Thursday, October 19, 2006

There is a Connection There

But I didn't say anything about causality

I. Rent Compression

Wage compression--a narrowing wage gap between lowest and highest paid employees in a firm or economic sector--is a commonly used economic term, but I don't believe that I've ever heard the term rent compression. However, that's the term that came to mind after reading the front page article about rising rents in Sunday's Picayune. I won't go into all the reasons why people still discuss the problem of wage compression in an era of rising CEO compensation, or why anybody would consider rising pay at the bottom a problem, but there are plausible arguments both ways. The most plausible would be in hi-tech fields, outsourcing has lowered the ceiling for all but the very top executives, limited opportunities are causing fewer to study engineering or computer science, etc. That's the argument.

The huge increase in rents at the lower end and middle of the market is one of the biggest problems facing the city right now, but I'm interested in the stagnation at the top of the market. I suppose that if the market is flat for luxury apartments, it would explain how, despite the anecdotal evidence, advertised rents (that's rents for newly available apartments) have only increased by 70%. More importantly, it's a reflection of a very real problem--the city's declining professional class. It's absurd to plan on a sustained recovery starting any time soon while that's still the case. It's also raises questions about the various luxury apartment and condo developments that have been proposed.

I don't think anybody in the city is merely "interested" in the increase in rents at the lower end of the market, it's too complicated and too emotional a subject for me to go into here. You can blame the increased value of section 8 vouchers, the influx of out-of-town construction crews, greedy landlords, increased insurance costs, whatever.

II. I Thought it was Just a Lame Excuse

Whenever I hear landlords say that they've raised there rents because of the city's somewhat surreptitious increase in property taxes, I can't help but think of what the Times Picayune told us in May:
Together, the city and School Board rate hikes mean homeowners whose assessments have remained steady can expect to see an increase of about 9 percent in their total property tax bill this year.

However, most homeowners have seen their property assessments reduced since Hurricane Katrina, meaning they will pay less.

So, who could believe landlords who claim:
Before Katrina, I went into heavy debt renovating three Uptown properties, and I barely paid the bills with rental income. Since Katrina, the combined New Orleans property taxes on the properties increased from around $3,000 per year to approximately $11,000 per year.

This is obviously a case of greedy city officials, not greedy landlords.

If you did not flood, you will certainly pay the price. Am I supposed to keep the rents low and go bankrupt so the city or bank can own my property?

Actually, unless each property has only one unit and each increase has been below $250/month, there would seem to some element of rationalization there. Still, he raises a valid point. At any rate, similar points were raised by Harry Anderson:
The city tried to more than double their $17,000-a-year property taxes. A lawyer had the amount reduced, but “that just meant that the lawyer got the money instead of the city,” Mr. Anderson said.

The Louisiana Weekly expressed concerns before the tax was increased:
Such a catastrophic increase in taxes, at this time, would have sent many thousands of New Orleanians into a bankruptcy that would cost them their homes-and flung even more in selling their residences and leaving the state. The effects on the few small businesses still eking out an existence in the City would be in our estimation, disastrous.

(Any roll up of millage rates)--should only occur if the public approves them in a tax election. Currently, to raise taxes requires a public vote; that should be true in all cases including setting the level of the milliage rate. Stealth tax increases, such a milliage roll ups, should be no exception, or the provisions of the City Charter giving the electorate the final word on tax increases are meaningless.

Either we live in city of whining exaggeraters, or the Times Picayune got snowed. It wouldn't be the only time that the city deliberately gave misleading cost estimates (For more on the tax increases scroll down to the part about millages). Whatever the case, we can rest assured that the money's being well spent. As the city's website states:
The City Council adopted the final millage rates earlier this month, and reassessments have now been completed. These taxes will generate the revenue necessary to continue providing needed City services.

III. City's garbage pickup costs to jump
The cost of collecting household trash in New Orleans will nearly triple starting Jan. 2 under a pair of contracts worth $26.8 million awarded last month by Mayor Ray Nagin, who touts the deals as a major step toward alleviating one of residents' top quality-of-life concerns.

The massive seven-year agreements -- to be inked with Richard's Disposal and Metro Disposal -- represent only a portion of the total cost of ridding the city of everyday waste, however. The contracts do not include trash cleanup in the French Quarter and Central Business District or the cost of dumping waste at a Jefferson Parish landfill. They are also certain to increase in price as more residents return, according to bid documents made public by Nagin only after the deals were announced.

As a result, the total price tag is likely tens of millions of dollars higher than city records show.

Despite the huge cost increases, the city does not plan to raise the $12 monthly garbage fee paid by residents. Instead, to cover the increased cost over the current contract with Waste Management, which currently collects garbage citywide once a week for $9.4 million annually, officials said they will tap the city's general operating budget and a low-interest federal loan secured after Hurricane Katrina.

It's not the first time that the city only stated part of the cost of a project. It's not the first time the city understated the cost of this project:
Under the deals with Richard's and Metro, which each cover roughly half the city's 100,000 households with twice-weekly pickup -- excluding the French Quarter and CBD -- Richard's will earn $16.9 million, and Metro will earn $9.9 million per year. During his announcement of the contracts, Nagin said the two contracts were valued at a total of about $20 million.

The article mentions many more costs that aren't factored into the new contracts, including emptying (cleaning and servicing) 1000 (bombproof) garbage cans, but that's no problem:
To bridge the financial gap, Nagin said the city will dip into its own coffers to cover the added cost. That subsidy is likely to come from the general fund, which finances the entire sanitation budget, White said.

Finance Director Reginald Zeno said in an e-mail message last week that the city also will tap, on a "limited" basis, a $120 million Community Disaster Loan that it secured to finance operations in the face of a revenue shortfall after Katrina.

Even debris cleanup is big business. Like I said before:
Considering the city's abandoned car and general garbage disposal situation and the mayor's insinuations about taking donations from individuals who might want to profit from the city, it seems like the mayor gets a lot of Benjamins from companies in the disposal, scrap metal or landfill business.

My prediction on the third contract: either TSG, or some formed newly-formed company like MCCI gets it. Obvious prediction on the first two, the costly stipulations that scared away other potential bidders will be quietly removed.

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