Privatize the profits and socialize the costs – it’s The American Way. We saw it in action on a large scale earlier this summer with the federal bailout of Bear Stearns, Fannie Mae and Freddie Mac. And last week we saw it on a smaller scale in Bend, when the city council voted to bail out our beleaguered local builders.
The council unanimously okayed a proposal to give anybody who builds in Bend a nine-month deferral on having to pay SDCs – Systems Development Charges, meant to help pay for upgrades to roads, sewer systems and other stuff made necessary by growth. The only security the city will have is a lien on the property.
The bailout was pushed by the Central Oregon Builders Association (COBA), backed by the Central Oregon Realtors Association (CORA). Their reasoning (using the term loosely) is that deferring SDCs will help the local building industry get through a rocky patch caused by the popping of the real estate bubble. SDCs typically run about $14,000 per house. Because builders won’t have to pay them up front, the argument goes, they won’t need to borrow as much and it will be easier for them to get loans and build. And then – presto! – the good times will roll again.
This argument (as we wrote in a previous BOOT) is bogus on many levels. The most fundamental one is that the problem with the real estate market is oversupply: There are a lot more houses for sale than there are people willing and able to buy them. We can’t quite understand how encouraging builders to put up more houses that nobody will buy is going to improve that situation.
Meanwhile, the builder bailout holds the very real potential for pushing the city’s already teetering finances into the abyss. Finance Director Sonia Andrews predicted that deferring SDCs might mean the city will be unable to make its annual debt payments. Blithely disregarding that warning, the council charged ahead and gave COBA and CORA what they wanted.
Acknowledging that he had “serious concerns” about the financial implications, Councilor Peter Gramlich voted for the bailout anyway. If it looks like the city’s going broke, he said, “we [will] pull the plug on this.”
Yeah, THAT’s gonna happen. In fact, just four days after the council okayed the “temporary” SDC deferral the editorial page of Bend’s Only Daily Newspaper (with COBA and CORA waving their pom-poms on the sidelines) was urging the council to make it permanent.
What the SDC deferral does is make Bend taxpayers – whether they like it or not – the lenders of last resort for Bend builders. It is the most outrageously irresponsible action the Bend City Council has taken in our memory.
So we’re delivering a size-16, steel-toed BOOT to the whole council – and an extra kick to Gramlich and his fellow members of the so-called “progressive” bloc, Jim Clinton and Linda Johnson. We expect Chris Telfer, Mark Capell and the like to bend over for CORA and COBA, guys, but not you.
This article appears in Aug 14-20, 2008.
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The only real long-term process for a turnaround in the Bend Housing Market is to reduce the inventory of available homes. Giving the same builders that produced the current glut of unsold homes carte blanche to build more new homes we don’t need is ludicrous. Once again, the Bend City Council should be ashamed of itself for relying on short-term fixes to solve long-term problems. Real capitalism relies on both pain and profits resulting from supply and demand to determine the true value of markets. This is just throwing another monkey wrench in the works!
If it looks like the cityรข โขs going broke, he said, รข we [will] pull the plug on this.รข ย – Councilor Peter Gramlich
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Well the City is already ‘BROKE’. Thus how broke does it have to be? The un-mentionable ‘builders’, ‘good old-boys’, ‘boss-hoggs’ whatever you want to call them are broke. They’re going down, and they own 100% of all Bend Poly-Tick-Ian’s ( blood sucking parasites ). Whether you call Clinton/Johnson ‘left leaning’ or Telfer/Capell ‘right-leaning’ both sides of the debate are owned by the ‘good-old-boys’.
We have a ten year inventory, and now its going to become a twenty year inventory.
Tier-1 builders are broke, and need cash-flow, houses don’t sell, that said tier-1 made their billions off selling worthless desert land in the first place, this is all they know. Teir-2 are sitting happy having sold to Tier-3. Tier-3 have for the most part committed suicide. Tier-4 will be faceless ‘opportunity investors’, aka fickle blood sucking parasites.
Some may say, “But where is this going?”, tier-4 lose their money, the lots they buy will decrease in value, the new homes built will not sell. Tier-5 the city ‘buys’ 1,000’s of empty homes at top-dollar prices using the ‘left-leaning’ argument of affordable-housing, the right-wing salivates with approval. Tier-6 the city goes bankrupt, and all the homes & lots are sold back to tier-1 boy’s at penny’s on the dollar.
In a generation after bend-bubble hysteria, amnesia takes place, tomorrows teir-1 become heirs to todays tier-1, they too own city-hall. Deja-Vu.
Welcome to Bend, Oregon. Nothing is ever new in Bend, the above is a cyclic re-occurence, has always been so, will always be so.
Bend has taken the ‘right-wing’ “Socialize loss, Privatize profit” to a new level.
In Bend its,
“Socialize Expense, Privatize Revenue”
Any cost is city taxpayer money, rubber stamped by city-hall, any receipt is boss-hogg cash-flow.
Note Herr Hitlers Nazi Germany, in its day called ‘National Socialism’ has a government ran by bandits, herein called a ‘kleptocracy’, e.g. a government ran by and for common criminals. Socialism is always at its finest when administered by the richest and most powerful men in any tribe.
Hitlers Germany largely socialized enterprise such that expenses were paid by taxation & theft, and all profit revenue sources went to the captains of industry.
The ‘good-old-boys’ are sitting on 1,000’s of acres of empty land around the city, land that can be sold to prospective tier-4 builders. Tier-1 was Hollern/Smith/Williams, Tier-2 Bauhofer,…, Tier-3 Audia, McDonald, …; Tier-4 will most likely be targeted towards high-risk opportunity funds who will buy land from tier-1 boss hoggs, and then build using funds. It’s a wonderful package. The Boss-Hoggs sell land that isn’t moving, the funds build homes which keeps construction busy ( Capell-Knife/River ). The funds can be marketed on the premise that the good city of bend is ‘paying fund investors to invest’. It’s all a beautiful story. Trouble is nobody will buy the homes.
What needs to be reminded of the SDC issue, is that the actual cost of infrastructure was over $60k/home. What was actually paid averaged less than $12k/home, ergo there has been a $48k deficit during the BOOM years.
Today with 10-20k homes in the area, there is $2Billion dollars missing from infrastructure. Much of the sewers, storm, fire, schools, roads, were never built, this is why toilets in some areas have back-flow. This is why some areas in Bend, now flood.
So $2Billion is missing from the golden boom years, where did it go? Given that boss-hogg Brooks Resource, and their 100’s secret LLC’s did most of the building in the area under 100’s of front names, I can logically assume that the $2billion went to Brooks.
Today Brooks sits on tons of empty land lots around Bend, that nobody will buy. The new PERMANENT SDC DEFERRAL is an attempt to cause a new building boom, in order to create cash-flow on these land lots. The theory is if it costs nothing for building permits, they’ll come and build.
I am assuming that Harley and Bendme are jealous of the business model at Brooks. Smart people prosper, most other can only complain…..and the majority just muddle along to survive. If you only had a clue to the real business model you to could be wealthy too. But its much easier to complain that it is to make MILLIONS. Quit yer bitchin and settle into your minimum wage level, its not going to get any better.
Harley–Bendme:
Fuzzy math–if every one of the 20K homes in Bend had a $48k deficit in the SDC’s the amount of the deficit would ‘only’ be $960 million. Not good, but the error weakens the argument.
The 1700 homes currently on the market-still a supply far exceeding the demand over the next 18 months-does not constitute ‘thousands of vacant houses’.
When a strong argument is buttressed by bad science or shoddy math, it becomes hyperbole. The current state of the city’s finances demands an examination where those involved can’t shrug off criticism and respond with ‘consider the source.’ We elected them–if we don’t like what we have, vote them out.
I’ll be trying.