon of ethanol does not deliver the same energy as a gallon of gasoline. In reality the subsidy comes to well over $2 for every gallon of gasoline replaced. We get way more bang for the buck for subsidies paid directly to the oil industry. Meanwhile, diversion of corn (as much as one-fourth of the crop) from food to fuel has jacked up food prices by 25%--"
the best example I've seen of the law of unintended consequences," said Collins at Wednesday's hearing.

When it comes to predicting consequences, politicians struggle. As Henry Hazlitt wrote many years ago in Economics in One Lesson, "the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups." Subsidies and tariffs tend to lead to a sub-optimal allocation of resources, to stubborn inefficiencies. "Free prices and free profits will maximize production and relieve shortages quicker than any other system."

If we must subsidize something, perhaps we should move away from corn ethanol and toward cellulose ethanol derived from crop wastes, wood wastes, and perennial grasses. Corn currently gets ten times the subsidy as the other biofuels combined. A more balanced program would allow different regions of the country to match their R & D to the available feedstocks. As it stands now, corn-belt agribusinesses get fat while the rest of the world starves.

[update, May 15:]
The U.S. Senate today passed the Food, Conservation and Energy Act of 2008 by a lop-sided 81-15 margin. Among many other things, the bill reduces the tax credit for ethanol refiners from 51 cents a gallon to 45 and expands subsidies for cellulose ethanol, steps that Senator Collins would presumably support. However, she voted against the entire package, perhaps because it proposes to spend roughly $300 billion over five years and preserves subsidies to farmers making as much as $750,000 in annual farm income. Currently there is no limit whatsoever; President Bush had proposed a limit of $200,000. The President has threatened a veto, but the Senate has enough votes to override.

Thursday, May 8, 2008

Pain in the ARS

Why can't we ever get lawyers like that?
I ask on behalf of all Mainers, who can only watch with envy as Massachusetts Attorney General Martha Coakley adds another notch on her belt. This time it is UBS Financial Services Inc., the latest Wall Street firm to be nailed for marketing "enhanced" cash investments to municipal entities. As reported on the front page of this morning's Boston Globe, UBS has been coaxed (sorry, couldn't resist) to repay $37 million to 17 cities and towns for auction-rate securities (ARS) for which there is no longer a market. Towns had been parking excess cash in ARS, which rolled over weekly or monthly until the market seized, to juice returns.

The settlement with UBS follows an earlier deal with Merrill Lynch whereby the City of Springfield was refunded $14 million for money invested in collateralized debt obligations (CDO). In each case, the broker/dealer was forced to admit that the investments in question were not permitted by state law, which restricts municipal cash to highly liquid accounts that guarantee the principal. Also in each case, the broker/dealer admitted only to a one-time misdemeanor. "UBS is pleased this matter has been resolved," said a company spokesperson.

Maybe it has, maybe it hasn't. Massachusetts Secretary of State William Galvin has issued subpoenas to UBS, Merrill Lynch, and Bank of America regarding the sale of ARS to individual investors and businesses. Conducting its own investigation is the Securities and Exchange Commission. If a pattern of abuse is revealed, then aggrieved investors, public and private, will be lining up for restitution.

The State of Maine continues to wait for resolution of the MainSail II fiasco. Creditors were alerted in March that "no valuation of the Issuer's asset portfolio [...] provides any reasonable expectation" that senior secured parties will get all their money back. Other investors may get nothing. The assets (which have shrunk in value by two-thirds since Maine jumped into the pool) are now in receivership, so the eventual outcome for investors will be, if not entirely satisfactory, at least orderly. Price discovery awaits.

Meanwhile, Maine Treasurer David Lemoine, still ticked off at Merrill Lynch for pushing the MainSail investment, has blackballed the firm. The State will be selling nearly $120 million in general obligation bonds later this month, and Merrill will be getting no piece of that action. “Until the Mainsail II matter is fixed and I am satisfied that the Merrill Lynch brokerage culture is trustworthy," said an exasperated Lemoine, "this office will not bring Merrill Lynch into any of our bond deals.” Take that, Merrill Lynch.

Tuesday, May 6, 2008

A Class Act

This morning's Globe has a must-read piece on Dan Doyle, a Bates College grad and trustee whom I had the good fortune to meet, quite by happenstance, three years ago--at Pep Boys in Auburn. It was a Saturday night, just before closing. He was there for a new tire prior to driving back from campus to his home in Connecticut. I had arrived by tow truck, my Taurus in need of a new idler pulley after breaking down on the Maine Turnpike in Gray.

After making the Bates connection (my son, Brett, was then in his first year), our conversation was off to the races. Dan's knowledge of New England sports is encyclopedic; he was able to name the coach and best player of the Yale basketball team that I had watched as a student (1967-71). Dan wanted to know all about Brett, whose budding tennis career he promised to follow. I gave Dan a tip about a high-school hoop phenom in the River Valley, a gal named Kaubris, but we ended up letting her get away. She went to Bowdoin instead.

Dan is all about appreciating and respecting people. There is no greater ambassador of sportsmanship, as you may read here:
Dan Doyle draws up a game plan for sports parenting - The Boston Globe

Thursday, May 1, 2008

Flight Suit, Pants Suit...Whatever

Five years ago today the war in Iraq ended. We know that for a fact because our president told us, right there on the deck of the USS Abraham Lincoln. And so said the sign behind him, "Mission Accomplished." Ever since then we have simply been mopping up. Good thing, too, that we got it over with as quickly as we did. There is no telling how much a five-year war would have cost us.

P.S.--That circus stunt in a jumpsuit, obviously staged for a future campaign ad, debased the office of the Presidency almost as badly as Tricky Dick's dispatch of his "plumbers" to the Watergate complex.

"Fill 'er up, it's on me!" said Hillary Clinton yesterday to a sheet-metal worker in South Bend, Indiana. Actually, she said it to the cameras. But Jason Wilfing did not mind being a mere stage accomplice; he was getting 63 bucks worth of free gas for his boss's Ford F-250. Good deal.

And has Hillary got a great deal for the rest of us, too! With no bandwagon of her own, she jumped on John McCain's and seconded the call for a moratorium on federal motor fuel taxes this summer. That's right, Mr. Middle Class Consumer, you should get a break from having to pay 18.4 cents per gallon of gasoline into a fund that pays for highway repairs. Put that money right back into your pocket. We will offset the resulting revenue shortfall by, now get this, billing the OIL COMPANIES!

Believing that Exxon will not pass a new windfall profits tax right back to the consumer is like believing that the Iraq War is over. Exxon charges what it does because it can. It is a matter of supply and demand. Removing the fuel tax will not increase supply, but may very well increase demand, bringing the pump price back to the original balance point. We will be right back where we started, except with new costs of compliance for extracting a new tax. McCain's proposal would be even worse: what is now being paid as a federal tax will eventually go to the oil companies instead, inflating their profits and executive compensations. This favors the little guy?

When Hillary has time actually to think a little more about a gas-tax holiday, she will recognize the proposal for what it is: a bad idea. But who has time to think? Hillary is campaigning 24/7, trying to survive from one primary to the next, hustling votes any way she can. Her fixation on the short term reminds me, indeed, of Aviator Dubya himself.