Sunday, June 16, 2019

Reality Cricket – An Investor Presentation

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Wednesday, June 12, 2019

How to Replace the Property Tax System with Middle-Class friendly Progressive Consumption Taxes

The vast majority of homeowners believe that the current property tax system is inherently regressive, meaning middle class heavily subsidizes the rich. Others think it’s the biggest annual harassment they have to endure. Rich folks owning expensive homes are not too bothered as the system favors them. It is more or less the opposite of the income tax system where the top 1% pays 40% of all federal taxes. According to the Tax Policy Center 44% of Americans will not pay any income taxes this year – not so when it comes to property taxes. Property tax is one of the main reasons why seniors and minorities get uprooted from their neighborhoods. Unfortunately, home is the biggest investment for most Americans and it’s usually controlled by the local governments via their primary revenue tool called the property taxes.

It’s about time we phase out this mostly unfair and inequitable property tax system and replace it with a series of truly fair and transparent revenue tools, thus freeing the homeowners from the clutches of the government control. So, what are the replacement tools (revenue sources)?

1. Introduce Junk Food Surtax on Unhealthy Processed Foods and Beverages – Just the way the middle class must not subsidize the rich people’s property taxes, the health-conscious folks must not subsidize those who basically live off junk foods. This is a (preventive) health issue and, hopefully, this surtax will save citizens billions in health insurance premiums down the road. The counter case is equally compelling: Today smokers are paying a heavy price for their lifestyle (significantly higher taxes on their lifestyle products and higher premiums on life and health insurances, etc.). While we must not take smokers’ choice away, the rest of us must not finance their lifestyles either. The phase-out of the property tax system will take 5 to 7 years, during which as the property tax revenue starts to come down, the Junk Food Surtax should start at, say 10%, graduating up and perhaps leveling out at 20% (will require studies to make the system revenue-neutral). This tax could be implemented at the State level, where the States reimburse counties based on actual collections. If the State becomes an unwilling participant, it must be implemented at the county level. In a Utopian society, this collection will come down to null.

2. Implement Surtax on Basic and Luxury Durable Goods – In order to save $5K to $150K on property taxes at the front-end and capped deductions at the back-end, homeowners would be amenable to the proposed durable goods surtax. Unlike involuntary property taxes, consumption taxes are more humane – families can budget/plan for these expenditures. Since the basic durable goods impact the middle class, the rate must be lower, say 2 to 3% for the basic, followed by the luxury durable and ultra luxury durable goods, with progressively higher rates. For instance, all appliances under $10K could be basic, $10K to $20K being the luxury category and >$20K as the ultra luxury category, with progressively higher rates. Likewise, automobiles could have three categories as well. While counties would be allowed to charge different rates, there must be non-resident tariff provisions to negate any arbitrage; in other words, counties with lower rates must collect the differentials from the non-resident purchasers (from the reciprocating counties) with higher rates. Non-reciprocating counties would be notified of the non-resident purchases. 

3. Let the Investors Pay Higher Sales and Transfer Taxes on Income-producing SFRs – In terms of sales and transfer taxes, single family homes occupied as primary residences must be treated differently from investor purchases for conversion to rentals. At the point of purchase, those investors must pay higher sales taxes (add-on sales surtax). During the last recession, many institutions bought and converted millions of single family homes into rentals creating a whole new SFR Rental industry. Unlike people’s primary residences, these are income-producing properties and must be treated as such. Even during the years of property tax phase-out, they must be treated as a sub-class of the multi-family, paying higher sales, property and transfer taxes than the primary residences, in line with the competing multi-families. This should apply to large institutions as well as other parties and individuals with 5+ rental units including condos and co-ops.

4. Let the Gamers and Flippers Pay Higher Transfer Taxes – At the point of sale, shorter holding periods (say, up to 2 years) must carry much higher transfer taxes so the traders and flippers are separated from the homeowners. In fact, it’s a clear case of moral hazard when primary homeowners and gamers are treated alike by the local assessors. While the gamers are entitled to compete and buy, they must be treated as investors if they sell within the shorter window. They can however bypass the surtax by using the 1031 exchange (federal). Of course, exceptions (e.g., job-related relocation, medical emergency, etc.) must be factored in as long as the use of home as primary residence could be proven. During the tax phase-out period, none of these sales (institutional, traders and flippers) could be used in developing SFR AVMs or as SFR comps, to avoid having to artificially inflate the price/assessment levels.

5. Introduce/Re-introduce Million$-plus Home Sales Surtax – Since the upscale and expensive homes (owners) would be a big beneficiary of the phase-out (followed by no property taxes), the million$-plus home sales must be subjected to additional progressive surtaxes. It must not be a blanket one-size-fits-all rate; instead, it must be progressive in view of the savings – for example, sale price $1M to $2M @2.00%, $2M to $3M @2.25%, $3M to $5M @2.50%, $5M to $10M @2.75%, $10M+ @3.00% etc., etc. While the elimination of property taxes will make the high-end housing market more liquid, the introduction of sales surtax (coupled with higher short-holding transfer taxes) will gradually de-incentivize gamers, stabilizing this volatile segment. Should sales clusters start to balloon just under $1M, the threshold could be lowered to the jumbo mortgage (non-conforming) level. Of course, State’s participation will be important, absent which counties must implement the surtax on their own.

6. Let there be Luxury Hotel (4 and 5-Star) Surtax – These hotels are primarily for the corporate executives and rich folks so additional 5-6% surtax will not harm the hotel industry. In fact, these hotels might even use this surtax as a promo (“We Will Pay Your Surtax”) in order to boost traffic during the off-peak season. A vast majority of these hotels have medium-to-large convention centers – seasonal to round-the-year – so convention center surtax could be an ancillary surtax as well. The hotels that are run as resorts must be subjected to an additional resort surtax. Luxury car rentals must carry sizable luxury rental surtax. Similarly, all golf courses, private and public, must have additional surtaxes. None of these would adversely impact the middle class; even if they impact the middle class to some extent, it would be almost insignificant when compared to the tax savings they would be enjoying from the elimination of property taxes.

7. Counties should Start Selling Naming Rights to its Infrastructure – Let the rich people/private institutions pay to put up their names on local government buildings, county roads, town squares, bridges, marinas, municipal parking, toll booths, service plazas, ball parks, parks and recreational centers, public pools and rinks, etc. (that the local governments own and operate). Of course, public schools and colleges should be exempted. The selling process must be totally open and transparent (via open tenders), thus awarding the naming rights to the highest bidders (some restrictions could apply). Also, in order to attract the right market price, it must also be term-limited, say 3 to 5 years. Counties could also consider private-public joint ventures to build new toll roads and bridges (unable to get federal funding) wherein the private party incurs all costs to build the infrastructure in return for the toll incomes for 10-15 years.

8. Now that Airbnb is Mainstream, Counties must Claim its Share of Taxes – Like Uber, Airbnb has become mainstream competing with the commercial lodging industry, potentially lowering the latter’s occupancy rates and consequently government’s tax revenues. Under the circumstances, states must make sure that Airbnb collects and returns all taxes back to respective states and, in turn, to the originating counties. Given the skyrocketing popularity of Airbnb, this tax revenue will grow exponentially in coming years. In fact, this new-found tax revenue will not only far exceed the lost hotel tax revenue, but it will also generate new taxes in smaller markets where hotels/motels generally are in short supply. Because of the physical nature of Airbnb’s client-properties, it will be easier (than the internet sales) for the states to collect taxes. The emerging Airbnb competition must also follow suit, collecting and clearing taxes to the states.

9. Last but not least, massive Savings will be generated from the Closure of Assessment Offices – In large cities and counties, hundreds of employees work in those offices (Assessor’s office, Assessment Review, Data Collection, Mapping, Valuation and Valuation Modeling, Customer Service, Exemptions, Public Relations and Outreach, Attorneys, etc.). The elimination of those high-paying jobs will save local governments tens of millions in salaries and benefits. Additionally, the closure of those offices will save significant sums in rent, utilities, security, maintenance, IT, web, telecom services, etc. Since governments try to solve all problems by hiring more people (actual case: “The county has hired 60 staffers and plans to bring on 20 more. The [XX] Commission…has hired 16 staffers and plans to bring on another 10 in the coming months.”), the elimination of property taxes will save local governments a ton.

Since property tax is one of the most explosive issues for the local politicians (they win or lose elections based on the assessment issue alone), homeowners and their watch groups must fight tooth and nail to phase it out. Now that the SALT deduction has been capped, even the rich homeowners might be in favor of this phase-out. Of course, the local unions will not be silent spectators in this fight. No doubt, this fight will end up at State Supreme Courts. Of course, in order to win this fight, all homeowners need is one favorable decision, which will spearhead and strengthen the movement coast-to-coast.

Thank you.

Sid Som MBA, MIM
President, Homequant, Inc.

Monday, June 10, 2019

Introducing Reality Cricket on the Golf Course

    COPYRIGHTED MATERIAL
    US COPYRIGHT CASE # 1-7772044197


- Intended for International Sports Agencies -

The game of cricket is almost a religion in most cricketing nations, especially in South Asia. While Australia, England, Ireland, New Zealand, South Africa, West Indies and Zimbabwe are the other major cricketing nations, it enjoys some popularity in number of other countries like Bermuda, Canada, Kenya, Malaysia, Netherlands, Nigeria, Scotland, Singapore, Tanzania, UAE, etc.    

Though there are some similarities between Cricket and Baseball, the major playing nations are almost mutually exclusive. Baseball has always been popular in advanced nations like Canada, Japan, Netherlands, South Korea and the United States. Thus far, the marketing efforts to expand cricket into the major baseball nations have been marginally successful, at best. Even when an exhibition cricket match is played in the US, the audience is mostly the immigrants from the cricketing nations, making it commercially unviable to attract any major TV channel to carry it live.

For cricket to be a viable alternative to baseball in major baseball nations (and vice versa down the road), it has to be lot more entertaining to the viewers at large. While the cricket fans consider the shortened T-20 format very entertaining, it’s not so at all for their baseball counterparts. In fact, the baseball lovers will still find it quite “boring.”

The only way cricket can be sold to the major baseball world is by reinventing the format itself. From the entertainment point of view, the two-innings format is fundamentally backward-bending, offering little to virtually no incentives to the commercial media in the all-baseball world, because more often than not, this format makes an on-going match far too predictable, thus destroying the fun and thrill of it. For example, when the team batting first collapses or even performs sub-par, the outcome is more or less predictable. So, who would stick around for the second inning? Not the TV viewers, at least – which is the primary viewership.

While the traditional format cannot be changed overnight, a highly entertaining and thrilling “Reality” format could be invented and tried in the baseball world. If it becomes successful there, it would be equally, if not more, successful at home as well.
    
Reality cricket – by design – must be lot more entertaining and thrilling than the traditional variety. In addition to supporting the standard 2D smart TV, this form and format will also be 3D TV-friendly, thus attracting new generations of media audience who are otherwise unaware of or are indifferent to the world of cricket. Again, it’s not going to be the garden variety club cricket which will be commercially unappealing to the futuristic media.

Once the Reality version starts to gain commercial momentum, the makers of virtual sports will quickly jump in, taking it to the next level where viewers can virtually play along “live.” The Virtual 2.0 will be AI-friendly, allowing the virtual batters to try out different “timing” and “striking” options which the actual on-field batter could only wish. Similarly, the virtual bowlers will be able to try out a combination of various “line” and “length” options which, again, the actual on-field bowler could only wish.

So, what’s the new “Reality” cricket? Here it is…

1. Playing Field: Instead of the traditional flat cricket grounds, it will be shifted to the professional Golf Courses, preferably 18-hole Resort Golf Courses, with magnificent surroundings, for an added TV attraction. By switching the venue to a golf course, the so-called home field advantage will cease to exist. Since the makeup of each golf course is somewhat different, players will encounter new challenges each time they take the field. Also, the net practice and the practice matches will be arranged on smaller courses, keeping the thrill and unpredictability of playing on the big course alive. The same cricketing bat and ball will be used for now, with a usual cricketing pitch. Down the road the ball will be remanufactured with synthetic material to make it less susceptible to wetness. Pre-fab drop-in pitch will be ideal to maintain the portability from course to course locally, even regionally. Other than the pitch, the rest of the course remains unchanged which will help keep the costs under control. But, unlike in traditional cricket, only one batter will come in and bat at a time so only one set of wickets will be used. Should the course comprise actual water hazards like artificial ponds or lagoons, they must be netted using modern technology to get the ball out of the net promptly, without having to deal with the ball getting wet. Rain will stop play as is customary in the traditional format. Obviously, it is going to be played during the day only, differing from the short One Day International (ODI, usually day/night) or T-20 (mostly under floodlight) formats. Timeouts will be necessary to keep the ad dollars flowing.

2. Playing Format: In terms of the number of overs, the Reality format will initially share the T-20 (i.e., 20-overs) format. But, instead of the cricketing 2-innings format, the Reality format will be split up into 4 batting innings per side (5 overs per inning) to a total of 8 innings, thus allowing each team to bat for four rotating innings, meaning the team that opens the batting will return again to bat out the 3rd, 5th and 7th innings, respectively. Needless to say, the same team will take the bowling/fielding for the alternate 2nd, 4th, 6th and 8th innings, respectively, when the opposition bats. The problem of the one-batting-inning per side is that the match often becomes far too predictable early into the second inning; for instance, if the side batting first does not put up enough runs on the board, the match becomes quite predictable within 5 to 7 overs into the second inning – to the utter dismay of the attending fans and the media audiences at large. As the new Reality data points come in and get adequately mined, the format could be later expanded to 25 or 30 overs, adding innings proportionally.   

3. Player Format: While all cricket formats call for 11 players per side, the Reality version will comprise 7 players per side, reducing the use of specialists; for example, out of the 11 cricket players, 5 are generally specialist batters, 5 are specialist bowlers (1 is often considered an all-rounder) and the remaining 1 is a dedicated wicket-keeper with good batting skills. Again, the problem to this type of side selection is that the match becomes more predictable. When the top-order of batting (primarily specialist batters) collapses, the specialist bowlers (a.k.a., the tail-enders) can hardly come to the rescue and turn things around. Likewise, when the batters get their day, the bowling side starts to feel an insurmountable pressure. Again, the selection of specialists generally makes things more predictable, which is fine when the sole objective is to win a tournament. In the proposed Reality format, where entertainment is the primary objective, the team selection will be based on all-round skills, eventually paving the way for a whole new generation of skilled all-rounders. Of course, each team will need a 5-player bench considering it will be played under the Sun. This all-rounder approach will change the overall grooming and bidding (on player auctions) process.

4. Batting and Bowling: Under the Reality format, each batter gets to bat only one over per inning, with the mandatory introduction of two new batters in consecutive innings. Of course, when the first five batters do not survive till the end of the fifth over, sixth and seventh batters will bat. To put in simple terms, only three batters from inning one can be repeated while batting in inning two and so forth. Similarly, bowlers can bowl only one over per inning, with the mandatory introduction of two new bowlers in consecutive innings. Therefore, the bowling side can reintroduce only three bowlers when they open their second bowling inning. Of course, the exception to this rule will come into effect when more than five batters needs to bat in an inning. This general one-over batting and bowling restrictions will force teams to recruit more all-rounders than specialists, lessening the usual predictability of the game. The combination of 4-innings per side and 1-batter/bowler per over will make the match more unpredictable, hence entertaining, till the end – a big win-win for both live and media audiences. A team can use a dedicated wicket-keeper across all four innings, for now (this practice may also be dispensed with down the road, making way for more unpredictability).

5. Scoring Runs: This is going to be very different from the traditional cricket format. Batters must return to the base to be credited for any runs, making the traditional singles (1’s), threes (3’s), boundaries and over-boundaries off-limit. In other words, the batters can only hit 2’s and 4’s (maximum per bowl) by returning to the base. In order to minimize inaccurate bowling and imprecise throws, byes and leg byes will be allowed. A 2-run deduction will be taken when a batter’s strike hits the hazard (water or bunker) without bounce, beating any reasonable endeavor by the nearest fielder to catch the ball (reasonableness of the fielder’s attempt will be determined by the umpire). This deduction will stand irrespective of the batter’s score in the inning and will be counted as a cumulative negative (i.e., deduction).

The advantage of having only one batter at a time is that the batting momentum will continue, keeping the entertainment ante significantly up, which is critical for the Reality cricket to garner worldwide audience. In a traditional format, since two batters bat together, the entertainment aspect of the game often gets compromised. Generally, when one batter goes on a scoring spree, the other slows down, playing a more supporting or defensive role (except in death overs), which could be technically fine, but generally at the expense of the entertainment value of the game. Having one batter at a time removes altogether the potential of the second batter slowing down.  

6. Batter Dismissal: Until this format gains some meaningful commercial momentum, any new and specialized technology will not be forthcoming. Therefore, the use of the existing DRS and related technology will force this format to continue with the current batter dismissal options like, bowled, caught, stamped, hit wicket, leg before, run out, etc. Since singles will be unavailable, the possibility of run outs will rise.  Similarly, the aggressive nature of batting will give rise to more stumping opportunities. Down the road, when the specialized technology is available for the Reality version, the direct no-bounce hits to hazards could be treated as dismissals, rather than the proposed negative scores (2-run deduction). When the playing golf course comprises trees, a catch bounced off a tree will be disallowed. A batter however will be allowed full credit for the runs scored even when the ball bounces off a tree. Since scoring will be allowed, run-outs will also be allowed when the ball bounces off a tree.    

7. Protective Gear: In the traditional format, batters and wicket-keepers are amply protected with (protective) gear, but the fielders and bowlers aren’t. It makes no professional and economic sense to allow a good percentage of the players to sit out a good part of the season with finger injuries. The Reality version will therefore allow the bowler and all fielders to use baseball-type gloves on one hand to help prevent such unnecessary injuries. Of course, on the field, it will be their choice to use it or not. By the same token, they will lose their match fees (or prorated contract fees) if they are forced to sit out with such preventable finger injuries. The liability clause of the disability insurance must also contain similar stipulations, thus making it difficult for them to be rehired for future events as well. While they need a helping hand from the rules committee, they must also be willing participants. Irrespective of their prominence and celebrity, this format will never allow or encourage anyone to practice or demonstrate any narcissism whatsoever, so that the audience continues to exponentially grow, not drift away.

8. Field Positions: Granted, the game of cricket is a common religion in cricket-playing countries. So, the fans learn to not question its age-old shortcomings and idiosyncrasies; for example, the field position names like “Silly mid-on / Silly mid-off” and “Forward short leg” will be a hard-sell in non-cricketing countries. The Reality format will therefore comprise a new set of non-technical, sensible and easy-to-remember field (position) names, e.g., Base, Short Base Left/Right, Long Base Left/Right, Deep Long Base Left/Right, etc. Instead of confusing the new audience with unnecessary semantics – Long vs. Deep, etc. – the name Deep Long Base Left/Right will be self-differentiating, meaning this field position will be further deeper than the long position, but along the same field corridor. Considering it’s a seven-per-side event, only five more fielders – other than the bowler and the wicket-keeper who will hold dedicated field positions – will be present on the course. The idea is that the marketing team must be armed with a marketable product, free of silly antiquities.

9. Tie-breaker: In case of a tie, i.e., both teams tied at the same score, each will play one more inning, instead of the traditional one over each. When a match is finally decided by one over, it becomes somewhat unreasonable and irrational, at least from the audience viewpoint. In the Reality format, the one additional tie-breaker inning will bring more sanity and reliability to the game. For example, NBA Finals are played on ‘best-of-seven’ format, allowing the better team to prevail than ending the entire season with a one-off fluke. If the tie-breaker inning ends in a tie again, a one over solution will be implemented until, of course, the tie is broken. There will be one more twist to the tie-breaker inning: The team winning the tie-breaker toss will get to choose the opponent’s five batters, while the toss-losing team will get to designate the opponent’s five bowlers. Similarly, if the tie-breaker inning runs into tie-breaker over(s), the toss winner will get to designate the opponent’s batter while the toss loser will choose the opponent’s bowler. This new approach will force all competing teams to hire quality all-rounders rather than the traditional specialists who are good at only one aspect of the game.

This Reality format, by no means, attempts to reform the traditional format; rather it primarily attempts to show the cricketing and non-cricketing world that an alternative and vastly different version could easily be developed and marketed strictly as another highly entertaining, thrilling, media-friendly and interactive fun sport. Secondarily, it will provide an easy and rapid expansion into the commercially unharnessed non-cricketing world. The 2D TV is way too outdated for sports and entertainment. By making this version 3D TV-friendly, viewers will have more fun watching it and perhaps participating alongside. A “Virtual” version will soon be developed, allowing viewers to play along “live.”

Initially, this format could be sold to the TV channels that broadcast the traditional cricket tournaments in the cricketing world and to the Golf channels in the non-cricketing world. As the Reality version gets momentum, the bidding war to broadcast it will intensify. The investment company owning its worldwide rights will hopefully go public so the sports fans around the world can own a piece of this futuristic sport-and-entertainment pie.

Just imagine the unrestricted domain of opportunity this Reality version offers to the future investors. Later, a parallel Reality version can be ported to the game of Baseball as well.

Finally, Some Stats to be Excited about
        1. Major League Baseball (US/Canada) Revenue $10B
    2. Top 5 MLB Teams’ Combined Revenue $2.7B
    3. Nippon Professional Baseball Revenue $1.1B
    4. Indian Premier League (Cricket) valued at $6.3B
    5. The Economic Impact of Golf in the US: $84B (Forbes)

  Developed and presented by:
  Sid Som, MBA, MIM
  President, Homequant, Inc.
  homequant@gmail.com

  COPYRIGHTED MATERIAL
  US COPYRIGHT CASE # 1-7772044197

Tuesday, June 4, 2019

How to make our College Education more Meaningful and Labor-force Friendly

According to the most recent (2015) PISA scores which measure the basic skills (reading, math and science) of 15-year-olds, the US ranked 30th in Math among the 38 OECD countries – nothing to write home about, right? We need a sea change in the way our colleges work. Also, we need to rethink the qualification criteria for student loans. Here are suggestions: 

1. College Accreditation must Require Local/Regional Business Participation – One of the perennial complaints of the college education is that it’s too theoretical. Despite the rising trend of internships, only a small percentage of the graduating students are blessed with this fortune, mostly in highly-sought-after disciplines like STEM. College accreditation must require local/regional business participation (including representation on the board), allowing meaningful access to the business and science/technology community. Ideally, college charters must stipulate that at least 33% of all credit courses be taught by external experts so that the students get to learn how the theories are actually being implemented in “live” environments. Of course, it must be a simultaneous process, meaning teaching theories and practice must take place during the same quarter or semester. For example, students specializing in real estate finance must learn from the top mortgage professionals as to how the various mortgages are originated, including the full array of the paperwork involved (industry standard forms, etc.). Likewise, the STEM students who are considering a career in technical trading must learn from the renowned hedge fund managers and (program trading) algorithm scientists. College/Universities must therefore offer majors in line with the availability of the aforesaid local/regional industry experts. Needless to say, there will be no dearth of successful people who would be more than willing to teach such classes. This joint venture is a necessity today.

2. New Professors must have at least 3-5 years of Verifiable Business Experience – Colleges must look for qualified professors (US PhD) with actual hands-on business experience. They will rise above the “canned” case studies as they are often antiquated and out of sync with the marketplace. These new crop of professors will also make better liaison with the industry experts, thus vetting and selecting the most fitting ones (with outstanding technical expertise) to teach applications. These technical experts will be able to explain and demonstrate the pieces that comprise the black box. In other words, these professors would know how to avoid walking into the old trap – inviting generalists. Exposing the young students to such generalists tends to be futile as the missing link becomes more elusive. On the other hand, all professors – new and existing – must be allowed and encouraged to work as consultants so they remain thoroughly conversant with the ever-changing industry standards and practice.

3. Interest Rates on Student Loans must be tied to SAT Scores and APs – Obtaining student loans should be no different than obtaining home loans. Let’s face it: Two prospective homebuyers (mortgage applicants) with 600 and 800 FICO scores, respectively, will be offered vastly different mortgage interest rates, down payment requirements and origination fees (points) by the same bank. Similarly, interest rates on student loans (to pay for college education) should be a function of the SAT and AP scores (FYI – these are comparative metrics while general academic record isn’t). For example, the student who scores 1,580 (out of 1,600) in SAT and completes six APs with all 5’s must be eligible for a much lower interest rate than his/her counterpart who scores 1,300 in SAT and completes three APs with all 3’s. This merit-based system will incentivize everyone to do well academically from the get-go. By the same token, those who fail to do well in SAT and AP may consider other avenues: community colleges, vocational schools, etc. Simply put, we need an incentive-based school system where performers are greatly rewarded. The current system is backward-bending and requires significant overhaul.   
   
4. Sallie Mae should Publish SAT/AP-based Student Loan Rates to provide Transparency – Sallie Mae, the largest student loan provider, and other large providers like Citi, Nelnet, Wells, etc. must develop and publish SAT/AP-based rates to educate and entice students of the advantages of high scores. If the high school students (starting in sophomore) are taught that high score equals low rates, they would be working harder, thus gradually bumping up the curve making our system globally more competitive. Of course, unlike mortgage rates that change daily, the proposed SAT/AP-based student loan rates would be revised annually on the basis of new data trends (i.e., changing scores). Hopefully, the rate chart would be prominently displayed in all high school cafeterias as a constant reminder that a little extra push would go a long way. Here is a simplistic example. Actual rates must be derived from the recent loan data from Sallie Mae and other major lenders in the field.

(Click on the image to enlarge)

5. Interest Rates on Student Loans must be Significantly Higher for Lateral education (education for the sake of education) – When students stay back in schools and continue to take unrelated courses aimlessly (e.g., 2nd/3rd major or 2nd Master’s, etc.), lenders must discourage such loans by charging significantly higher interest rates related to those credits. If students plan on co-concentrating (e.g., business and economics; social science and statistics; applied economics and math; finance and applied math, etc.), they must declare their intention right at the outset while applying for loans, thus locking in their preferred rates throughout the period, as well as to avoid having to pay a significantly higher rate down the road for the “co” in the form of a second major. Oftentimes, meaningful co-concentrations help job-seekers narrow the competition down. Likewise, many employers prefer those graduates as they bring in truly complementary knowledge.

6. Interest-free Student Loans must be provided to All STEM Candidates – Instead of enticing foreign STEM graduates with visa adjustments, we must learn to nurture our own. And, it must start with an awareness movement at the middle and high school. At the core of this movement lies the marketing of the awareness to the female students in that they have “equal access” to this career domain. Until and unless our young daughters are convinced of the equal access, we will have no choice but to depend on foreign employees. In promoting STEM education, teachers and counselors must also explain to the students that 10’s of thousands of STEM jobs remain unfilled and as a result our “volume” employers are forced to hire foreign employees to fill in those slots. Interest-free student loans could be a big incentive to entice more students to look into this colossal and unrestricted career domain. Obviously, once accepted, the qualified yet economically disadvantaged students, irrespective of ethnicity, must continue to receive (full) free STEM education, at both public and private institutions.     
    
7. STEM Students in State Schools must qualify for Financial Aids ahead of all others – In addition to interest-free student loans, STEM students must receive financial aids ahead of their counterparts. Given the urgent need for STEM graduates in our economy, it does not make much sense anymore to treat all economic needs equally. At this point, college education must be compared with and treated like government services, meaning essential education (like essential government services) must always receive higher weights and protections than the not-so-essential education (like non-essential government services). Simply put, STEM education must be declared, protected and promoted as essential education. Ceteris paribus, the qualified STEM student population must get the first shot at the pool of financial aids and the residual will then be distributed to the other disciplines. To make things clear, it has been assumed that health and mental care education – another market area with critical shortages – is part and parcel of STEM, specifically part of ‘S.’   

8. Ideally, We need a Moratorium on Student Loans for Business and Humanities Majors – Due to the easy access to student loans, far too many students – relative to the aggregate market demand – continue to major in business and humanities, resulting in significant disguised unemployment all across the country, arguably reaching a point of moral hazard. In order to reduce the incidence of disguised unemployment, we need a moratorium on such student loans for a period of time, at least 5 to 7 years, thus allowing enough time to get the excess market supply meaningfully absorbed while the wage level rising back to the equilibrium. This pause will allow Sallie Mae to re-evaluate its existing debt load, meaning if they could use a meaningful stress test to evaluate if they might be approaching the "too big to fail" threshold. Meanwhile, a good chunk of the potential fallout population (business and humanities majors) would be redirected to the STEM universe. Sadly, if this decline is not arrested, the possibility of a bailout would be on the horizon in not too distant future (considering the student loan portfolio in the US has recently eclipsed $1.5T). Absent student loans for business and humanities, only a small percentage of the future student population – mostly from the well-to-do families and foreign students – will opt for these majors. Obviously, neither group would pose any renewed threat to the labor force or contribute to the accentuation of the bailout scenario.     

9. Professors must be apolitical in classrooms, leaving their ideology, affiliations and agendas outside (the classrooms) – Most American students take on huge loans for college education so they deserve the highest quality education in preparation for successful careers. Unfortunately, too many professors bring their political rhetoric and viewpoints to the classroom, in an effort to brainwash and indoctrinate students to their personal political agenda. This is totally unacceptable. We must keep our great educational institutions free from partisan politics. Yes, professors are entitled to their political viewpoints, without commingling with education inside the classrooms. Going forward, all new hires must be independently vetted (including all of their social media accounts, going back at least ten years) and any political bias must be seriously investigated. Our labor force needs future industry leaders, not political activists. When our institutions become nonaligned and professors’ non-partisans, our labor force will regain its old glory, becoming the envy of the world, again! Of course, in order to weed out politics from our colleges, we must consider one final option: All professors, including departmental chairpersons, should be hired/placed on 4-year contracts. Competition is the cure-all medicine!   

Again, it’s high time that we make our college education more labor-force friendly. Our students deserve better!

- Sid Som, MBA, MIM
President, Homequant, Inc.

Monday, June 3, 2019

Property Tax Appeals Consulting – A Good Part-time Business Opportunity (Part 2 of 2)

As I have indicated before, this professional domain is ready to be reinvented as the old strategies tend to significantly underperform in addressing and catering to the renewed market demands. Let’s recap why the old strategies have been underperforming:

a) Flawed AVM – At the parcel level (bottom-up), a competing Market AVM does not surgically identify the over-valued parcels on the roll; it usually cross-validates the roll values (as the AVM generating the roll and the challenger tax AVM share the same or very similar sales complexes and attributes). 

b) Failure to Establish the Ratio – While a leading local law firm may take the initiative to challenge the ratio (top-down), consultants rarely spend that extra money to study, negotiate and establish the ratio. An unadjusted Market AVM is therefore utterly ineffective. A prudent consultant must study and establish the ratio first, leading to a Ratio-adjusted Market AVM. Though an adjusted Market AVM is better than an unadjusted one, it nevertheless succumbs to an inherently inappropriate methodology given the market being targeted. Market research based off an inaccurate AVM could be more counter-productive meaning a vast majority of the real “meaty” cases could remain unidentified.


The Re-invention of Tax Appeals Consulting with Forward-looking Solutions

1. A Custom Tax Appeals AVM, not a Market AVM, is in order to Identify Over-valued Parcels on the Roll – A Tax Appeals AVM is a specialized AVM that surgically identifies and categorically defines the over-valued parcels, irrespective of the original construction of the roll, i.e., AVM or Comps-derived.  For example, after having identified the over-valued parcels on the roll, our proprietary Tax Appeals AVM breaks them down into three default categories:  a) MaxiMax (ex: 30% & above), b) MaxiMid (ex: 20-29%) and c) MaxiMin (ex: 10-19%). Of course, the categories can change based on client requests. Though MaxiMax represents the most over-valued category, it’s generally the least liquid (lowest frequency), while MaxiMin tends to be the most liquid.  

2. A Custom Tax Appeals AVM Offers Biggest Bang for the Buck – Although a Custom Tax Appeals AVM is more expensive than a generic Market AVM (as it is sold to a wide variety of users including the competing appeals consultants), it identifies the truly over-valued cases, thus offering much bigger bang per buck. Moreover, by walking down on the curve (MaxiMax to MaxiMid to MaxiMin), a consultant ensures targeting the most over-valued (hence most profitable) cases first. In other words, if a new consultant decides to target only the top two categories in the first year, s/he still achieves the biggest bang for the buck, potentially expanding into the third category in the following year. On the other hand, a Market AVM is a total hit or miss for appeals consultants, without any assurance that the most over-valued would be targeted at all.

3. A Custom Tax Appeals AVM makes Marketing a Scientific Exercise (Smart Marketing) – Since Appeals AVM precisely identifies and categorizes the over-valued parcels, the market penetration (targeting those homeowners) becomes an extremely easy exercise. Depending on the liquidity of the tranches, homeowners could be invited to attend outreach seminars. Due to the uniqueness and accuracy of the Tax Appeals AVM, a vast majority of those homeowners will – for the first time – find out how they are being over-assessed. In fact, this precise and scientific approach will help discover a market hitherto unknown and unexplored. While the clueless competition will continue to pour in money on useless Market AVMs chasing the meatless-to-less meaty market segments, this new generation of consultants will sign up the truly over-assessed clients at a rapid rate, proving that marketing is more a modern day science than an age-old art. Since this is primarily a contingency business (tax savings are generally split), targeting the right market segments is the key to success. Custom Tax Appeals AVM provides that scientific base.


What the New Consultants Need to Get Started

A. Acquire the Tax Roll from the Jurisdiction – As soon as the tax roll is published, they need to acquire a soft copy with a year worth of sales, should they decide to research the ratio. In fact, obtaining the sales data is highly recommended as the ratio study would get them started with the top-down knowledge as well. While negotiating with the AVM consultants, they should bundle the ratio study for a better price (if not free). The cost of the tax roll varies by the jurisdiction – free to low cost to $100’s of dollars. For instance, our county charges $10 for the entire roll including sales. In order to keep the cost of data manageable, the data pertaining to certain zip codes could be thought of (of course, the ratio study will require sales from across the county).   

B. Subscribe to a Comps Program – While the AVM will point to the over-valued cases, it does not replace the individual comps reports needed at the hearing. Brokerage sites are inadequate for two reasons: a) they show primarily the active listings, and b) even if they carry the recent sales, they do not provide the pre-formatted comps reports. The programs that allow dollar adjustments in terms of (sales) time and quantitative variables are preferred. While evaluating the various commercially available programs, the ease of use and flexibility of the adjustment matrix (where the coefficient values are stored) must be closely examined, to avoid having to deal with significant wasteful time and agony during the crunch time. Needless to say, month-to-month subscription contracts are preferred to annual contracts as the need to process comps reports would last only two to three months. Other basic business (including LLC, etc.) and bulk mailing costs must also be factored in.   

C. Two Complementary Minds could do Miracles – Teaming up with a buddy with complementary skill-set could be the way to go. Since the targeting window is quite short-lived, the outreach seminars could thus be simultaneously offered in two different parts of the town/county. The complementary skill-set works better as the business grows so one could handle operations and technical aspects while the other could concentrate on the marketing side. The advantage of the two-partner team from the get-go is that it helps create similar passion, knowledge and forward thinking.  People who pursue part-time opportunities must also know the conflict of interest rules their full-time jobs generally impose (no need to jeopardize the full-time job!).