Tag:government
Wealth Tax
There is an old adage regarding investing that when your stocks are down, you haven’t actually lost any money until you sell the stock. Because of this, the corollary has always been, that likewise, the gain is not realized until you sell the stock. Gains and Losses “on paper” don’t really matter, until they are realized when they are converted to cash or traded for other things. President Biden and now candidate Harris, along with some members of Congress are pushing a Wealth Tax, which would tax these paper gains.
As an example, if you bought 100 shares of Apple’s stock in 2010, it was 6 dollars a share. It cost $600 to make that purchase. It is now over $200 per share so your $600 investment is worth upwards of $20,000 or a 33 times as much as when you bought it. But that gain is on paper. You’re not able to use that value to purchase anything until you sell the stock, at which time you’ll take a $5,800 capital gains haircut.
The wealth tax proposal suggests that you should pay tax on that unrealized gain now. But how will the unrealized tax be determined? Apple’s stock’s all time high was $237, but its highest day end value was $234. And on August 5th with the short crash, it was at $207. Those numbers all are within the past month. With the constant fluctuation of stock prices, will there be an arbitrary day chosen? The all time high? An average of the past year? At a minimum, this seems like a record keeping nightmare. Record keeping is already a problem with the current capital gain tax where you have to keep documentation of a stock purchase price, transaction costs, and splits along the way… sometimes over decades. This is worse with a business or property where you have to track expenditures on improvements, depreciation and other things that affect value.
Another local example is what has happened to many families around Lake Maxinkuckee. Their ancestors owned a lake cottage which was bought decades ago. The property was passed down to descendants. Not all of these descendants were wealthy, but suddenly they were wealthy on paper because of the appreciation in lake property values. They were then forced to sell property that may have been in the family for generations because they couldn’t afford the real estate taxes on the appreciated value. The wealth tax could be another hit on unrealized generational wealth like that.
In a Kiplinger.com article, John Goralka posits this concept about estate planning, “The cash people receive from you is more cash than you have.” This translates to day to day things as well. Wealthy people don’t live like Scrooge McDuck, with a vault in the back of their home where they swim in gold coins. How much money do you think Elon Musk or Jeff Bezos have that they can access immediately? More than me, I’m sure, but as a percentage of their wealth, I would guess the percentage is smaller. Wealth is generally tied up in “things” and those things are working to help you create more wealth. Some of those things employ people who provide goods and services. It’s likely that a wealth tax would require forced liquidation of those things to pay the tax. That would result in less investment in those things so that cash that should be put to work in the economy is held back in anticipation of tax liabilities.
John Goralka’s article has made me think about my own situation. I own my home and currently have no plans to sell it. That value adds to my net worth, but it’s not money I can spend. But when I die, that home will be converted to cash to distribute to heirs. A smaller version of what Elon Musk has with Tesla and Jeff Bezos has with Amazon, but the concept is the same.
In our current DEI world, it has become de rigueur to bash successful people. Hard work, saving and investing are out of fashion. Along with the wealth tax, there are discussions about taxing 401(k)s and IRAs where people have saved too much or invested successfully. Envy of wealth has replaced the aspirational goal of becoming wealthy. Most wealth is the result of some risk. Most wealth remains at risk as it remains invested. No government has been good at playing Robin Hood. We should push back on this, as a tax on those creating wealth by a government that can’t live within its means won’t end well.
Cost of doing business
The Pointe has been all over the news and social media lately due to the City of Plymouth deeming the property unsafe to occupy. This has forced the charitable community to jump to action to help the residents of the 16 units there. On top of the general low income housing shortage in Marshall County, there is the issue that this property was renting at the very low rate of $400 per month. To the best of my knowledge, this is not a subsidized housing site.
As has been described to me, the facility is a former nursing home, so the “units” are small rooms with half baths, i.e. a sink and toilet. They are set up with common (shared) men’s and women’s showers and a community kitchen. There has been some deferred maintenance that includes roof leaks leading to other damage. Pictures from the Pilot News indicate that there is some mold/mildew, but the level and danger from that would have to be professionally assessed.
The landlord is taking it on the chin for this. Again, I know none of the background, reasons for deferred maintenance, etc. But I do think the $400/month is an unworkable business model. So if all the work that is projected to be needed there is done, there’s no way it supports itself at that rental rate. Here are some numbers to start the conversation:
- The property was purchased by the current owner for $126,000 in 2006 per county records.
- The county lists the square footage of the property at 9,840sf. That’s roughly $13/sf which is dirt cheap. Assuming it had to be financed, most commercial loans require 20% down ($25,200), can only be financed for 20yrs (unlike a home with a 30 year mortgage) and with an interest lock of only 5 years, i.e. it has to be refinanced every five years. Lets assume a 5% loan rate (low right now, high a few years back), that gives you a monthly payment of $665/month or $7,980/yr.
- The county lists the yearly taxes for this property at: $5,634
- There was a past roof repair estimate of $85,000. Apparently there has been deterioration since then and we all know what inflation has done. For discussion, lets round that up to $100,000.
- Someone shared an estimate of $10,000 for a mold assessment.
- A low estimate for mold remediation would be $100,000, which assumes $5k per unit plus common areas.
- Mold remediation will require tearing into walls, ceilings, etc. From looking at the pictures, there is a lot of repair and remediation needed without that. Let’s put $160,000 towards the units and $40,000 for the common areas. (probably low.)
- For discussion, let’s put $60,000 towards clean-up and updates to the exterior.
- This will require building permits and since it’s commercial, so architectural plans to go to State. Architect fee: $25,000
- Permit fees and such: $5,000
- Minimum of 8 months to get it done, so no rent during that period.
So lets total that up as if someone were to buy this this and puts it back the way it should. That comes to $626,000. I think this is probably a cheap number, but it’s a starting point for this discussion.
First pass: 20% down = $125,200 The remaining $580,800 financed per the above at 5% = $45,996 in loan payments, against fully rented 16 units x $400/month x 12 months = $76,800. Seems like a decent return of $30,804, but remember, right now, plunking that $626,000 into a government bond funds would pay in excess of 5%, or a yearly return of $31,300 with no risk.
But lets do a second pass the way a developer would look at this:
- Rent: 16 units x $400 each x 12 months = $76,800
- 7% vacancy and bad debt = ($5,376)
- 7% management fee = ($5,000)
- Property Taxes = ($5,634)
- Administration and leasing = ($3,000)
- Maintenance Payroll – tax, benefits, etc. = ($9,000)
- Maintenance Contracts & Supplies = ($5,000)
- Utilities (All included) = ($12,000)
- Insurance = ($13,000)
- Misc = ($1,500)
- Debt Service = (45,996)
Now we’re at a loss of $28,706 despite some of those numbers being generously on the low side. Not including the time value of money, i.e. the $125,200 down payment would earn $6,350/yr at 5%. So looking at the first three numbers in the above list, it would take a rent increase of $173/unit to get to break even. Most banks won’t finance a break even project and most developers want to make some money and have some cushion for unforeseen things. And nowhere in there was any maintenance reserve savings for when the roof needs replaced again or whatever unforeseen problem comes up.
Granted, this is an extremely simplified analysis. It doesn’t take into account the benefits of depreciation, since those are only a benefit when there is profit. Likewise it doesn’t take into account any taxes on the theoretical income. It also doesn’t take into account any escalators for inflation. There would be a large spreadsheet that a commercial developer would run this through to make their analysis.
Minimum Rent to make this begin to work would need to be $700/month, when existing tenants say they are struggling with the current $400/month. Reality is more like $800 – $900 to get to comparable rates in Plymouth that make economic sense to cover the myriad of additional things that will come up in the renovation and the probably greater management, vacancy and bad debt costs that are likely. The significant age of the building warrants a large maintenance reserve.
But lets take a step back and do really, really rough math (because I don’t know their expenses) on existing conditions assuming with the initial investment of $126,000. Assume 20% down leaves $100,800 financed. Using the 5% interest rate number in the previous scenario, that’s $665/month = $7,980 per year.
- Rent: 16 units x $400 each x 12 months = $76,800
- 7% vacancy and bad debt = ($5,376)
- 7% management fee = ($5,000)
- Property Taxes = ($5,634)
- Administration and leasing = ($3,000)
- Maintenance Payroll – tax, benefits, etc. = ($9,000)
- Maintenance Contracts & Supplies = ($5,000)
- Utilities (All included) = ($12,000)
- Insurance = ($13,000)
- Misc = ($1,500)
- Debt Service = ($7,980)
This would give us a profit of $14,944/yr. There may be other expenses I haven’t put a number to and conversely there are those that would suggest the maintenance line items should be zeroed out, since maintenance has been less than needed. In any case, this is not a gold mine as it exists today.
This is the real life example of what I’ve said for years… I would rather have a leaky roof over my head than no roof at all. Some of these residents have been living that situation, but the City has (rightly) cited safety concerns that removed their leaky roof.
the $626,000 number is a low number for the renovation, but it’s an impossible number to duplicate that building. $626,000/9,840sf = $64/sf. New construction on a facility such as this would be in excess of $200/sf. It is also questionable that a new facility such as this would meet current zoning standards, though a variance might make it possible. Then there is the issue of where to put it. Even if built on the same site, rezoning would be required along with the variance. That would prompt the same NIMBY protests that Garden Court ran into with the two sites they considered for their project. Theoretically, Garden Court’s GC Horizons project should have been less objectionable as fully functioning apartments.
Plymouth as a community has some hard decisions to make regarding housing. Complaints are rampant about facilities like The Pointe, but solutions are few. As seen with The Pointe, just shutting down the problem facility without a viable alternative creates a different crisis. As seen with Garden Court’s GC Horizons project, those that step up with a solution are often disparaged. Mayor Listenberger is making efforts, but is getting a lot of pushback. It’s tough when there’s a cry to “Do Something!“, but it’s accompanied by a chorus of “But Not That!“… no matter what “that” is…
Some things never change… That’s just part of the cost of doing business…
Strange Use of Funds (cont.)
This is a Culver follow up on the Burr Oak post, Strange Use of Funds, from last September. I still vacillate between amusement at the absurdity of that project and outrage at the wasted tax dollars.
In any case, my bemusement extends to Culver and the thinking that went into the crosswalk from the southwest corner to the northwest corner of intersection of S.R. 10 & S.R. 17 at the end of Lake Shore Drive. First, it’s an absurd place for a crosswalk. As with some of those pointed out in the Burr Oak post, there is no connecting walk on the north side. Second, there are no storm drains or even right-of-way swales, so the condition pictured to the right, is pretty normal when there is any rain at all. Third, in the best of conditions, as shown in the picture below, the corner remains muddy after a rain, the walk is below the road and the surrounding grass, and it runs directly into a gas line marker and part of a stone wall!
This was a Town of Culver project, but I assume this design falls squarely within INDOT requirements. Culver just wanted a sidewalk going west to accommodate Culver Academy students walking to the Family Dollar. This extra little feature was no doubt a INDOT requirement, costing several thousand dollars in engineering and construction. Money spent to solve an non-existent issue, while not fixing real issues, i.e. flooding and obstacles, that make this even less useful, if that’s even possible.
I often wonder if others see these things. For any of you that have looked at this and scratched your head, did you also notice the weird hump in the sidewalk just west of this intersection? The rest of the new walk pretty much follows the curb grade, except for the 20′ +/- section right there that rises up 4″-6″ and then back down for no discernible reason. I suspect someone kicked a grade stake and no one noticed until it was too late, but that’s just a theory. There could be many other explanations. It just looks weird though…
Keep your eyes open people. You never know what you’ll run across. Best to just be amused, because impotent outrage will just make you crazy.
Blight
It seems odd to talk about Blight and missed opportunities at the same time, but here we are.
I attended the SBERP RDA ( South Bend Elkhart Regional Partnership Regional Development Authority) board meeting last week and heard presentations of several properties that would benefit from the Lilly Foundation funds that have been pledged to them for blight elimination. As a sign of the times, all of them included some form of housing, as additional and better housing is the biggest perceived need at this time. The project that would be most recognizable to those in our area contemplated a multi-million dollar renovation and repurposing of the old Kamm and Schellinger Brewery in Mishawaka currently known as the 100 Center.
Several properties in St. Joe and Elkhart Counties were submitted. Marshall County was conspicuously absent… thus the missed opportunity.
Blight, as referred to when talking about communities, is generally a reference to systemic vacancies. But it is sometimes referring to buildings with deferred maintenance. I’m sure we all can think of properties in our communities that would fall under one of these definitions. Without even trying, I can name seven properties that fit this definition in Culver. I can think of half a dozen in Plymouth. I know of several in LaPaz and Argos. I’m sure those familiar with Bourbon and Bremen could name similar properties there. So how did we allow this opportunity to pass us by? Couldn’t we have put together something? We are the smallest county by population in our three county regional partnership. There would have been strong incentive to try and share some of the largess if we would have presented something.
We’re at a disadvantage in these things that we need to figure out how to overcome. The internal staff available in South Bend, Mishawaka and Elkhart to throw at these opportunities far outweigh the capacity of any Marshall County community. One Marshall County is being touted as a possible answer to this, but they couldn’t muster the effort to make a presentation as they are still fighting to gain acceptance locally. This is sad, as this could have been an easy win for them that would have shown their value.
Just from attending public meetings, I know of three properties in Culver, two in Plymouth and one in LaPaz that have asked for help and would have qualified for this program. A Marshall County regional submission could have been a combination of projects that would have helped all of our communities. A rail transfer facility was floated at the PIDCO annual meeting for one of Plymouth’s blighted properties. There were opportunities there.
Submitting something would have helped our larger region as well. It’s been clear from the feedback from the Regional Partnership that they need to use some of the funding in Marshall County, but if we fail to give them something to spend it on, it’s hard for us to complain. At some point this could be a problem when the region goes for additional funding. The down state entities want to see the wealth shared.
Some of the issue has been disorganization and some has been a lack of cooperation. Both should be things that can be remedied for the greater good. The sad thing is that most Marshall County residents don’t even know about this missed opportunity. It is likely that most of the property owners of the above mentioned sites don’t know they missed an opportunity. But by definition of the program, the projects must be put forward with government support. Unfortunately, I would guess that the majority of our elected representatives aren’t aware of this either. At least that’s my hope. If they knew and did nothing, that is worse.
There will be more opportunities like this coming down the line. We need to take steps so they aren’t missed too…
Our Customers Say…
Ronald W Liechty - President, Garden Court, Inc.
Sunny Thoughts on Solar Panels
September 16, 2024
Kevin Berger
Commentary, Culver, Marshall County, Plymouth, Politics, Tips
Community, Culver, government, Tips, Trends
I’ve been watching/reading about all the Solar Farm controversy in Marshall County with a mixture of amusement and disappointment. While I don’t advocate unlimited rights to a property owner, I would advocate tipping the scale in favor of the owner’s decisions about use of their property. My main thought is how the more things change, the more they stay the same. This is a repeat of what happened when there was the discussion about wind farms in Marshall County a few years back. (Wind Farm Posts here and here.)
In both cases, spurious arguments are put forth, when I believe the real reason for disliking either of them is aesthetics. Those against them don’t like looking at them. As with wind farms, I can understand that and feel it is a valid argument. To each, there own… But it was a much more understandable argument regarding wind farms than solar panels.
The setbacks of 300′, 500′ or more being requested seem ridiculous. Marshall County isn’t a table top, but it is pretty darned flat. The high point in Marshall County is 895 MSL and the low point is 775 MSL with an average of 810 MSL per the Joint Highway Research Project by Purdue University. That’s not a whole lot of topographic relief and I’m suspicious that the low number is actually under water! That tells you that there aren’t many areas where a grove of 20′ to 30′ evergreens or mixed plantings wouldn’t hide what’s in the field from anyone on the ground; even from a distance. This would solve the concern some have expressed about the sun reflecting off the panels too. Large setbacks are usually used to protect against noise or odors, not visual issues that can be hidden by a vegetative buffer. These setbacks requested are meant to make property unbuildable unless it’s an excessively large tract of land. Admittedly, I’m pretty indifferent on the aesthetic issue, but I don’t know that a picked cornfield with an inactive sprinkler system sitting vacant from Fall until Spring is a particularly bucolic landscape view either. It is just one of those things that we live with and allow to the property owner.
There is the argument about chemicals from solar panels leaching into the soil. For the most part, new solar panels are solid state devices composed of silicon and glass, with trace amounts of gold, silver, copper and other valuable materials which people in the industry will be glad to retrieve and recycle. There is also the issue that most farmers are leasing land that is marginally productive as farmland, which requires large chemical applications to make them productive. Some of these properties were potato farms in the past, which required hundreds of pounds of fertilizer per acre. As part of this argument, I’ve heard, “Why not put solar panels up to cover parking lots and buildings first, before threatening farmland!?” If there was any merit to the chemical leaching argument, I would much rather have any bad things filtered through soil, rather than running directly into storm drains and thus, our rivers and streams. There’s enough of that coming off cars and trucks in parking lots and on streets. Not that I don’t see merit in solar panels for covered parking. But I assume it’s the same reason they don’t graze cows in solar farm fields. They would need to greatly beef up (pun intended) the support structures for cows rubbing against them and thus, even more so for cars.
There are those that express concern about the loss of farmland which currently produces food products. I would prefer to see some soil analysis and see solar farms placed only on marginally productive land, but much of the placement is based on access to the electric grid. To some extent this is self regulating with property owners making the economic decision themselves. I am sure, if the payout for farming was greater, the land would remain in crops. At it’s greatest proposed coverage, the proposed solar farms would only cover single digit percentages of the total Marshall County farmland available. Is this any different than allowing subdivisions to be built and lots to be sold for housing or industry? Plus, check out some of the interesting things Purdue University is suggesting for agrivoltaics. There are options to keep farms productive as food sources as well as for harvesting solar. They’re just two different ways of harvesting sunshine.
There are those that say solar is a boondoggle and wouldn’t make it without subsidies. Possibly, but farmers know how subsidies work as they are sometimes paid not to plant, told what to plant and subsidized for planting specific crops. They are well versed in how to play that game and how to achieve the best economic benefit from it. Are solar panels the solution to global warming? Hardly. Nor has much of what’s out there touted to change the weather ever resulted in the the reputed outcome. But let landowners take advantage of the rare opportunity to benefit from this one.
One thing that has come out in this that particularly scares me is the bonding or other means of providing for decommissioning of these installations at the end of their life. If we start down that path, where does it end? Drive around Marshall County and you will see abandoned silos, farm windmills, railroad beds on abandoned rail lines, railroad depots, grain elevators, former school buildings, houses, collapsing barns and unusable commercial buildings. That same argument could be used to say we should prevent any of those things happening again, but can you imagine the cost of construction if you had to plan/pay for end of life removal of EVERYTHING? Most construction puts significant funds at risk when the investment in these these things is made. The increased cost due to this increased risk would undoubtedly stop some expansions and new endeavors from happening. In the case of solar farms, you’re asking the companies involved to plan for the cost of removal 30 years from now. What does that look like and how would labor inflation costs balloon that? Building’s generally have lifespans of 2 to 4 times that. How does that even work!?
Again, I believe all of this amounts to spurious concerns, past the aesthetic issues. I’m not thrilled with the aesthetics of high voltage powerlines crisscrossing Marshall County, Those power lines are largely what makes Marshall County attractive to solar farms. But these things benefit my life. Stopping them means hurting other property owners and limiting their livelihoods. If we collectively care enough about stopping these things, then we should put our money where our mouth is and pool funds to purchase and control the property ourselves. Otherwise, be quiet and let progress move on…
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