Metro's Construction Excise Tax Reporting and Grant Making Has Some Significant Issues.

I have reviewed Metro's reporting of local construction excise tax collection and permitting activity as well as their evaluation criteria for grant making (that uses collected excise taxes) and have discovered some significant issues: 

• Metro is not collecting and aggregating required information from local governments.
• Metro's grant evaluation committee does not have the information necessary to evaluate the variable rate of local affordable housing production, a seemingly key factor that directly relates to the "The benefits and burdens of growth and change are distributed equitably" evaluation criteria. 
• The Metro grant evaluation committee meeting is not on the Metro calendar and presumably is not open to the public. 
• There has never been a full audit of the Metro construction tax excise tax program, including reporting by Metro.
• The current $12,000 fee cap at the $10 million construction permit value level for individual projects has not been reevaluated. (Note that local SDC charges on a per unit basis can easily exceed $6k).

Background
Metro's administrative rules CURRENTLY require quarterly reporting by local governments of key construction excise tax metrics: 

1. The number of building permits issued that quarter;
2. The aggregate value of construction;
3. The number of building permits for which CET exemptions were given;
4. The aggregate value of construction for the exempted construction;
5. The aggregate amount of CET paid;
6. The amount of CET administrative fee retained by the local government

Metro receives monthly or quarterly reports from local governments, but :

• Does NOT require reporting on the number of permits.
• Does NOT aggregate the data for all of the required reporting metrics. 

Metro's only reporting of construction excise tax local activity is in a quarterly $$ collected report that does NOT include local detail on the:

1. Total number of permits or total $$ of construction.
2. Number of permits granted and $$ exempted for projects greater than $10 million, where the current excise tax is frozen at $12,000.
3. Total number of permits and $$ exempted for affordable housing.(Search the quarterly report using "affordable" as a keyword and there are no results).

The failure to aggregate local reporting data for all CURRENTLY required data elements means there is no way for the evaluation committee or Metro Council to consider the variable rate of affordable housing production by local governments that directly relates to the "The benefits and burdens of growth and change are distributed equitably” evaluation criteria. 

Recommended Corrective Actions:

1. Metro staff should regularly assemble and publish a quarterly Excel spreadsheet showing data for ALL the metrics required by their CURRENT Admin rule. 
2. Metro's quarterly report should spell out the variable local level of the number and amount of construction permit $$ for exemptions granted for affordable housing. (Affordable housing unit counts should also be added to the data elements required by their admin rule). 
3. Metro's evaluation committee should consider the variable rate of local affordable housing permitting and construction $$ in it's grant making cycle. 
4. The membership of the evaluation committee should include an affordable housing industry representative, and the meetings of the committee should be open to the public.  
5. Metro staff should reevaluate the current $12,000 fee cap at the $10 million construction permit value level for individual projects. 
6. The Metro Auditor should consider conducting a full audit of the program, including the publication of complete comparative local historical data on the number and value of affordable housing construction exempted from the CET.

 Originally created and posted on the Oregon Housing Blog.

Real Long Term Return on Home Ownership, Less than 0%?

Post HERE from Business Insider will likely make some people mad.  

Based on article HERE from Philadelphia Federal Reserve Bulletin, originally published in Harvard Business Journal. Article says:

Assuming an annual depreciation rate of 2.5 percent, a property tax rate of 1.5 percent, a mortgage interest rate of 7 percent, and a marginal income tax rate of 25 percent for a typical taxpayer, the adjusted real rate of return on housing actually falls below zero (1.3-2.5-1.5+0.25(7+1.5))=-0.575 percent! Remember that 1.3 percent is the real rate of return of the national house-price index between 1975 and 2009.13 Meantime, under the 25 percent marginal income tax rate for a typical taxpayer, the rate of return on stocks during the same period falls only to 4.5*(1-0.25)=3.375 percent.

Originally created and posted on the Oregon Housing Blog.

2011-2013 Excel Workbook: $31.3 Billion In State of Oregon Tax Expenditures; Rental Housing Gets 37 Cents Out of Every $100.

The State of Oregon Tax Expenditure report for the coming biennium includes an Excel formatted table that shows projected costs, and more, for each of the 378 State of Oregon tax expenditures. 

In order to create a format that would allow use of filters and a pivot table I made some edits, and also added a column to indicate IF the tax expenditure was related to housing, and if so, whether it was a home ownership or rental housing related item.

The resulting Excel workbook, with 5 worksheets is HERE; take a look at the READ ME tab to see contents and some explanatory notes. (NOTE: This workbook was created in Excel 2007 format.Some users report when they save Excel 2007 files they end up with a compressed .zip file extension. My suggestion is to RIGHT CLICK and save the file to your PC. Then navigate to the file you downloaded and look at its file extension. IF it appears as .ZIP extension, change the .ZIP extension to Excel 2007 extension (.xlsx), and THEN open the file with Excel 2007/2010

Double Click to Enlarge

Several observations:

1. At a time of severe budget pressure for appropriated/General Fund programs, total Oregon tax expenditures are expected to INCREASE by $3.49 BILLION (12.3%) in the coming biennium, reaching a total of $31,339,500,000.
2. Income tax related tax expenditures will account for $12.07 Billion (38.5%) of all expenditures; property tax expenditures will account for $19.11 billion (61%).
3. The 17.8% rate of increase in income tax expenditures is 95% HIGHER than the 9.1% rate of increase for property tax expenditures in the coming biennium. 
4. Remaining tax expenditures of $155 million (less than 1/2 of 1% of total tax expenditures) come from miscellaneous sources including oil, tobacco, and medical provider sources [medical provider tax provides $100 million of this subtotal]. 
5. My earlier post HERE noted that the total for Oregon housing related tax expenditures is projected to be $2.362 Billion; that amounts to 7.5% of all projected 2011-2013 state tax expenditures.
6. As bar graph in this post indicates, for every $100 in State of Oregon tax expenditures, rental housing will receive 37 cents, and home ownership $7.17. This means the rate of Home ownership to rental housing tax expenditure ratio is more than 19 to 1.
7. Home ownership tax expenditures are project to increase at a higher rate (18.9%) than non housing tax expenditures (11.9%), while rental tax expenditures are projected to grow by a much smaller 4.2% 

Originally created and posted on the Oregon Housing Blog.

Property Transfer Tax News.

1. Realtors, Others Oppose PRIVATE Transfer Tax Programs; Not Allowed for FHA Loans. Apparently some developers around the country have added transfer tax provisions to their developments. (seller pays a fee every time home is sold) with proceeds going to either the developer or to a developer captive non profit. Fees may also be bundled and sold (as securities?).

Realtors and others have formed a coalition to oppose these PRIVATE transfer tax programs; PR is HERE.  PR says Oregon is one state that has "restricted" use of these private transfer tax provisions; I don't know the specific Oregon "restriction" and if anyone does, please add as a comment below. 

PR also says:

An official with the U.S. Federal Housing Administration confirmed that the government will not insure mortgages for properties with Wall Street Home Resale Fees and the U.S. Department of Housing and Urban Development confirmed these fees violate HUD’s regulations.  

I have seen another story indicating that Fannie and Freddie are also looking at these fees.

2.Health Care Law DOES Have Some Very Limited Provisions. Nationally, the Health Care bill has a LIMITED transfer tax that includes a real estate transfer tax for HIGHER income families, and ONLY on profits above threshold amounts. Seattle Waterfront Homes blog HERE has details.

3. Oregon Ballot Measure Will NOT be on November Ballot. Appears to me that a measure that would have blocked local real estate transfer via an Oregon Constitutional measure FAILED to collect the required number of signatures to make it to the November ballot. Oregon SOC page for this initiative (#79) is HERE. (Earlier Oregonian story HERE indicates current law already bans, Realtors wanted constitutional ban).

Originally created and posted on the Oregon Housing Blog. 

Homebuyer Tax Credit Extension Cost: $16.7 Billion; My Estimate of TOTAL Federal FY 2009 Home Ownership Subsidy Cost is $512 Billion.

WSJ story about extension cost is HERE.

Extension Senate Bill is S.1678, (I don't yet see an official CBO scoring for that bill).

Below is a PARTIAL listing of FY 09 federal home ownership subsidies, with links to the source document that contains the estimate.

Cost (Billions)	Use
$ 512.9	Total
$ 11.2	Cost of existing home ownership tax credit through mid September @1.4 million users X $8,000.
$ 16.7	Projected Cost of Home ownership Tax Credit Extension.
$ 290	FY 09 estimate for Fannie and Freddie.
$ 75	Estimate of costs for HAMP (Loan Refinance and Modification).
$ 120	Annual home ownership subsidies for mortgage interest and property tax deductions. (see footnote at bottom of page 17).

NOTES:

1. Subsidies for homeowners are NOT just a federal phenomena. My post HERE shows that homeowners get 91% of all housing tax subsidies from the State of Oregon.
2. HAMP costs shown above include multiyear totals; Fannie Freddie estimate may contain some multifamily related costs and costs are reduced in future fiscal years ($25 Billion in FY 2010 instead of $290 Billion in FY 2009).
3. Additional TARP costs associated with fixing financial institution problems caused by single family loan problems are NOT included.
   

Originally created and posted by the Oregon Housing Blog.

FHA Tax Credit Downpayment Rules Tighter Than Draft; HFA's/ Public Agencies Get More Flex.

WS J news story HERE.
State Housing Financing Agency Association reps says in story:

"The FHA's new policy could spur more states to action, said Garth Rieman, director of housing advocacy and strategic initiatives for the National Council of State Housing Agencies. We think the FHA has gone forward with an approach that will allow low-down-payment lending by responsible state and local governmental entities, but will avoid the risks of opening up no-down-payment lending too widely," he said."

HUD News Release HERE.

Look for Mortgagee Letter 09-15 with attachments HERE, on this HUD web page.