Looks like the sorry state of schools in New Orleans and the trauma of relocating is having an affect on TAKS scores in Texas.
Only 58 percent of Katrina evacuees in third grade passed the reading portion of the test, compared with 89 percent of all students. In fifth grade, 46 percent of evacuees passed the reading portion, versus 80 percent among all students. The TEA estimates that the state will spend up to $350 million educating Katrina evacuees this school year.
DallasBlog talked with John Sharp yesterday in Dallas about the status of the proposed re-structuring of the school finance system. Sharp is Chairman of the Governor’s Commission on school finance. The Commission is expected to officially announce next week the full details of its plans to lower property taxes by one-third paid for by a 1% expanded business franchise tax. Sharp told DallasBlog that the plan would be "revenue neutral" and, in fact, would be an overall tax cut since at least $1 billion in surplus funds would be used to further reduce property taxes. When asked what effect this property tax reduction would have on the "Robin Hood" redistribution of property taxes from some local districts to others, the former State Comptroller indicated that it would end the Robin Hood system for most of the school districts which currently fall under it.
Here in North Texas, the property owners in the following districts are subject to double taxation because of Robin Hood: Park Cities, Coppell, Plano, Richardson, Carrollton-Farmers Branch, McKinney and Allen. The Dallas Independent School District (DISD) is expected to join that list next year unless the current system is changed.
Sharp addressed the concerns of the critics of the tax restructuring who maintain that an expanded business franchise tax at a 1% level will quickly be raised to higher levels. Sharp acknowledged that the comments of News columnist Bill McKenzie on the opinion pages of the Dallas Morning News were not helpful last week when McKenzie immediately called for the business tax to be set at much higher rate -- 3%, rather than the 1% the Sharp Commission is recommending. McKenzie’s comments in the News were not well-received by companies that had agreed to support the Sharp Plan on the basis that the tax rate would remain low.
Sharp’s view is that it is hard enough to get any expanded business tax passed with 18 major law firms opposing it, led by Vinson & Elkins. He believes that any attempt to raise the rate from above the agreed upon 1% would be vigorously opposed by businesses across the board, including those companies that have signed on to the Sharp Commission plan. Of course, the legislature could provide built-in protections to prevent any increase in the business tax percentage from happening. But Sharp maintained that those questions were beyond the purview of the mandate of his Commission, and would have to be addressed by the Governor and the legislature in the special session.
Another concern expressed about the Sharp proposal is how can property owners be assured that the one-third cut in property taxes won’t be taken away by local school districts raising property taxes back to their existing levels within a few years, as they did when property taxes were cut by the 1997 Texas Legislature. Again, Sharp deferred the issue of how to deal with "property tax creep" to the legislature; but he did say that the cap would be lowered, thus providing one level of protection for property owners.
State Representative Jim Jackson, who was present during the discussion, indicated that the legislature could require voter approval prior to increases in local property tax levels. Jackson would like to see at least $2 billion of the budget surplus used to lower property taxes, even more than that being proposed by the Sharp Commission. There is rising speculation that the surplus is much larger than the $4.3 billion figure previously acknowledged by the Comptroller, Carole Strayhorn, thus allowing for a greater cut in property taxes than the $1 billion mentioned by the Sharp Commission.
Jackson also noted that, if you increased the sales tax by 1/2 cent, expanded the business franchise tax along the lines called for by the Sharp Commission, and used at least $2 billion of the surplus to reduce property taxes, you could completely eliminate "Robin Hood" once and for all. Rep. Jackson, a former Dallas County Commissioner who took Kenny Marchant’s seat in the state house is seen by political observers as becoming increasingly influential in Republican leadership circles in Austin.
Sharp indicated that the principal opposition to his plan is coming from major law firms who avoid any tax under the current system. (Here is our link to the previous DallasBlog story on that issue which includes the list of 18 law firms who are members of that opposition coalition). Sharp did note that manufacturing firms have signed on in support of his Commission’s proposal to change the existing business tax system in Texas. Manufacturers in Texas see this new approach to business taxation as a much needed remedy to the existing franchise tax which discriminates against capital-intense corporations.
Sharp declined to comment on the dispute between Gov. Perry and Lt. Gov. Dewhurst over what issues should be considered in the upcoming special session, but he did acknowledge that relations between himself and the current Lt. Governor (whom Sharp ran against in 2002) remain cool.
Overall, Sharp sounded cautiously optimistic that school finance reform could be passed by the Texas legislature in the April special session.
So apparently a film production company (I didn't catch the name) is putting together a documentary based on the longtime best-selling business management book Good to Great, and they were in town this week profiling a certain Dallas-based organization and its leader.
The doc will focus on four corporate organizations and two public sector entities. So who do you think it was in Dallas they were spotlighting? EDS? Southwest? Trammell Crow? Belo? *snicker*
Nope. T'was no less than Chief David M. Kunkle and the Dallas Police Department. The Good to Great producers see a lot they like in the chief's two years at the helm. Take a bow, chief.
Nate Crain (middle)The DallasBlog has learned that Nate Crain has decided not to run for Chairman of the Texas Republican Party this June.
Instead, Crain will chair Congressman Pete Sessions’ campaign to get elected Chairman of the National Republican Congressional Committee (NRCC). If Sessions is elected, he will oversee the recruitment and election of Republican Congressional candidates for the 2008 election cycle.
Crain has been very critical of the current leadership of the Texas GOP, particularly citing what he calls the poor financial condition of the state party. Jeff Fisher, the Executive Director of the Party, has vigorously denied those charges. For now, at least, the Texas GOP race will be between Tina Benkiser and Gina Parker.
Today, we are posting guest commentaries by two Texas Republican leaders who have opposing views on the state of the GOP. Joe Solis is the SREC member from the 26th State Senatorial District in San Antonio. He also is the CEO of Luxor Insurance Services. Denise McNamara is a successful businesswoman and the National Committeewoman from Texas. Both are respected conservatives, and each has a very different take on the state of the Texas Republican Party.
Comptroller Carole Keeton Strayhorn is refusing to pay Gov. Perry's lobbyists' bills in Washington. In 2003, Perry cut the staff at the Office of State-Federal Relations, which works to get federal funding for state projects, and outsourced some of the work to lobby firms -- to the tune of $1.2 million through 2007. Strayhorn is declining to pay the rest of one $330,000 contract which runs through August 2007, of which $52,500 has been paid. The governor's office calls the move a publicity stunt. Lt. Gov. Dewhurst and Speaker Craddick have distanced themselves from the contracts, saying they were the governor's decision. Craddick has even said he opposes he opposes them. See the story at dallasnews.com under Texas/Southwest news.
Maybe somebody should look at all state funds being used for lobby activities, including the millions of dollars the University of Texas system spends to lobby the State Legislature.
School districts from Denver to Houston have been devising ways to improve student performance by providing a mix of incentives to teachers, with some districts recently announcing their plans to implement incentive programs that involve merit-pay. The main thing that the plans have in common is that they link teacher merit-pay with test scores. Today, the Wall Street Journal reported on the progress that performance-based incentive plans are making.
According to the WSJ:
“Yesterday, the Teaching Commission, a group that studies educator training and improvement, released a report saying governors in 30 states have proposed changes in how teachers are paid, including the use of performance bonuses. The report says that increasing use of performance pay is a sign of progress.”
The WJS also mentions some of the other incentives offered by merit-pay plans at schools in places like Lake Charles and Minneapolis. Some schools have matched mentors with less experienced teachers. By signing up for performance-based programs, teachers could gain helpful tips on how to improve their teaching. Experienced teachers that sign up to be mentors would be given incentives as well.
According to the WSJ, “Districts hash out details of their own pay plans, but they can’t participate unless the teachers agree. So far, Minneapolis and eight other public school districts have signed up for the program, which was put in place last year; the state has received letters of intent from 134 others. Various plans offer bonuses ranging from as much as $600 per teacher for test-score gains to as much as $3,000 a year for veteran teachers who agree to be mentors.”
While some teachers unions continue to oppose merit-pay proposals, claiming that performance measures set by school administrations are often arbitrary, others, like the American Federation of Teachers, have been warming up to “alternative compensation measures”. The WSJ reports that, last year, a teacher’s association in Colorado endorsed a system where teachers can get extra pay for earning national teaching certificates and for filling hard-to-staff positions.
Many those teachers unions that are in opposition to merit-pay are chiefly against basing bonus-pay on test scores. Because some teachers unions have been able to block performance pay measures, it would help if merit-pay programs had mechanisms to help teachers get better, according to some experts.
It might be interesting to see what the results would be if merit-pay programs for teachers were implemented alongside performance incentives for principals at the same schools. Recently, DallasBlog reported that DISD trustees are considering giving performance incentives to principals at area schools. The performance incentives would involve awarding principals that meet or exceed goals set by the district. Determining which principals are meeting or exceeding expectations would be based on two criteria: student performance (primarily test scores) and leadership.
We are living through the biggest financial bubble in history. According to estimates by The Economist, the total value of residential property in developed economies rose by more than $30 trillion over the past five years. Not only does this dwarf any previous house-price boom, it is larger than the global stock market bubble in the late 1990s or that of the late 1920s.
San Diego County resale house prices fell in December by the largest monthly amount in 18 years. The median resale price for existing single-family homes dropped $15,000 from November to December to stand at $550,000, the largest month-to-month decline since Data Quick began keeping records in 1988.
The San Diego Association of Realtors, which monitors about 60% of the housing market, reported that properties took longer to sell in 2005 than in 2004 - remaining on the market for an average of 62 days last year, compared to 54 in 2004. Housing starts soared this January, growing at their fastest pace in almost 33 years. This would seem to be good news. Unfortunately, however, supplies of new, unsold houses are rushing onto the market at the fastest rate in 21 years. Inventories are piling up.
Consider the following:
* Housing affordability nationwide has dropped to a record low, while household debt has soared to a record high.
* Over one-third of all homeowners spend more than 30% of their incomes on their mortgage payments. Twelve percent of homeowners devote over half of their incomes to these.
* Those who barely qualify for a loan, known as sub-prime borrowers, accounted for 28% of all new mortgage lending in the past six months versus 5% five years ago.
* In the first half of 2005 two-thirds of homebuyers financed more than 80% of their purchases, according to SMR Research.
* 17% of homeowners own less than 5% of their home's value, free and clear.
* About 42% of first-time buyers made no down-payment on their home purchases in 2004.
Any of the above statistics would be cause for concern alone but taken together, the prognosis for the future of real estate and, indeed, for the economy as a whole is grim. Values in any bubble market which rise the way real estate values have risen recently always "correct." There is no example in history of a single bubble which did not give back all of the gains achieved on the way up.
The 42% of recent buyers who put no money down when buying their homes have no equity. What will happen to them if the value of their real estate falls? If these homebuyers have been using interest-only loans, they will have no protection against any kind of adverse move. Many people in this situation will have no choice other than to walk away from their property and mail the unwanted keys back to the lender.
Speculation has been increasing along with home prices. The history of markets shows us that asset markets become ever more treacherous as the number of leveraged participants increases. Leveraged participants possess no capacity to withstand adverse trends. They become forced sellers into a falling market, which pressures prices even more. This forces more speculators to sell.
It is always important to examine the opposing point of view. Many people believe there is no real estate bubble. The contention of these optimists is that a strong housing market is a function of many different factors with real economic underpinnings: low interest rates, local job growth, scarcity of land for the needs of a growing population, the emotional attachment one has for one's home, increased future earning power, parental contributions. All these things are said to contribute to rising home prices. During the past 25 years there has been an explosion of second home purchases, a continued influx of immigrants (who need to buy houses) and a significant reduction in existing houses from those which have been torn down.
These trends are not always published in data reports. Homes are not stocks; their intrinsic value can only be in the eye of the beholder. A house has utility. Rational people might be willing to pay more for an ocean view or for living close to work or for a larger bathroom. Such voluntary economic decisions are not considered to be irrational. Even if prices in America do dip, insist the optimists, they will quickly resume their rising trend because real house prices always rise strongly in the long term.
When examining the situation in just the four big counties in Southern California, you will notice the following: over the past decade the percentage of households able to afford to buy the median-priced home using conventional mortgage qualification standards dropped by 74% in Orange County to 11% and by 56% in San Bernardino County to 24%.
Starting this year and accelerating into 2007, as much as $2.5 trillion of non-conventional mortgage debt is scheduled to be repriced. Millions of Americans will soon face significantly higher mortgage payments. Unfortunately, many can barely afford their current payments.
All this is coming due at a time when Americans discretionary income (after more or less fixed costs of taxes, housing, healthcare, auto, energy, etc.) is declining while debt levels are mounting, interest rates are climbing, sales of existing homes are sinking, inventories of unsold homes are increasing, especially in areas of the country that led the recent housing boom, federal regulators are pushing for stricter lending standards and houses are greatly overvalued.
In a newsletter entitled Spendthrift Nation, Kevin Lansing argues that American households apparently view the rapid increases in residential property wealth in recent years as "a substitute for the quaint practice of putting aside money each month from their paychecks."
Americans owe $7 trillion on their homes - twice as much as ten years ago. But their incomes - their ability to pay - have gone up by a fraction of that amount. It's painfully clear a lot of that $7 trillion will never be paid back.
To prepare, I would suggest taking the following steps as soon as possible to minimize the effects of a severe downturn.
Pay off all credit-card debt. Liquidate all debt except your mortgage. Only buy vehicles that you can afford to pay for with cash. Put as much money as you can into your annual tax-free retirement savings, whether in the form of an IRA or, preferably, using your company's 401k allowance, taking advantage of any matching corporate payments. Start saving money for college when your kids are born. Put at least 20 percent down when you buy your home, using a low-interest, 30-year mortgage. Try to make an extra mortgage payment every year. Reduce your standard of living now to a manageable level based on your income, while you have the economic freedom to choose how you wish to do this, rather than having change imposed on you later by force of circumstances.
Richard Martin is Senior Vice President at Global Securities Group.