Property appraisal district not expecting surge of value protests before May 31 cutoff.

Property appraisal district not expecting surge of value protests before May 31 cutoff.

By Marty Toohey
Austin American Statesman
Sunday, May 20, 2007

If recent history is any indication, Travis County homeowners won't be showing up in droves to protest the latest big increases in their property tax appraisals.

Despite back-to-back increases in the appraised value of single-family residences — 8 percent in 2007, 7.5 percent in 2006 — the Travis Central Appraisal District expects no uptick in protests from homeowners as the May 31 deadline for filing appeals approaches.

"It's too early to tell for sure," said Mark Price, the district's director of appraisals. "But we're actually behind last year's pace."

The median value of a Travis County home — the point at which half the homes are worth more and half worth less — is now $181,722, a historical high.

But that figure masks a vast spread in median values calculated by the appraisal district: from $522,053 in the 78746 ZIP code, which includes West Lake Hills, to $91,076 in the 78719 ZIP code around Elroy in southeastern Travis County.

A higher appraised value does not necessarily mean a higher tax bill.

State law caps the amount that the appraisal of a primary residence can increase for tax purposes at 10 percent a year.

That, plus slight tax-rate reductions by most Travis County governments, meant that many property owners' tax bills did not change noticeably last year.

Chief Appraiser Art Cory said people were probably less eager to protest because their bottom lines didn't change much.

The district had expected more than 100,000 protests but got about half that number, similar to previous years.

Still, in some parts of Austin, the concern over soaring values is also rising.

South Congress, Tarrytown, West Lake Hills, Hyde Park and parts of downtown have seen median home values shoot up by 38 percent or more over two years.

The increases are even more dramatic in East Austin, where wealthier residents are moving in, old houses are being replaced by larger ones, and condominium development is spreading.

In the 78702 ZIP code, just east of downtown, the median home value has shot up 43 percent over two years.

"For a person with resources, that can be a good thing," said Rudy Williams, head of the Organization of Central East Austin Neighborhoods. If not, "you're in a world of hurt. You only need two years of bad taxes to get to the point you can't keep up."

Williams said the people who would most benefit from a successful protest, poor homeowners and seniors on a fixed income, are also the least likely to file one.

"They don't really know how to fight the system," he said. "And when you go in there (to protest), it's pretty overwhelming."

It shouldn't be, say the appraisal district and the board that rules on protests.

The protest process starts with an informal hearing between the property owner and district employee, who can change the appraised value.

From there, a property owner can request a formal hearing, which is presided over by a three-person volunteer appraisal review board.

Charles Pennie, who serves on the review board, said people should not be intimated by the board, "because we don't work for the appraisal district."

"We're an oversight board," Pennie said. "We work for everybody."

In 2006, more than a third of the protests were successful.

The county's median home value dropped by about $1,700 as a result of those protests, according to the appraisal district.

New light-rail plan rolls into Austin

Among many obstacles:
What's the cost, and who pays?

By Ben Wear, AUSTIN AMERICAN-STATESMAN
Wednesday, April 23, 2008

A consultant hired by the city is recommending a 14-mile light-rail system for Central Austin, not streetcars as proposed by Capital Metro. The system would run from the airport to downtown, through the University of Texas and east to the emerging Mueller development.

The route is essentially the same one City Council Member BrewsterMcCracken and Austin Mayor Will Wynn have been talking about for the past six months or so. The proposal, finished just seven weeks after the council voted to pay ROMA Design Group up to $250,000 to produce it, comes as a "transit task force" formed by Wynn and state Sen. Kirk Watson moves into the final stages ofcreating a process to analyzerail proposals.

No one yet knows how the proposal, which likely will cost hundreds of millions of dollars, would be paid for.

That task force would almost surely analyze this proposal, and the Capital Area Metropolitan Planning Organization board (chaired by Watson) would have the final say. But it is not clear whether such an examination could occur quickly enough for the light-rail proposal to be put before voters in November. Wynn has said he would like to have a rail vote this year, but there will be a number ofcomplicated questions about costs and benefits.

Watson, who was in South Texas on Tuesday, had not seen the proposal and had no comment. But Watson said that the process created by the task force "will allow any project to be fully vetted in a transparent, open, complete way."

McCracken, at least, said he think that the proposal can make it through that gantlet to a public vote in November, which he said would probably involve voters being asked to approve some sort of long-term debt.

"Yes, I think that's likely," McCracken said of getting the proposal onto the ballot in time.

Council Member Lee Leffingwell has his doubts. He said that only Wynn and McCracken, to his knowledge, had been briefed on the rail proposal.

"The key to this whole thing has been, how's this going to be paid for?" Leffingwell said. "If you just want to put the concept on the ballot in November, that would be one thing. But if you're talking about some sort of financial commitment by the city, I think it would be very hard to get there by that time."

Leffingwell and McCracken are often mentioned as likely candidates for mayor next year.

McCracken says he envisions the city taking the lead in building the line but that Capital Metro probably would run it.

"I don't see that anyone else knows how to do that," McCracken said.

But that would presumably mean that Capital Metro, which has said that running its current operations will require all of its revenue the next few years, would have to absorb what are likely to be substantial operating losses.

"How does that affect bus service now and in the future, which is the only means of transportation for many people in Austin?" Leffingwell asked.

The recommendation from ROMA did not include a specific cost estimate.

McCracken said the cost would be somewhere between $5 million a mile and $30 million a mile, depending mostly on how many underground utility lines would have to be relocated. That would put the total cost at between $70 million and $420 million.

Those figures, he said, would probably not include the cost of the cars.

The diesel-powered cars Capital Metro has purchased for its "red line" commuter service from Leander to downtown, set to open in a few months, cost about $6 million apiece, and the agency bought six of them to start with. Light-rail cars typically cost less than that.

John Lewis, a real estate developer who supported Capital Metro's commuter rail project after vigorously opposing a light-rail referendum in 2000 that failed, scoffed at McCracken's cost figures.

"We all know that there will be serious under-estimating of what this silly thing is going to cost," Lewis said in an e-mail. "What is guessed to be $400 million today will be $800 million when it nears completion. ... These routes being proposed have no user demand and will do virtually nothing to give taxpayers an alternative to their car."

Capital Metro officials have said they have no money left in the kitty to pay for more rail, so where would the money come from to build this?

McCracken envisions a funding scenario that includes using perhaps 15 percent to 20 percent of revenue from Capital Metro's 1 percent sales tax (although the agency has indicated it needs it all for current bus and rail expenses), contributions from the city and other local governments, from property taxes likely to be generated by new development along the line and, potentially, from airport bonds.

"We think it is possible to build this with no new taxes," McCracken said.

According to McCracken, the recommendation from ROMA will propose putting double tracks (allowing travel in both directions simultaneously) from Austin-Bergstrom International Airport and west on Riverside Drive. The route would turn north at South Congress Avenue (although there could be a spur to the parking-poor Long Center, McCracken said, or even to Zilker Park), cross the Ann Richards Congress Avenue Bridge and then go through downtown either on Congress or San Jacinto Boulevard.

Then it would pass through UT, turning east at Dean Keeton Street and going along Manor Road to Mueller.

A major criticism of the light rail that voters rejected in 2000 was that it would take street lanes away from car traffic. Not so, in this case, McCracken said, although the tracks would be in "dedicated lanes" segregated from cars. The space for the tracks, McCracken said, would come from available right of way on Riverside east of Interstate 35. Downtown, the tracks would run on pavement currently occupied by parked cars, he said.

The tracks, McCracken said, might take two lanes from the bridge over Lady Bird Lake, he said, although alternatively it could use the space now taken up by sidewalks. In that case, a sidewalk alternative bridge, such as the one on the South First Street bridge, would continue pedestrian and bicycle access across the lake on Congress.

The dedicated-lane concept was news even to Charlie Betts, executive director of the Downtown Austin Alliance. The alliance has been firmly behind the streetcar plan, in which the trolleys would share lanes with cars. To avoid reducing lanes on Congress would require tearing up the curb and sidewalk extensions that currently delineate the parking spaces.

"That's a new wrinkle, and we haven't had time to think about it," Betts said.

Pat Clubb, vice president for employee and campus services at UT, likes the Mueller connection. The university has a new research building there, and she anticipates that some faculty and staff will live in the residential community swiftly rising at Mueller. And she said having a rail line on San Jacinto, in the shadow of Royal-Memorial Stadium and near the LBJ Library and Bass Concert Hall, will help.

As for losing parking spots along San Jacinto, Clubb said that "losing any parking on campus is an issue" but that the university generally has been looking to move most of that to garages anyway.

bwear@statesman.com; 445-3698

Proposed light-rail line

Length: 14 miles

Cost: $70 million to $420 million, depending on cost of moving underground utilities. Does not include cost of cars.

Route: Would begin at Austin-Bergstrom International Airport; run along Riverside Drive to Congress Avenue; go north on Congress to either Fourth or Ninth streets, where it would cut eastward to San Jacinto Boulevard (the return from San Jacinto to Congress would be on 10th Street if the more northerly route were used); north on San Jacinto to Dean Keeton Street; east on Dean Keeton and Manor Road to the Mueller development just east of Airport Boulevard.

Is this an extension of the Capital Metro commuter rail line under construction?

No, although the tracks would cross in one place. These are electric-powered cars designed to run on city streets at speeds comparable to those of cars. It generally has a system of overhead wires connecting to devices on the cars called 'catenaries.' The commuter rail line is on existing rail, by and large, and not on streets. The commuter cars are diesel-powered.

Would the light-rail cars share lanes with automobiles?

No. The line would have its own 'dedicated lanes,' separate from car lanes.

More on the proposed light-rail line

Would we lose car lanes on some major streets?

Not necessarily, Austin City Council Member Brewster McCracken says. On Riverside Drive, there is ample city right of way to put in the tracks outside of the existing street. On the Ann Richards Congress Avenue Bridge, existing lanes would be needed unless the sidewalk space were used and a new pedestrian bridge were built.

Who would run this railroad?

Capital Metro, McCracken says, although he says the city would take the lead in financing and building it.

Are there other possible extensions?

Yes. McCracken says a spur could extend west from Congress to the Long Center for the Performing Arts or even to Zilker Park. And a crosstown line from the Seaholm Power Plant development area west of City Hall to the end of the commuter line at Fourth and Trinity streets is a possibility, as is building commuter rail from a railroad junction in East Austin out to Manor and Elgin.

What's next?

The creator of the light-rail plan, ROMA Design Group, will take public comment and perhaps tweak the plan before taking it to the City Council on May 8. The plan is likely to go before Mayor Will Wynn's transit working group. The final decision would be made by the Capital Area Metropolitan Planning Organization board, which includes Wynn and McCracken.

Copyright 2008 The Austin American-Statesman

Are you prepared to pay $8 a gallon at the pump?

The Salt Lake Tribune
Rasoul Sorkhabi

04/11/2008

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I intended to title this: Are you prepared for oil at $200 a barrel? But most people would more easily relate their daily life to gas pump prices than to oil barrels. So: Are you prepared for gas at $8 a gallon? If not, read on.

Economic predictions can be dismal. So when we hear that in the next couple of years the gas prices may reach $8 a gallon, we say, "No, way!" We hope that this will not happen, because it will inflate the price of almost everything in the world and may take the world into an economic depression which directly affects our lives.

But before we adopt this state of denial, let's look back to 2004. The price of oil was then $28 a barrel. I remember then reading a newly-published book, The Oil Factor, by two stock market experts who predicted that before the end of the decade oil prices would top $100 a barrel. I could not believe it. But in 2008, this has already happened.

Stephen Leeb, the co-author of the book, has published another one with a scary title: The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel. Predictions need not be destiny. To do something about the rising oil and gasoline prices, we need to understand its causes.

I can think of three factors.

First, the enormous international demand for oil, not only in the United States, Europe and Japan, but also increasingly in China, India and other parts of the world. Tight supplies barely satisfy the global thirst for oil.

We have three solutions: (1) increase oil production; (2) switch to other energy resources; (3) decrease our demand for oil. The first two options would take years. So the immediate solution is to decrease our consumption of oil.

Simple ways of energy conservation can be extremely helpful, such as expanding public transportation, periodic days of no driving and increasing the energy efficiency of our vehicles, buildings and factories.

The second factor for increasing oil prices is the violence and political instability in various parts of the world. These problems cannot be solved by one country alone; they require international cooperation, economic relations and trade, and diplomacy of dialogue and peace.

The third factor is the weakening of the U.S. dollar versus other currencies. In 2004, for example, one euro was $1.10; now it is $1.50. This brings us back to the question: Are we prepared for gas at $8 a gallon? The reality is that if we drive in Europe or Japan, and exchange our dollars to those currencies, the gas will cost us $8 a gallon. So there are millions of people who are already paying that price.

Currently the United States consumes a quarter of world energy; we need to conserve more. Then oil and gasoline prices will come down, and this will give us time to diversify our energy resources. This year's presidential election is also an important opportunity to bring the vital issue of energy to the forefront of public and policy debate.

RASOUL SORKHABI is a research professor at the University of Utah's Energy and Geoscience Institute.

Published on 19 Nov 2007 by Wall Street Journal.

WSJ front page: Oil officials see limit

by Russell Gold and Ann Davis

A growing number of oil-industry chieftains are endorsing an idea long deemed fringe: The world is approaching a practical limit to the number of barrels of crude oil that can be pumped every day.

Some predict that, despite the world's fast-growing thirst for oil, producers could hit that ceiling as soon as 2012. This rough limit -- which two senior industry officials recently pegged at about 100 million barrels a day -- is well short of global demand projections over the next few decades. Current production is about 85 million barrels a day.

The world certainly won't run out of oil any time soon. And plenty of energy experts expect sky-high prices to hasten the development of alternative fuels and improve energy efficiency. But evidence is mounting that crude-oil production may plateau before those innovations arrive on a large scale. That could set the stage for a period marked by energy shortages, high prices and bare-knuckled competition for fuel.

The current debate represents a significant twist on an older, often-derided notion known as the peak-oil theory. Traditional peak-oil theorists, many of whom are industry outsiders or retired geologists, have argued that global oil production will soon peak and enter an irreversible decline because nearly half the available oil in the world has been pumped. They've been proved wrong so often that their theory has become debased.

The new adherents -- who range from senior Western oil-company executives to current and former officials of the major world exporting countries -- don't believe the global oil tank is at the half-empty point. But they share the belief that a global production ceiling is coming for other reasons: restricted access to oil fields, spiraling costs and increasingly complex oil-field geology. This will create a global production plateau, not a peak, they contend, with oil output remaining relatively constant rather than rising or falling.

The emergence of a production ceiling would mark a monumental shift in the energy world.

...Oil companies have seen several years of bull-market prices, and thus of trying to produce more. This has given their executives a better sense of what is and isn't possible.

One limit: Many people think most of the world's giant fields already have been discovered.

...Compounding the problem: Most of the world's biggest fields are aging, and production at them is declining rapidly.

...Oil executives who believe a production ceiling is coming are making plans to stay relevant in a world where oil production is constrained. ...

Oil-Rich Nations Use More Energy, Cutting Exports

By Clifford Krauss, THE NEW YORK TIMES

December 9, 2007

The economies of many big oil-exporting countries are growing so fast that their need for energy within their borders is crimping how much they can sell abroad, adding new strains to the global oil market.

Experts say the sharp growth, if it continues, means several of the world’s most important suppliers may need to start importing oil within a decade to power all the new cars, houses and businesses they are buying and creating with their oil wealth.

Indonesia has already made this flip. By some projections, the same thing could happen within five years to Mexico, the No. 2 source of foreign oil for the United States, and soon after that to Iran, the world’s fourth-largest exporter. In some cases, the governments of these countries subsidize gasoline heavily for their citizens, selling it for as little as 7 cents a gallon, a practice that industry experts say fosters wasteful habits.

“It is a very serious threat that a lot of major exporters that we count on today for international oil supply are no longer going to be net exporters any more in 5 to 10 years,” said Amy Myers Jaffe, an oil analyst at Rice University.

Rising internal demand may offset 40 percent of the increase in Saudi oil production between now and 2010, while more than half the projected decline in Iranian exports will be caused by internal consumption, said a recent report by CIBC World Markets.

The report said “soaring internal rates of oil consumption” in Russia, in Mexico and in member states of the Organization of the Petroleum Exporting Countries would reduce crude exports as much as 2.5 million barrels a day by the end of the decade.

That is about 3 percent of global oil demand. It may not sound high, but experts say demand for oil is so inflexible, and the world has so little spare production capacity, that even small shortfalls can raise prices. In 2002, when a labor strike in Venezuela took 3 percent of global production off line, oil prices spiked 26 percent within weeks.

The trend, though increasingly important, does not necessarily mean there will be oil shortages. More likely, experts say, it will mean big market shifts, with the number of exporting countries shrinking and unconventional sources like Canadian tar sands becoming more important, especially for the United States. And there is likely to be more pressure to open areas now closed to oil production.

Greater political stability and increased drilling in some important oil states, notably Iraq, Iran and Venezuela, could help offset the rising demand from other oil exporters.

“Ten years from now, world capacity to produce oil could be 20 percent higher than today,” said Daniel Yergin, chairman of Cambridge Energy Research Associates. “But a lot will depend on how the geopolitics work out.”

Growth in demand among oil exporters is one aspect of a larger issue, breakneck economic growth in parts of the developing world. China and India are expected to account for much of the increase in global oil demand in the next 20 years. But Fatih Birol, chief economist at the International Energy Agency in Paris, rated consumption growth among oil exporters as the second-biggest threat to meeting the world’s oil needs.

“It’s a big problem, and growing all the time,” Mr. Birol said.

Internal oil consumption by the five biggest oil exporters — Saudi Arabia, Russia, Norway, Iran and the United Arab Emirates — grew 5.9 percent in 2006 over 2005, according to government data. Exports declined more than 3 percent. By contrast, oil demand is essentially flat in the United States.

CIBC’s demand projections suggest that for many oil countries, including Saudi Arabia, Kuwait and Libya, internal oil demand will double in a decade.

Factors contributing to the trend include increased industrialization, higher government spending and increasing personal consumption. According to a World Bank report, economic growth in the Middle East and North Africa has doubled since the 1990s, and Russia has done even better.

Oil money is giving many countries the means to invest in their own economic development, and robust global growth is creating markets for their goods — including plastics, chemicals and fuels refined from oil.

To be sure, many oil-exporting states have a long way to go before they achieve Western living standards. The global oil market is still dominated by traditional consumers, particularly the United States, which uses nearly a quarter of the world’s oil.

Perhaps surprisingly, though, some producing countries have surpassed the United States in oil consumption per person. They include Bahrain, Kuwait, Qatar and the United Arab Emirates.

Particularly in oil-producing countries with large populations, like Indonesia, Russia and Mexico, a rapid rise in car ownership is a big factor driving consumption increases. Russian farmers are replacing horses and carts with gas-guzzling four-wheel-drive vehicles, while urban consumers are snapping up BMWs even before they learn to drive.

“Most of the producing countries have young populations entering the driving age and can more readily afford to buy cars because the price of fuel is low,” said Charles McPherson, an oil expert at the International Monetary Fund. “It’s certainly pulling product off the international markets.”

Some oil-exporting countries use price controls and subsidies to ensure cheap fuel for their people. These programs are politically popular, even though experts say they contribute to wasteful energy use.

Kuwaitis, for instance, often leave their air conditioning — powered by electricity generated from natural gas or oil-derived fuels — running for weeks while on vacation, said an official at the World Bank. Sportsmen of the United Arab Emirates ski indoors on manufactured snow and play golf on lush courses that require desalinated water produced with fuels refined from oil.

Saudis, Iranians and Iraqis pay 30 to 50 cents a gallon for gasoline. Venezuelans pay 7 cents, and demand is projected to rise as much as 10 percent this year. Auto sales have tripled in four years. “Where cheap oil is viewed as a national human right, you’ve virtually got runaway demand,” said Chris B. Newton, an executive of the Indonesian Petroleum Association in Jakarta.

Indonesia flipped from exporting oil to importing it three years ago because of sagging production in depleted fields and rising demand. Iran, Algeria and Malaysia are vulnerable in the next decade. Most oil experts view Mexico as the next country likely to flip, in as little as five years.

Rapidly falling production in Mexico’s aging Cantarell oil field is part of the problem. Also significant, though, is the rising number of cars on Mexican roads. They have nearly doubled, to almost 16 million, in the last decade, and gasoline consumption is growing 5 percent a year.

In Mexico City the other day, a bricklayer named Jaime Guerrero arrived at a local Chevrolet dealership. His extended family cried “bravo!” as he signed the papers for his first car.

“To have a new car in my name is a dream transformed into reality,” said Mr. Guerrero, 26. He and his family piled in and weaved through the chaotic traffic of the capital, hunting for a priest to douse the car with holy water.

“I don’t worry about the climate or shortages of oil in the world,” Mr. Guerrero said. “I just worry if gasoline prices go up.”

The peak oil crisis: the NY Times drops the first shoe

by Tom Whipple, Energy Bulletin
12/13/07

Peak Oil started as a story about geology. It was once relatively simple. After 150 years of pumping up oil, the easy-to-find kind was gone and from here on out it was going to be much more difficult to find and eventually prohibitively expensive.

In recent years, however, the peak oil story took on new facets such as rapidly increasing consumption of oil in Asia and producing countries, concentration of most production in the hands of a few governments, unstable world finances, rapidly increasing cost of production and a growing inability or unwillingness to export oil to other countries.

Of all the reasons that gas prices are going up, only the geologic constraint – “supplies are running out” – has an air of finality. There is nothing anybody can do about it.

Other constraints on unlimited oil flows sometimes called “above ground factors” carry with them the subtle implication that there is something that can and just might be done to set things right. A war on top of your oilfield? Stop it! Getting too expensive to produce the necessary oil? Invest more. Government failing to step up production? Change the government! You get the idea. Peaking of world oil production by definition implies that the oil age is on the way out. Almost any other reason for restricted oil flows implies there is a “fix” which will allow us to continue on for awhile without any great disruption.

For over 25 years now, nobody in America has had to think much about oil. It was cheap, hardly taxed at all (by European standards), and available in unlimited quantities. In the last few years, this has started to change with gasoline circa $3 a gallon, oil in the $90s and, thanks to the ethanol craze, food prices going through the roof. Our newspapers are starting to take notice. The problem has become too big to ignore.

Three weeks ago the Wall Street Journal took a stab at explaining what was happening and came up with the notion that world oil production was only “plateauing,” not peaking ["Oil officials see limit" Wall Street Journal November 19, 2007]. Plateauing carries the implication that life as we know it can go on for awhile. All the oil we import today will continue to be available and, if only the Chinese economy would stop growing so fast, all will be well.

Last Sunday, the New York Times came at the high gas price problem from a different direction – availability of imports ["Oil-Rich Nations Use More Energy, Cutting Exports" New York Times December 9, 2007]. Drawing on the combined wisdom of no less than seven of their reporters strung out around the earth, the Times boldly concluded that “The economies of many big oil-exporting countries are growing so fast that their need for energy within their borders is crimping how much they can sell abroad.”

The Times then told its readers some very scary stuff. “Experts say the sharp growth, if it continues, means several of the world’s most important suppliers may need to start importing oil within a decade to power all the new cars, houses and businesses they are buying and creating with their oil wealth.” I particularly like the “if it continues” clause which suggests that the Russians, Mexicans, Venezuelans, Iranians and all those incredibly rich Persian Gulf Arabs might just stop buying new cars, building themselves places to live, and buying flat screen TV’s so they can export their oil to their good friends in America instead.

After more scary talk about world oil exports dropping by 2.5 million barrels a day in the next three years and how a drop of this size could lead to major economic problems, the Times switches to a reassuring mode. “The trend, though increasingly important, does not necessarily mean there will be oil shortages. More likely, experts say, it will mean big market shifts, with the number of exporting countries shrinking and unconventional sources like Canadian tar sands becoming more important, especially for the United States. And there is likely to be more pressure to open areas now closed to oil production.”

They even go so far as to suggest that an era of peace and friendship might just break out in the next few years. ”Greater political stability and increased drilling in some important oil states, notably Iraq, Iran and Venezuela, could help offset the rising demand from other oil exporters.”

After reassuring us that all is not necessarily lost, the Times concludes by reinforcing its basic point by saying “Internal oil consumption by the five biggest oil exporters — Saudi Arabia, Russia, Norway, Iran and the United Arab Emirates — grew 5.9 percent in 2006 over 2005, according to government data. Exports declined more than 3 percent. By contrast, oil demand is essentially flat in the United States. CIBC’s demand projections suggest that for many oil countries, including Saudi Arabia, Kuwait and Libya, internal oil demand will double in a decade.”

The Times and the Journal have taken a major step forward by admitting for essentially the first time in front-page stories that the U.S. is going to face a big problem in the next few years. Neither however has connected the dots.

Nowhere does the Times remind us that the U.S. is now importing two-thirds of its oil consumption each day and that a drop of a few percent in daily flow is likely to cause pandemonium at the pumps as it did back in the 1970’s. Neither paper has as yet mustered the editorial courage to discuss the 800-pound gorilla, oil depletion, which every year quietly eats away 4 or 5 percent of our oil supply – the life blood of modern civilization.

Until our major newspapers begin discussing in a frank and open manner what will soon be the first major crisis of the 21st Century, the U.S. Congress is doomed to empty posturing and debating energy red herrings. It is clear that most have no clue as to what is about to befall us.

Corporate Welfare

Corporate Welfare

A TIME investigation uncovers how hundreds of companies get on the dole--and why it costs every working American the equivalent of two weeks' pay every year

By Donald L. Barlett and James B. Steele

(TIME, Nov. 9. 1998) -- How would you like to pay only a quarter of the real estate taxes you owe on your home? And buy everything for the next 10 years without spending a single penny in sales tax? Keep a chunk of your paycheck free of income taxes? Have the city in which you live lend you money at rates cheaper than any bank charges? Then have the same city install free water and sewer lines to your house, offer you a perpetual discount on utility bills--and top it all off by landscaping your front yard at no charge?

Fat chance. You can't get any of that, of course. But if you live almost anywhere in America, all around you are taxpayers getting deals like this. These taxpayers are called corporations, and their deals are usually trumpeted as "economic development" or "public-private partnerships." But a better name is corporate welfare. It's a game in which governments large and small subsidize corporations large and small, usually at the expense of another state or town and almost always at the expense of individual and other corporate taxpayers.

Two years after Congress reduced welfare for individuals and families, this other kind of welfare continues to expand, penetrating every corner of the American economy. It has turned politicians into bribery specialists, and smart business people into con artists. And most surprising of all, it has rarely created any new jobs.

While corporate welfare has attracted critics from both the left and the right, there is no uniform definition. By TIME's definition, it is this: any action by local, state or federal government that gives a corporation or an entire industry a benefit not offered to others. It can be an outright subsidy, a grant, real estate, a low-interest loan or a government service. It can also be a tax break--a credit, exemption, deferral or deduction, or a tax rate lower than the one others pay.

The rationale to curtail traditional welfare programs, such as Aid to Families with Dependent Children and food stamps, and to impose a lifetime limit on the amount of aid received, was compelling: the old system didn't work. It was unfair, destroyed incentive, perpetuated dependence and distorted the economy. An 18-month TIME investigation has found that the same indictment, almost to the word, applies to corporate welfare. In some ways, it represents pork-barrel legislation of the worst order. The difference, of course, is that instead of rewarding the poor, it rewards the powerful.

And it rewards them handsomely. The Federal Government alone shells out $125 billion a year in corporate welfare, this in the midst of one of the more robust economic periods in the nation's history. Indeed, thus far in the 1990s, corporate profits have totaled $4.5 trillion--a sum equal to the cumulative paychecks of 50 million working Americans who earned less than $25,000 a year, for those eight years.

That makes the Federal Government America's biggest sugar daddy, dispensing a range of giveaways from tax abatements to price supports for sugar itself. Companies get government money to advertise their products; to help build new plants, offices and stores; and to train their workers. They sell their goods to foreign buyers that make the acquisitions with tax dollars supplied by the U.S. government; engage in foreign transactions that are insured by the government; and are excused from paying a portion of their income tax if they sell products overseas. They pocket lucrative government contracts to carry out ordinary business operations, and government grants to conduct research that will improve their profit margins. They are extended partial tax immunity if they locate in certain geographical areas, and they may write off as business expenses some of the perks enjoyed by their top executives.

The justification for much of this welfare is that the U.S. government is creating jobs. Over the past six years, Congress appropriated $5 billion to run the Export-Import Bank of the United States, which subsidizes companies that sell goods abroad. James A. Harmon, president and chairman, puts it this way: "American workers...have higher-quality, better-paying jobs, thanks to Eximbank's financing." But the numbers at the bank's five biggest beneficiaries--AT&T, Bechtel, Boeing, General Electric and McDonnell Douglas (now a part of Boeing)--tell another story. At these companies, which have accounted for about 40% of all loans, grants and long-term guarantees in this decade, overall employment has fallen 38%, as more than a third of a million jobs have disappeared.

The picture is much the same at the state and local level, where a different kind of feeding frenzy is taking place. Politicians stumble over one another in the rush to arrange special deals for select corporations, fueling a growing economic war among the states. The result is that states keep throwing money at companies that in many cases are not serious about moving anyway. The companies are certainly not reluctant to take the money, though, which is available if they simply utter the word relocation. And why not? Corporate executives, after all, have a fiduciary duty to squeeze every dollar they can from every locality waving blandishments in their face.

State and local governments now give corporations money to move from one city to another--even from one building to another--and tax credits for hiring new employees. They supply funds to train workers or pay part of their wages while they are in training, and provide scientific and engineering assistance to solve workplace technical problems. They repave existing roads and build new ones. They lend money at bargain-basement interest rates to erect plants or buy equipment. They excuse corporations from paying sales and property taxes and relieve them from taxes on investment income.

There are no reasonably accurate estimates on the amount of money states shovel out. That's because few want you to know. Some say they maintain no records. Some say they don't know where the files are. Some say the information is not public. All that's certain is that the figure is in the many billions of dollars each year--and it is growing, when measured against the subsidy per job.

In 1989 Illinois gave $240 million in economic incentives to Sears, Roebuck & Co. to keep its corporate headquarters and 5,400 workers in the state by moving from Chicago to suburban Hoffman Estates. That amounted to a subsidy of $44,000 for each job.

In 1991 Indiana gave $451 million in economic incentives to United Airlines to build an aircraft-maintenance facility that would employ as many as 6,300 people. Subsidy: $72,000 for each job.

In 1993 Alabama gave $253 million in economic incentives to Mercedes-Benz to build an automobile-assembly plant near Tuscaloosa and employ 1,500 workers. Subsidy: $169,000 for each job.

And in 1997 Pennsylvania gave $307 million in economic incentives to Kvaerner ASA, a Norwegian global engineering and construction company, to open a shipyard at the former Philadelphia Naval Shipyard and employ 950 people. Subsidy: $323,000 for each job.

This kind of arithmetic seldom adds up. Let's say the Philadelphia job pays $50,000. And each new worker pays $6,700 in local and state taxes. That means it will take nearly a half-century of tax collections from each individual to earn back the money granted to create his or her job. And that assumes all 950 workers will be recruited from outside Philadelphia and will relocate in the city, rather than move from existing jobs within the city, where they are already paying taxes.

All this is in service of a system that may produce jobs in one city or state, thus fostering the illusion of an uptick in employment. But it does not create more jobs in the nation as a whole. Market forces do that, and that's why 10 million jobs have been created since 1990. But most of those jobs have been created by small- and medium-size companies, from high-tech start-ups to franchised cleaning services. FORTUNE 500 companies, on the other hand, have erased more jobs than they have created this past decade, and yet they are the biggest beneficiaries of corporate welfare.

To be sure, some economic incentives are handed out for a seemingly worthwhile public purpose. The tax breaks that companies receive to locate in inner cities come to mind. Without them, companies might not invest in those neighborhoods. However well intended, these subsidies rarely produce lasting results. They may provide short-term jobs but not long-term employment. And in the end, the costs outweigh any benefits.

And what are those costs? The equivalent of nearly two weekly paychecks from every working man and woman in America--extra money that would stay in their pockets if it didn't go to support some business venture or another.

If corporate welfare is an unproductive end game, why does it keep growing in a period of intensive government cost cutting? For starters, it has good p.r. and an army of bureaucrats working to expand it. A corporate-welfare bureaucracy of an estimated 11,000 organizations and agencies has grown up, with access to city halls, statehouses, the Capitol and the White House. They conduct seminars, conferences and training sessions. They have their own trade associations. They publish their own journals and newsletters. They create attractive websites on the Internet. And they never call it "welfare." They call it "economic incentives" or "empowerment zones" or "enterprise zones."

Whatever the name, the result is the same. Some companies receive public services at reduced rates, while all others pay the full cost. Some companies are excused from paying all or a portion of their taxes due, while all others must pay the full amount imposed by law. Some companies receive grants, low-interest loans and other subsidies, while all others must fend for themselves.

In the end, that's corporate welfare's greatest flaw. It's unfair. One role of government is to help ensure a level playing field for people and businesses. Corporate welfare does just the opposite. It tilts the playing field in favor of the largest or the most politically influential or most aggressive businesses. In the next story, and those that follow in the coming weeks, you will meet the beneficiaries of corporate welfare--and the people who pay for it.