texas Archives - Page 6 of 8 - Bankers Anonymous

November 9, 2015

Tax Liens In My Life

Since I like to write about finance, all of real life is merely raw material for finance lessons, so I beg your pardon while I talk about tax liens in my life.

A while back I described my astonishment at how low property taxes were for ‘agricultural exemption’ property that I happened to be eyeing for investment purposes. Long story short, I ended up buying a one-fifth interest in raw land in a rural part of the County where I live (Bexar County, TX) agricultural exemption included.

My property investment

I mention my property investment to illustrate the role of tax liens. Bear with me for a bit as I explain a sort of complicated situation.

I only bought one fifth of the property, while the other four-fifths remain owned by four siblings (not mine) who inherited the property. While the family dynamic is opaque to me (they were strangers to me before my investment), I understand that some siblings have sufficient money and some don’t, and some siblings care to pay attention to details like property taxes, and some don’t. Meanwhile, taxes on the parcel of land have gone unpaid for a few years.

This makes me extremely nervous for my investment.

Fail to pay property taxes, and you eventually run the risk of losing your property to the foreclosure power of the taxing authority, typically a city or town. Needless to say, I don’t want to lose this property, and if we leave taxes unpaid for too long, eventually Bexar County will take the land.

Tax lien lenders

Now, you may or may not have ever heard of ‘tax lien’ lenders and investors, so if not, let me be the first to illuminate for you a fascinating little section of the real estate finance world.

Ever since I registered my name on the property deed as partial owner last Spring, I have been inundated with solicitations from tax lien lenders. My name – along with the siblings – shows up publically as owners of a parcel with delinquent taxes owed. Hence, the solicitations.

The tax lien lenders offer to pay our property taxes now owed on the property. Meanwhile, if we did the deal, the lenders would use the real estate as collateral for the loan in the event I (and the sibling heirs) fail to pay back the loan in the future. Tax lien buyers (or in Texas, tax lien lenders) have the power to act like the municipality, and eventually take over the property for themselves in the event of non-payment.

In my complicated situation, with some of us owners unable to pay the taxes or possibly unwilling to put up money for the others for an indefinite amount of time, these lenders make some sense.

Partly I mention this whole anecdote because tax lien investing/lending is an obscure but important part of real estate and municipal finance.

Partly I mention this because tax lien investing may inspire a natural aversion. On the face of it, any lender who has the power to take away your property seems, I don’t know, scary? I mean, regular bankers seem unlikable enough. From a PR standpoint, however, the specific combined function of ‘tax collector’ and ‘money lender’ has an even tougher time getting a fair hearing. Those labels have served for thousands of years as biblical shorthand for enemies of the common people.

Personally, I have no problem with the solicitations to pay my taxes in exchange for an eight to twelve percent loan. We might need that solution.

The ironic thing here is that – in my old investing life – I was on the other side of this situation.

My tax-lien buying

I discovered tax lien investing in 2005 after buying a book called The 16 Percent Solution, in which the author explained a high-return and low-risk path to wealth through tax lien investing. Through my investment company I first started purchasing liens in New Jersey and New York, eventually branching out into Connecticut, Vermont, Rhode Island and even Mississippi.

Incidentally, I was a very unwelcome (meaning: Yankee) participant in my one Mississippi tax lien auction. I’m just happy to have gotten out of there in one piece. Bless your hearts, people of Wilkinson, Mississippi!

Tax lien investing and lending happens around the country, with state and local variations adding to the complexity. On the positive side, the interest rates earned seem very attractive, while the risk seems low. On the negative side – as I learned over the course of a few years of tax lien investing – it’s quite easy to lose money through tax lien investing as well.

As I purchased liens, I sometimes wondered about the complex situations that led people to become delinquent on their real estate taxes. Now I’m in one of these complex situations, and I sort of get it.

My situation

I don’t know when we will all be able to agree on paying the taxes. It may be a better idea to borrow the tax money – even if we have to pay eight to twelve percent on the loan – than to risk losing the property outright to the county via foreclosure. A loan may give us enough time to figure out an eventual solution – either by paying the taxes or selling the property.

A version of this ran in the San Antonio Express News.

See related post:

Real Estate Tax Rant – Agricultural exemptions

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June 7, 2015

Pundits Talking Their Book

One of clearest, most knowledgeable, and most readable pundits on financial markets is a guy named Bill Gross. Gross, known in financial circles as the “The Bond King” and the founder of mutual fund giant PIMCO, writes an entertaining monthly letter with musings on his life, asset prices and value, and the future direction of financial markets.

Despite the nice things I just wrote about Gross, you should never, ever, take his advice when it comes to investing. Ever. The man’s monthly newsletters are the most egregious example of what’s known in finance as “Talking your book.”

“Talking your book” means telling other people how they should trade based on what would benefit your own financial portfolio and positions.
In Gross’ case, every single newsletter he’s written for the past twenty years concludes with an exhortation or justification to buy bonds. Which is pretty coincidental, considering he built the world’s largest bond fund.

Great salesman. Not a great predictor of the future

As a salesman, he’s phenomenal.
As a reliable ‘expert’ on financial markets whose advice should be acted upon? He’s a total catastrophe.

Ordinary course of business
Back in my Wall Street days, people talked their book as a matter of course. It was literally my job to explain to clients why the bonds held on my firm’s books were the ones they should buy, or why clients should position themselves with securities the same way we were positioned. That way, I attempted to create demand for the things my firm already owned so we could sell them. Or conversely, if necessary, talking our book allowed us to turn our risks into their risks. Much of Wall Street works this way.

My clients were extremely sophisticated investors and traders, and I don’t feel bad about this at all. They generally talked their books back to me in the hope I would have the same effect on my firm’s investment decisions. We all got very good at recognizing who was talking their book, and, overall all’s fair in love and war and bond sales. Not a big deal.

After I left Wall Street though, I noticed not everybody knew that nearly all finance experts talk their book, nearly all the time.

Knowing this can help in other situations as well.

South Texas
A friend of mine works in the oil and gas industry, delivering trainloads of sand across the country to fracking sites in South Texas. For the past six months, everybody in the fracking industry – from the drillers to the truckers to the hoteliers to the logistics companies – has been cutting back, idling workers and equipment, hoping to ride out the decline in oil prices.

My friend’s company delivers a fraction of the volume of sand that they used to deliver, a year ago.

He described to me how everybody in his world spends a lot of time obsessing over the future price of “the barrel,” which generally means the commodity price of WTI, which stands for West Texas Intermediate Crude. If WTI (aka ‘the barrel’) recovers six to twelve months from now they know all will be well for them and the industry survivors will reap huge profits. If “the barrel” stays low longer than that, however, many companies and people will be wiped out.

In that environment, with everybody’s business so exposed like that, few people can speak objectively about the “the barrel.” Everybody is left ‘talking their book.’

My friend says everybody’s got a theory about when and how prices will soon rise. Maybe geopolitical trouble with Iran will heat up again, hopefully? Maybe the Saudis will stop flooding the market with their crude to punish non-OPEC producers? A particularly hot summer is sure to boost energy demand and sop up the excess supply in the market, right? I mean, surely the new storage tank capacity in Oklahoma will allow us to ride out this oil glut, no? Maybe the US Government will stop dumping oil into the market to punish the Russians for their Ukraine aggression? (That last one is apparently a widely held theory to explain the drop in oil prices, which I find absurd.)

Every expert speaking on a panel to the oil and gas industry, or to a journalist covering the industry, has a theory on when prices will rise. Please give us some good news, the oil and gas industry folks all seem to be saying to each other.

Here’s the problem, though. They are all talking their book. Their views are not to be trusted at all.

Either consciously or unconsciously, people talking their book are particularly unreliable experts on the future of financial markets.

Experts in finance “talking their book” may simply be clever salesmen, like Bond King Bill Gross. Or they may be anxious and exposed to markets, like the entire oil and gas industry in South Texas.

People talking their book generally only mention out loud the data that support their position. The counter view of the market, “the other side of the trade,” generally goes wholly unmentioned.

Here’s some advice you can use. You should always assume that any industry expert you see on television, in print, or online is talking their book. They didn’t go on TV to give you all sides of the story, but rather the data that supports their book of business.

How can you find people in finance who are not talking their book?

Look for the ones who admit to uncertainty. Seek out the experts who tell you what they don’t know, what cannot be predicted, and how opaque the future really is.
When they present data to support both sides of the market – why bonds may be good or bad, or why WTI could go up or down depending on a complex interaction between a series of unknowable, contingent, events – now you may be listening to someone not talking his book. Now you may be hearing from a real expert.

Keep looking for this.

A version of this appeared in the San Antonio Express News.

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May 24, 2015

Rent vs. Buy – The Simplest Answer

The “Rent v. Buy” discussion offers endless opportunities for debate.

We can talk about the opportunity to buy a piece of the mythical ‘American Dream’ – on the path to acquiring key accessories like a white picket fence, 2.3 children, and a Viking stove.

We can talk about the extraordinary risks taken by mortgage borrowers borrowing to the maximum before 2008 and the devastating financial losses many suffered in the aftermath of that financial crisis.

We can talk about the pride of fixing up one’s own dwelling as an owner. Or just as easily, we can note the smug satisfaction of calling Bob the superintendent and ordering it done. Make it quick, Bob!

Some of these preferences derive from personal leisure time preferences, risk tolerance, or lingering Leave It To Beaver fantasies. I don’t have any comment on those factors.

I do have comments, however, on the financial implications of the Rent v. Buy debate.

Online calculators

You can find delightful Rent v Buy calculators online.

I prefer The New York Times’ calculator myself, but there are other great ones on various realtor’s sites as well as brokerage sites. Another site, BankRate.com walks you through a series of qualitative questions to determine suitability for home ownership versus renting. These are all fine and cool.

I do not recommend spending too much time with any of these online models, however, because ultimately the financial models depend on inputting assumptions about a bunch of unknowable future financial factors. Do you know what your income taxes and real estate taxes will look like five years into the future? Do you know the future rate of inflation, the rate of increase in rent, the insurance and repair costs of a home? I mean, if you had certainty and accurate insight into these things you’d be running a high frequency trading fund by now, not fiddling around with online rent v. buy calculators.

I’m in the ‘making things simple’ business, and I believe you only need to satisfy two conditions to make the move from rent to buy.

First thing: Do you have a steady, predictable income? If you do not, then home ownership is a terrible idea. It’s just too risky.

Second thing: Do you plan to stay in the same place for the next five years? If not, real estate values are too volatile to mess with, and the frictional costs of getting in and out of real estate ownership are too high – after factoring in brokerage, title, loan, and attorneys fees.

So that’s it: If you’ve got a steady income and plan to stay five years in the same place, then go for it.

Wait, I haven’t said this strongly enough.

Commodities Trader says Buy — Commodities Guy says: BUY! BUY! BUY!

Picture me for a moment like those commodity trading pits guys (who don’t really exist anymore) a phone in each ear and tie askew, hands gesticulating wildly and shouting “Buy! Buy! Buy!” into both phones simultaneously. That’s how strongly I feel about the financial advantages of home ownership, if you can satisfy my two conditions above.

In order of importance, here’s why home ownership offers powerful financial advantages.

Automatic Savings

I can’t prove this, but I’m convinced this is the most important financial reason to buy a home. Most of us have no extra money month-to-month, so the idea of putting money away for long–term investments is, let’s say, elusive. But when we own our home with a mortgage, we end up paying small chunks of principal in the ordinary course of paying for our shelter. Over 30 years many middle-class homeowners manage to sock away hundreds of thousands of dollars of wealth without much pain because it happens monthly, automatically, even sneakily.

Tax Advantages

Everybody talks about the mortgage interest tax deduction, which is fine, but not the most important tax advantage of home ownership. The most important tax advantage – by far – is that in most scenarios when you eventually sell your home, $250,000 of capital gains are tax free, or $500,000 for a married couple. No other financial asset offers that kind of tax-free growth in value. Not only that, but real estate taxes are deductible from federal income taxes, as are other mortgage expenses like ‘points.’ Home ownership is just a great big bundle of tax advantages, courtesy of your middle-class homeownership-pandering Congress. Thank you US Congress! We love you! Muah!

Inflation hedge

Hey gold bugs, you’ve got the wrong idea. Home ownership is an awesome inflation hedge, because you can reasonably expect the price of your home to go up in line with inflation. When you rent, inflation hurts. When you own, inflation helps. If you own a home, especially with a mortgage, you can be all, like, ”Inflation? Bring it on! I am hedged!”

Leverage

That’s finance-speak for buying more than you can actually afford, through borrowing. Of course being debt-free is a great idea that everyone should aspire to, but the leverage part of home ownership has long been a key part of middle-class wealth-building.

Outside of mortgages, lenders will never offer you 4-to-1 leverage, meaning the chance to buy a financial asset by only putting 20% upfront and paying off debt over time.

How does leverage work?

If you put down just 20% of the value of a thing, and then the thing goes up in value by 10%, with 4-to-1 leverage the value of your ownership in that thing increases by 50%. This is amazing! Obviously leverage (aka debt) is a double-edged sword and can lead to catastrophic losses if your thing goes down in value by 10% (or more!) But still. Leverage!

Small print disclaimer before my summary conclusion: I have not mentioned the issue of down payment (you need it!) and decent credit (you need it!) when deciding on Rent v. Buy. So there’s that to consider as well. But for now let’s focus on the simple message below.

The four factors above make ownership awesome. If you have a steady income and five years in the same place, BUY!

Please see related posts:

Housing Part I – What we do when we own a home

Housing Part II – The Risks

Housing Part III – Big Opportunities

Please see related video on Rent v. Buy

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April 30, 2015April 11, 2017

Audio Interview with Wendy Kowalik, Part I – On Fees

Podcast: Play in new window | Download

Here’s Part I of my interview with an investment consultant who charges advisory fees in an unusually (admirably!) transparent way. Click on Part II and Part III to hear Wendy and I discuss the uses of insurance, the psychology of savings, and how to get rich slow. You can read the transcript but as always I recommend the audio version highly!

Michael: Hi, my name is Michael and I used to be a banker.

Wendy: Hi, Michael. Wendy Kowalik, I founded Predico Partners. We’re a financial consulting firm.

Michael: Wendy, thanks so much for talking about that. There’s lots of different interesting things to say about your business, but I wanted to start with costs, because I think cost is one of those topics people don’t know that the most important thing to ask your investment advisor, in my opinion, is “how do you get paid?”
You have a different cost structure than most investment advisors. Can you tell me about that? and then I may jump in as well about that.

Wendy: Absolutely. What we found over the years is that most typical cost structures are built where someone brings you assets, and you’re going to charge a fee to oversee them, and invest them, and that’s how everyone gets paid. There’s a thousand different pieces of the puzzle beneath that.
What we decided to do at Predico is to go about life a bit differently. We decided we’d do an hourly charge for clients because it didn’t matter how much money you had; it was more about the time we were spending to either help you find someone to manage your money, or help you find some place to take care of it from there.
We do it based on a project fee or hourly fee.
In 2008 we had a client that had lost a lot of money, when we were in the former investment management business. And one of the things they sat back and asked was: “Do you get paid to keep me in the market or do you really believe that if I get out of the market that you could still make money and help me out?”
We decided we wanted a conflict-free answer to that question. And as we also looked at it, we had clients asking us “If our value went from 10 million to 20 million dollars are you really doing that much work for me than you were doing when it was at ten?”
The answer was no, from our perspective.

Michael: That is the main question. It’s basically as much effort to manage somebody who’s got 100,000 dollars, a million dollars, or 10 or 100 million dollars. As a manager, the scalability of charging fees on assets is so freaking amazing that it’s really unusual that someone would say I’m going to charge — you’re charging analogous to an attorney or a CPA, who would say charge me for the project by the hour, not on percentage of assets. It’s very unusual.

Wendy: Correct.

Michael: It’s almost to the point of you’ve chosen the hardest way to try to run your business, versus the scalability of “Hey, if I get a couple clients who have ten-million bucks I’m pretty much in business and I’m good.” As an investment advisor, it’s a very scalable business that way.

investment_advisor_fees — What should be on every investment advisor’s wall

Wendy: That’s a very true statement. I tell clients that all the time. If you look at investment advisors they have two ways of making money. The first way is the way they’re going to market to you, which is “I make money if you make money. I grow my practice by growing your assets. That’s why we should do it this way.”
The other way is the way that most of the investment business works is I make money by getting as much assets under management as possible, so even if a market goes down, if I picked up four more clients with assets, my income has still gone up this year.

Michael: And you haven’t chosen either of these awesome ways to make money!

Wendy: for 17 years of my career I did, and I did that, and we made a really good living by managing peoples’ money, and selling them insurance. I found it wasn’t a comfortable model for me. I was uncomfortable that I was either overpaid for my time for certain clients, and underpaid at other times. I decided I just wanted to get paid for my time, in a manner that both of us could see clearly the only person writing me a check was the client. And yeah, it’s definitely a much tougher model to track your hours, but I think it’s the fairest model, and I can sleep at night when I put my head on my pillow.

Michael: A client writing a check, versus what everybody else does in the investment management world, which is I just quietly slip out a portion of your money on an annual or quarterly basis, and you never even feel the pain of losing that money. When somebody has to write a check upfront for advice they’re given, it’s just a much higher hurdle.
I think it’s sort of magical the way that most investment advisors sort of slip the money out quietly, and you never notice it.

Wendy: Very true statement.

Michael: It’s magical little part of the compensation scheme that we call investment advisory, and you’re not doing it.

Wendy: And what they teach you over time when you’re in the investment management business is “It’s going to be just like gym-membership fees. Everyone signed on to the gym, they never go, and the gym keeps collecting it.” Same thing with an investment advisor.

Michael: Neglect is a key part of a lot of business strategies, gym fees, and a lot of insurance is built around the idea of neglect. You’re not going to re-check.
On a side note, my wife and I were looking at her mutual fund choices this week, and I noticed she’s got a bunch that are fine choices in terms of risk, but they’re probably five times the fees as probably she needs. It’s been going on for ten years. I looked at it and I said, “Oh my gosh, I can’t believe you have these high-cost mutual fund fees.” She said, “You’re the one who told me to do it.” I was like “That’s right, ten years ago.” I’ve neglected for ten years to check whether she’s still in these high-cost mutual funds. There’s a lot of money involved, even at our scale, that over time those mutual-fund managers have earned, simply from neglect. I just forgot to check.
Meanwhile, I’m out there pounding the gavel for people “You’ve got to be in index funds, or lower your costs, and don’t overpay these managers.” Meanwhile, my wife’s retirement account is paying a lot of fees, and I’m the one to blame, as she pointed out correctly.

Wendy: “It is the cobbler’s kids” [“that go barefoot,” I guess] That is a very true statement It is amazing how easy it is to ignore, and it makes you realize how tough it is for clients to do it. There are many times clients say “I can’t believe I’ve let this go on. I’m so embarrassed I haven’t looked at this, or I didn’t know.” We all run into the same point. You’re busy making money for the company’s bottom line. The last thing you look at is your own bottom line.

Michael: It’s hard. I know you know — I don’t, but you’ve done this; it’s hard to get somebody to say pay me money now, upfront, for some future benefit, rather than “I will keep getting paid on a renewable, quiet, stealthy fee, year after year after year.” I admire it. I’m amazed, actually.
Wendy: Thank you. It was definitely — I was very concerned about it when I launched the model because that was what most people told me. I just don’t know that I’d be comfortable, but I found people really like the fact I have no conflict, that I can sit in a room with an investment advisor and help them interview, and ask the questions because we did sell it for 17 years. I really do know why they’re being shown a certain thing or why not. It is fascinating to see all the things that are second nature, after you’ve been in the business, that you wouldn’t even think to tell a client, and watching that evolution come out.

Michael: Somebody comes in to you and they have a modest 50,000 or 100,000-dollar portfolio versus somebody else comes in and they say “I just inherited 15 million,” are you charging essentially very similar amounts for the same service?

Wendy: As I tell everybody, we charge $250 an hour and we’ll sit down and estimate the number of hours to get you an ideal project fee. So, yeah, in answer to that question. If you want us to go through, the only difference should be if you only have 50,000 dollars and two managers, helping you review it and ask some of the questions is a lot less hours, so it should be a lot less charge than it would be if I’ve got 32 accounts.

Michael: Somebody comes to you and you’re going to put together a plan. They may certainly end up paying mutual-fund or hedge fund management fees, and then they may end up paying fees to an insurance solution on top of what they paid you. They’re not eliminating that. It’s just they’re getting that presumably without the conflict of your caring, in a sense, about who they go to. Is that accurately said?

Wendy: Right, we do not manage money so once they actually decide they want to go put that money to work, we’ll help them find somebody if they need help or we’ll review what their current investment advisor is proposing. But yes, they’re going to end up paying some form of fee. The goal is we’ve helped them negotiate those fees down as low as possible, or we help them find somebody that they feel very comfortable, and trusting that they’re in good hands if they’ve never done this before.

Please see related posts:

Do you need an Investment Advisor? And Why?

Management fees – My Hyundai Elantra analogy

Book Review – A Random Walk Down Wall Street, by Burton Malkiel

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April 27, 2015April 27, 2015

A Leader for San Antonio: Mike Villarreal

mike_villarreal_best_candidate_for_mayor — Mike Villarreal studies the data

I have something to say about the San Antonio Mayor’s race. My friend Mike Villarreal is running and he is by far the best candidate. He supports data-driven financial policies (rather than platitudes and rhetoric), he listens and acts across party lines and for the good of the whole (not just one constituency), and he’s an SAISD dad who know how important educating the next generation is to ensure long term financial future of the city. Please bear with me a bit for a meandering story about my friend, New York City, and the movie Jerry McGuire.

san_antonio_mayoral_candidates — Unflattering picture of everyone. But you want the guy on the right

Fun with data analysis

Mike called me up one Saturday, about two years ago.

“Hey, can we meet for coffee?”

“Sure.” (Duh. I’m easy – a coffee addict.)

“I want to show you a project I’ve been working on with my laptop.”

We ordered coffee at Halcyon in the Blue Star Arts Complex. He proudly toured me through the statistical regression model he’d spent the week programming on his computer. He excitedly pointed to the results of his model, indicating pockets of properties where property taxes were higher or lower than average – statistical outliers. What if we could apply these techniques at the city, county, or state level?

When we get together with our families for lunch or dinner, my wife and Mike get into intense conversations about statistical techniques. I can follow the conversation for a short while. I get a teensy bit lost when their statistics chat turns to the z-score, chi-squareds, or p-value.

Prove your ideas

Personally, I prefer making sweeping declarations based on a few pieces of partial evidence. I’m good at that. I guess that’s why I enjoy this column-writing gig.

My wife – more of a scientist-type – accuses me of grandiose pontificating based on little data. My response to her critique (only when she’s out of earshot): “Whatever.”

But my data-oriented friend Mike also frequently (though more politely) challenges my sweeping declarations.

“I liked what you wrote in the paper, but couldn’t you get some actual data or evidence to see if you’re right or not?” he asks me.

Or, “So, how would you go about proving that?”

A mayor I admired

Speaking of public policy, I think fondly of a favorite mayor of my lifetime, Mike Bloomberg, who led New York City for eight years when my wife and I lived there.

Mike_Bloomberg_data_driven — I liked Mike Bloomberg’s disregard of political parties alot

Bloomberg was a Republican in a Democratic-dominated city. What mattered to me, however, was that he led New York for twelve years practically without reference to either party. Which is how a city should be run.

Bloomberg famously relied on data analysis and best business practices. He didn’t need to act out of ideology or loyalty to one party or another. Rather, when making decisions, he considered what worked best for the city.

Bloomberg showed that while Washington, DC stagnates with tired ideological gridlock, cities can innovate.

Why am I thinking of Bloomberg?

Mike Villarreal approaches policy as Bloomberg did. From the beginning of his campaign, Mike’s been fired up about the chance to lead the city in a non-partisan manner. “We don’t need a Democratic Party or Republican Party here, we need the Party of San Antonio” he told me last summer, when he focused one hundred percent of his efforts on running for this office.

To lead a diverse, growing, dynamic city, we need a leader who looks at all the evidence, weighs the choices, and makes the best decisions accordingly. We really don’t need a mayor who represents a limited party view, or a limited geographic base, or a limited identity.

Many talents

Beyond data-analysis, Mike has a number of talents that I admire.

I’ve watched him listen to people of all ideological stripes. He convenes alternate sides of an issue at the same table to listen to each other in search of common ground.

He takes political risks that more careful politicians would avoid, standing up to powerful forces – particularly in his own party – when it was in the public interest.

He understands first-hand the struggle of families pouring everything they have into raising children in this city. He grew here, his family did this for him, and he’s doing it for his own kids.

He’s a passionate competitor at board games, and a fired-up soccer dad.

But I guess what I admire most is his constant return to real, data-based evidence to back up policy ideas and ideals.

Antidote to cynicism

The worst thing about politics these days is our cynical belief – often borne out by experience – that our leaders make decisions based on campaign contributions, a perpetual “Show me the money!” mantra on their lips.

show_me_the_data — Mike is like the Cuba Gooding or Tom Cruise character: Show Me The Data

In a goofy way, I picture Mike in future policy meetings as a better version of the Cuba Gooding Jr. character in the movie Jerry Maguire. I picture him shouting in response to city lobbyists:

“Hey Mike, can I talk to you about my group’s housing agenda?”

“SHOW! ME! THE! DATA!”

“Excuse me, what San Antonio really needs for economic development…”

“SHOW! ME! THE! DATA!”

“Mr Mayor, the school district would like to request…”

“SHOW! ME! THE! DATA!”

OK, OK, Mike is not a yeller, so the analogy is not a perfect fit.

But if Mike Villarreal is the Cuba Gooding character for public policy, I guess that makes me the Renee Zellweger-character of financial columnists:

“Shut up. Just shut up. You had me at data-driven financial analysis.”

I know Mike will be a great Mayor for San Antonio.

Early voting begins April 27th. Please vote.

Please see related post from blogger, Concerned Citizen:

There’s a better choice for mayor of San Antonio – Mike Villarreal

A version of this post ran in the San Antonio Express News

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March 23, 2015

Real Estate Tax Rant

Not a lot of real agriculture going on in this county.

Real-estate tax policy – incredibly important yet relatively unseen – shapes how and where we live.

I’ve ranted about estate tax policy as well as carried-interest tax policy here before, and now I’d like to rant about real-estate tax policy in my city.

As before, I don’t think it’s enough to say ‘I hate taxes,’ because taxes are a necessary evil. I don’t know about you, but I want to have adequately funded schools, parks, and public safety services.

If I have to pay taxes, however, I want to feel that everybody pays their fair share. The key to making peace with the evil of taxes is fairness. As before, I want to discuss real estate taxes in terms of what is ‘fair to me,’ and what is ‘fair to society.’

Fair to me

I recently toured (for the purposes of buying) a small fraction of a piece of undeveloped land in Southeastern Bexar County. The entire parcel of approximately 95 acres is located (for locals who care) inside the 1604 Loop, between Highways 281 and 37.

(I only looked to buy a fraction of the entire parcel, not the whole thing.)

The entire 95 acres might be worth, I don’t know, $500,000? Maybe more?

Would anyone like to guess what the 2014 taxes were for the 95 acres? Take a moment to guess.

Would you believe $170?

When I picked my jaw up off the floor I phoned the Bexar County Assessor’s office.

That’s when I learned about “Title 1-D-1” of the Texas Property Tax Code.

The 95 acres I toured are designated as a 1-D-1 ‘Agricultural Use’ – either cattle or timber. As a result Bexar County only taxes theoretical ‘agricultural income’ from that property, rather than the full ‘market value’ of the parcel.

The ‘market value’ of these 95 acres might be $500,000, but the actual ‘assessed value’ of the 95 acres is $6,780 – the estimated annual ‘agricultural value’ of the parcel.

As a prospective purchaser of a small fraction of this land, this tax code seemed very ‘fair to me.’

Fair to Society

But fair to society?

Holy cow, this is one of the least fair property tax rules I’ve ever come across.

If you own a house or any other non-agricultural property in San Antonio, you pay taxes as a percent of estimated value, typically around 2.7% of market value.

If I owned a big house in Bexar County worth say, $500,000, I should expect to pay 2.7% in taxes to the county, or $13,500 per year. Which, I don’t know about you, but seems like a lot me.

If I owned a big “1-D-1” parcel for 95 acres in Bexar County worth that same $500,000, however, I should expect to pay 2.7% of $6,780, or less than $200 in taxes per year. Which seems like very little to me.

Here’s where the unfairness hits: The “1-D-1” designations in Bexar County shift the burden of property taxes away from large landowners (like developers) and onto individual home owners.

I learned that a residential ‘market value’ property owner should expect to pay something like one hundred times more taxes than an ‘agricultural value’ property owner per year, according to Bexar County Deputy Chief Appraiser Mary Kieke.

Not about agriculture

I’m not saying I want poor farmers and poor ranchers to pay a lot more in taxes.

cowboy child — Mamas, don’t let your babies grow up to claim 1-D-1 Ag exemptions on their taxes

I can see why the State of Texas, as a whole, has decided to reward legitimate agricultural activity with favorable taxation, as a nod to its rural roots and a preservation of a certain way of life.

I don’t want to mess with that heritage. It’s not my personal gig, but I can understand the point of view.

What I am saying is that this 95-acre parcel I looked at isn’t agricultural in any real conceivable sense of the word. I mean, maybe they’ve run a couple of cows over it whenever a tax assessor is coming by? Maybe some people have cut down a few trees on the property there and reported a ‘timber use?’ I guess?

It’s land banking

Bexar County is mostly comprised of the City of San Antonio, and for the most part San Antonio has ceased to be an agricultural producer. That’s not preventing people from taking advantage of the tax code to land bank cheaply, however.

For the present owners, this parcel – as the small lots around it show – acts as a very low cost land-bank for future housing developments, either in 1-acre lots, or larger tracts.

When I expressed amazement to Appraiser Kieke, she agreed with me that “there are legitimate agricultural uses, of course, but, by and large, this [1-D-1 designation] has become a way for developers to hold land with very low taxes.”

In Bexar County

So how big is the effect in Bexar County? About $63 million per year in lost taxes.

The total difference in value between ‘agricultural’ and ‘market value’ property in Bexar County is $2,348,327,452, according to Kieke, and 2.7% of that amounts to approximately $63 million per year.

If you’re a homeowner in Bexar County you are subsidizing landowners with 1-D-1 exemptions to the tune of $63 million per year, money the county needs that has to come from your much higher homeowner appraisals.

The point here isn’t to increase tax collection by an additional $63 million. But homeowners have a very unfair deal compared to many land-banking owners with 1-D-1 exemptions in Bexar County.

Please see related posts

Adult conversation about tax policy

You prepare your own taxes???!!?

The good old days of taxes, 1948 edition

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