Thursday, July 18, 2019

Case-Shiller Housing Trends – Composite 10 vs. Composite 20

-- Intended for New College Graduates --

(Click on the image to enlarge)

Sonya, a fresh college graduate with a major in Economics, is interviewing for an Economic Analyst position, with a major economic consulting firm.

Question # 1
Interviewer: Is there any difference between these two Case-Shiller housing trends?

Sonya: They are very similar trends. In fact, even the monthly growth rates are almost in lockstep. By the way, am I looking at the seasonally adjusted data here?

Question # 2
Interviewer: Yes, you are. Are these month-over-month data comparable?

Sonya: Yes, since they are seasonally adjusted; otherwise, we would be comparing April, 2019 with April, 2018, etc. 

Question # 3
Interviewer: Why do you think the top-20 markets are moving in tandem with the top-10?

Sonya: Because the US housing market, overall, has returned to normalcy. Right after the last recession, known as the Great Recession, a number of major Wall Street companies started buying up the inventory, in large volume, creating a highly asymmetric market around the country. For the last 2-3 years that trend has significantly subsided, paving the way for a more normal market.

Question # 4
Interviewer: How did their involvement create an asymmetric market?

Sonya: Because they concentrated primarily on Sunbelt markets and as a result the growth in prices in those markets far exceeded the other markets.  

Question # 5
Interviewer: How would you characterize the health of the current market?

Sonya: It's still a healthy market considering 4.25% to 4.50% annual growth rates. Of course, these are muted rates compared to the prior run-up rates when the Wall Street investors were active. 

Question # 6
Interviewer: In terms of the index components, are there any duplications?

Sonya: Yes. The Composite-20 has all of the Composite-10 components, plus 10 more markets.

Question # 7
Interviewer: Can you name a few components that are mutually exclusive?

Sonya: Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland, Seattle and Tampa.

Question # 8
Interviewer: Wow! That was sensational. Would you have graphed the data differently?

Sonya: Yes. Since these are seasonally-adjusted data, I would have bar-graphed the month-over-month (percent) changes.  

Question # 9
Interviewer: Would you use the NYC Case-Shiller data to show the Brooklyn trend? 

Sonya: To perform a quick-and-dirty trend analysis. If I were performing a trend analysis for a client, I would not use this MSA-level data which is quite broad in nature. I would start by collecting the parcel-level sales data from the Borough of Brooklyn alone.

Interviewer: Did you learn all this at school?

Sonya: Partly. My parents are practicing Economists.

"That says it all."

Good Luck!

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

Wednesday, July 17, 2019

How to Analyze and Present Large and Complex Home Sales Data – in 30 Minutes (2 of 2)

-- Intended for New Analysts & Researchers --

In our prior post (1 of 2) we talked about analyzing and presenting a large and complex dataset in 30 minutes. Would you handle it differently if you had 60 minutes? Here is one approach you might like to consider:

1. Just because you are starting out, do not underestimate yourself. The very fact that you have been tasked with this critical presentation speaks volumes, so take full advantage of this visibility in narrowing the competition down. These meetings are often frequented by other department heads and high-level client representatives, leading to significant loss of time in unrelated (business) discussions. The best way to prepare for such contingencies is to split the presentation up into a two-phase solution where phase-1 leads seamlessly to phase-2. 

2. In a business environment, it's never a good idea to start with a complicated stat/econ model. Start a bit slow but use your analytical acumen and presentation skill to gradually force people to converge on the same page, thus retaining maximum control over the presentation (time and theme). Therefore, the phase-1 solution should be the same as the full* 30-min solution we detailed before (*including the sub-market analysis). Even if the meeting leads to unrelated business chit-chat, off and on, you will still be able to squeeze in the phase-1 solution, thus offering at least a baseline solution. Alternatively, if you have one all-encompassing solution, you will end up offering virtually nothing. 

3. Now that you have finished presenting the phase-1, establishing a meaningful baseline, you are ready to transition to the higher-up phase-2 solution. In other words, it's time to show off your modeling knowledge. In phase-1 you presented a baseline Champ-Challenger analysis (Champ=Median Sale Price, MoM; Challenger=Median SP/SF, MoM). You used the "Median" to avoid having to clean up the dataset for major outliers. Here is the caveat though: Sales, individually, are mostly judgment calls; for example, someone bent on buying a pink house would overpay; an investor would underpay by luring a seller with a cash offer, etc. In the middle (middle 68% of the bell curve), the so-called informed buyers would use five comps, usually hand-picked by the salespeople, to value their subjects - not an exact science either.   

4. Now, let's envision where you would be at this stage - 30 minutes on hand and brimming with confidence. But it's not enough time to try to develop and present a true multi-stage, multi-cycle AVM (see my recent post on 'How to Build A Better AVM'). So, settle for a straight-forward Regression-based modeling solution, allowing time for a few new slides to the original presentation. Build the model as one log equation with limited number of variables (though covering all of the three major categories). Variables you might like to choose: Living Area, Age, Bldg Style, Grade, Condition and School/Assessing District. Avoid 2nd tier variables (e.g., Garage SF, View, Site Elevation, etc.).

5. Derive the time adjustment factors from phase-1 (it's a MoM) and create Time Adjusted Sale Price (ASP), the dependent variable in your Regression model. Explain this connection in your presentation so the audience (including your SVP/EVP boss) knows the two phases are not mutually exclusive, rather one is the stepping stone to the other. At this point, you could face this question "Why did you split it up into two?" Keep you answer short and truthful: "It's a time-based contingency plan."

6. Keep the Regression output handy but do not insert it into the main presentation as it is a log model (audience may not be able to relate to the log parameter estimates). If the issue comes up, talk about the three important aspects of the model: a) variable selection (how you managed to represent all three categories), b) most important variables as judged by the model (walk down on the t-stat and p-value) and c) overall accuracy of the model (r-squared, f-statistics, confidence, etc.).    

7. Present model results in two simple steps. Value Step: ASP vs. Regression values. Show the entire percentile curve - 1st to 99th. Point out the smoothness of the Regression values vis-a-vis ASP. Even arms-length sales tend to be somewhat irrational on both ends of the curve (<=5th and >=95th). Standard deviation of the Regression values would be much lower than ASP's. Ratio Step: Run stats on the Regression Ratio (Regression Value to ASP). It's easier to explain the Regression Ratios than the natural numbers so spend more time on the ratios.    

8. Time permitting, run the above stats both ways - with and without outliers. Define outliers by the Regression Ratios. Keep it simple; example: remove all ratios below the 5th and above the 95th percentile or below 70 and above 143, etc. Considering this is the outlier-free output, run Std Dev, COV, COD etc. These stats would be significantly better than the prior (with outliers) ones. Another common outlier question is: "Why no waterfront in your model?" The answer is simple: Generally, waterfront parcels comprise less than 5% of the population, hence difficult to test representativeness. FYI - in an actual AVM, if sold waterfront parcels properly represent the waterfront population, it could be tried in the model, as long as it clears the multi-collinearity test.  

9. Last but least, be prepared to face an obvious question: "What is the point of developing this model?" Here is the answer: A sale price is more than a handful of top-line comps. It comprises an array of important variables like size, age, land and building characteristics, fixed and micro locations, etc. so only a multivariate model can do justice to sale price by properly capturing and representing all of these variables. The output from this Regression model is the statistically significant market replica of the sales population. Moreover, this model can be applied on to the unsold population to generate very meaningful market values. Simply put, this Regression model is an econometric market solution. Granted, the unsold population could be comp'd but that's a very time-consuming and subjective process.

Ace the next presentation. Be a hero. Prove to your bosses you are a future CEO.

Good Luck!

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

How to Analyze and Present Large and Complex Home Sales Data – in 30 Minutes (1 of 2)

-- Intended for New Analysts & Researchers --

If you have very limited time - say 30 minutes - to summarize and present a fairly large and complex home sales dataset, comprising 18 months of data, with 30K rows and 10 variables, here is one approach you might like to consider:

1. Given the limited time, instead of trying to crunch the data in a spreadsheet, invoke your favorite statistical software like SAS. What SAS will do in four short statements (Proc Means, Var, Class and Output) and in matter of minutes, you will need much longer to accomplish the same in spreadsheets. When you are starting out, take full advantage of these types of highly visible - often rewarding - challenges to narrow your competition down.

2. Have a realistic game plan. Instead of shooting for an array of parameters, start with the most significant one, i.e., Monthly Median Sale Price (and the normalized sale price). Since median is not prone to outliers, you do not have to edit the dataset for outliers, saving significant amount of time.  

3. Now that you have the monthly median prices, you are ready to create graphs for the presentation. While you may create one graph depicting both prices (Y1 and Y2) against months (X axis), keep them separated for ease of presentation. 

4. If you are more comfortable graphing in Excel (in fairness to the remaining time), transfer the output from SAS to Excel. Make sure your graphs are properly annotated and dressed up with axis titles, legends, gridlines, etc. Remember, just doing things right is not good enough, learn to do things elegantly as well. 

5. Since you have summarized and rolled up so much of data behind one or two graphs, make sure they not only tell the overall story, but also convey enough business intelligence to make you look like a hero in front of your EVP/SVP. In the presence of clients, it enhances their image as well. So, add trendlines alongside the data trend. Select the primary trendline by eyeballing the data trend (linear, logarithmic, polynomial, etc.). Also, add a moving average trendline to iron out any monthly aberrations. When the series is extended, use 3-month moving averages.     

6. Keep your reporting verbiage clear and concise. Explain the makeup of the dataset; methodology including the use of monthly medians; how the normalized prices add value and help validate the primary; trendlines and their statistical significance; other statistical measures like r-squared, slopes, etc. you might display on the graphs (avoid printing equations on the graphs). 

7. Add business intelligence to your talking points. First off, stick to the market you are presenting but show off your knowledge of that market by highlighting: possible headwinds and tailwinds; how that market would react to an inverted yield curve; is there a structural shift in demand for homes (are more millennial showing interest in that market); what is the NAR's prediction of the summer inventory there; is the inventory of affordable homes on the rise there; any expected change to the FHA to help first-time homebuyers in general, etc. etc. 

8. Try to control the conversation by sticking to what you have, rather than what you don't have. For example, out of the 10 variables, you managed to use only 3 (Sale Price, Sale Date and Bldg SF), so do not start a conversation about the other important variables - Lot size, Age, Bldg Characteristics and Location - you had to leave out ('If I had 30 more minutes' would be a wrong hypothesis to test). If that question comes up, answer it intelligently and truthfully emphasizing, of course, the utility of the 3 you happened to use.

9. Let's assume that you managed to complete the first cycle (as indicated above) in 20 minutes. In that case, go back to SAS and crunch the sales analysis by the sub-markets (Remember: Location! Location! Location!). This is how you walk down on the analysis curve. Have these printouts handy, but do not try to alter the initial presentation.

Ace the next presentation. Be a hero. Prove to your bosses you are a future CEO.

Good Luck!
Sid Som, MBA, MIM
President, Homequant, Inc.

Thursday, July 11, 2019

How to Reinvent Test Cricket so it Prospers – Again!

Though cricket has never become popular outside of the original cricketing world, the test cricket – played between countries – was the de facto world cricket championship until 1970’s when a shortened one-day version came into being and started troubling the big brother. Now, the combination of 50-over and 20-over one-dayers is posing an existential crisis to test cricket.

Nonetheless, the test cricket can be saved from becoming the vanishing point. Obviously, it will require significant remaking and reinvention, keeping primarily in view the monetization of the renewed form. In a consumer world, no international sport can survive and prosper when the consumers are left behind. Needless to say, in order to bring those consumers back to the forefront, the phase one of the reinvention must be utterly friendly to today’s consumers in the cricketing world, leading to spontaneous and immediate re-monetization of the sport. The phase two, down the road, should additionally focus on worldwide growth by emphasizing the penetration of the non-cricketing world, initially striking at the heart of the baseball world and gradually expanding out within that universe and beyond.

So, what is pushing test cricket off the cliff? Despite the conventional wisdom that the intra-competition – the growth of one-dayers – has been the primary culprit, the root causes are actually more self-inflicting than the intra-competition per se. On the contrary, the growth of one-dayers has been the saving grace for the sport of cricket. The slow bleeding from the self-inflicted wounds, due to poor rules and an untenable format, has been taking place for years. In fact, the poor rules and format should been changed way back when the Maharajas passed on the torch to the real sportspeople. Unfortunately, it did not happen and, therefore, the patient remains sick, but not terminal though. With a set of upgraded rules and a consumer-friendly format, the patient will not only be brought back to a rejuvenated life, but will also be made re-competitive in the international arena.

Here is an example how poor rules and format (negatively) impact test cricket. Let’s assume the team batting first managed to bat for the first 3 ½ days, amassing a sizeable total. Then, when the opposition opens its own batting, its players are physically tired (toiling hard under the sun for so long) and psychologically drained (having to chase down a large total when the pitch starts to physically fall apart). So, how do the poor rules and format contribute to the woes of this match, as well as test cricket in general?

   1. No restrictions in terms of number of overs/days a team can bat;
   2. No restrictions in terms of number of overs/days players can bat/bowl;
   3. No restrictions in terms of (run) scoring rates, individually or collectively;
   4. Toss always decides a 5-day test match (instead of just the series opener);    
   5. Lack of protective gear for fielders exposes them to preventable injuries;    
   6. Even when a team wins the first three of a five series, the series continues;
   7. Primarily a day-time sport, thus fails to attract students and working class;
   8. Given the usual predictability of tests, 4th & 5th days impact season tickets;
   9. One day of rain washout can impact the outcome … and the list goes on!

So, what sort of reinvention would bring this patient back as a full-functioning sport entity again? Here are the immediate remedies:

   1. Restrict Innings to 120 overs – Each inning must be restricted to 120 overs, rather than the existing unrestricted overs. If 50-over One Day International (ODI) allows almost all players to bat, 120 over-inning will do perfect justice to test cricket. The unlimited format encourages batters to play more for their personal record books than the team; for example, when batters get to 70-75 runs, they smell centuries and start to play defensively, often significantly so in their 90’s, thus slowing down the run rate. This practice is great for personal record books, but does not help advance test cricket, nor does it make spectators and viewers happy. With the proposed 120-over inning restriction, batters will face a natural pressure to keep the run rates up, as in shorter formats. The unrestricted format simply tantamounts to a “go as you like” format, to the detriment of the sport.

   2. Restrict Batters to 50 overs per inning – In addition to the aforesaid 120 overs/inning restriction, batters must also be restricted to 50 overs per inning, thus forcing them to play more for the team than for themselves. Considering it’s test cricket, 50-over batter restriction will still allow them to score big runs and centuries. On the other hand, when a batter plays two full days scoring 150 runs, it’s more a pastime than a real sport. In this hectic day and age, who would stick around to watch that? Not even the retirees! In fact, as the new data points come in and get commercially mined, the 50-over could even be further reduced to a market-oriented optimal solution. In other words, all sports rules must be scientifically adjusted over time; or else, they will simply succumb to the new competition backed by new generations of prudent investors.

   3. Restrict Bowlers to 20 overs per inning – Each bowler must also be restricted to bowl a maximum of 20 overs per inning, thus forcing teams to gradually select more all-rounders, so to say, than the customary specialist players. Given the fact that a test match runs for five days, teams need to align more with all-rounders than specialist players, thus optimally utilizing them, especially when it come to the pace bowlers on the team. Since pacers are more prone to various injuries, they must be utilized properly, to avoid having to deal with frequent injuries, as well as significantly diminished effectiveness due to such overuse. Even the slow bowlers have less intensity when over-worked. Either way, for test cricket to survive in more or less its current form, it needs to gradually move towards all-rounders, away from the specialist players. Again, based on future data points, the 20-over bowling restriction could be further reduced to, say 15. 

   4. Impose 5 to 10% Penalty for Under-par Run Rate – Test cricket has always been criticized for slow run rates and consequently being boring. This is one area of test cricket that requires serious and immediate attention. Ideally, the match umpire must be allowed to deduct 5 to 10% runs, depending the final run rate, as penalty for under-par, say under 3, run rate. Of course, the expected run rate in test cricket has to be lower than its shorter counterparts. The minimum run rate is important to properly monetize the sport. The introduction of minimum run rate is absolutely critical in bringing back the fans who do not show up anymore or who have stopped watching test cricket altogether because of its extremely slow nature. Therefore, the batters who consistently fail to maintain the run rate, irrespective of their current name or prominence, will soon find themselves on the chopping block. The implementation of this simple rule will go a long way in restoring the glory of test cricket.

   5. Switch to Day/Night Format – Test cricket needs to move to the day/night format, attracting the working class and students back into the groove. This not only helps the local spectators, but helps online viewers on the same boat as well, at least in that country. In order to promote test cricket, the authorities must recognize it’s a joint venture between them and the media, advertisers and other sponsors so they are also amply rewarded for their risk-taking. Switching to the day/night format will immensely help the counterparty in shoring up viewership leading to improved returns on their investments which, in turn, will help the cricket authorities as well. Unlike in yester years, the professional cricketers, today, are involved in all three formats of the sport, with enormous physical wear and tear. Therefore, player preservation must be one of the top priorities for all cricket authorities. Again, considering test cricket is a 5-day event (often 4-5 tests in a series), the day/night format will be far less exhausting for the players, helping preserve and enhance their professional career.

   6. Develop 4-year World Championship Cycles – Test cricket needs a 4-year world championship, in true sense of the term. Within each 4-year cycle, all test playing nations must play tests with one another. Of course, keeping the monetization in view, 1 to 3 tests would be ideal. For instance, while India could play a 3-test series with Australia, it could be reduced to just 1 with Zimbabwe, in line with the potential market and media demand. Test cricket, like other popular international team sports must always be aligned with aggregate demand, absent which it could be a kiss of death, just a matter of time! At the end of each cycle, meaning when teams finish playing with one another, the top four teams (a point-based system needs to be developed) would qualify for the semi-final. In fact, the model could first be tested with a direct 2-team final. Then, depending on the popularity of the “championship” model as well as mining of the new data points, the final qualification could be revisited.         

   7. Introduce Mid-Day Break replacing Lunch and Tea Breaks – The Maharaja days of cricket are long gone. It’s time to amend the rules so the test cricket looks and feels like a real professional sport, not an old British pastime. The non-cricketing world still makes fun of cricket when they hear about lunch and tea breaks. These two breaks must be replaced with one 40-minute Mid-Day break and two 10-minute (pre and post) Water breaks, respectively. If the day/night format is resorted to, the Mid-Day break should become the Mid-Session break, along with the aforesaid Water breaks. Of course, these breaks must always be mutually exclusive of the innings breaks, allowing batters the time to gear up. Needless to say, even if an innings break comes shortly after the Water break, it must however be allowed. On the other hand, if the innings break immediately precedes the scheduled Water break, the latter should be negated.    

   8. Test Cricket needs more Modern Consumer and Media Marketing – 2D TV is way too outdated for modern sports. National cricket authorities must market the 2D and 3D viewing rights to separate TV channels. Since not everyone can afford the 3D TV, the 2D TV must be continued. The 3D viewing would be ideal for commercial dining establishments, sports bars, major airports, long-haul flights, international cruises, theme parks, public schools and libraries, etc. The right to live feed could also be sold to 3D movie theatre chains like IMAX where attendees can enjoy test cricket live, without having to have access to 3D TVs at home. Cricket authorities must also sell “live” Virtual Reality production rights so people can enjoy the virtual real-time feed alongside the on-going test match. The marketing of live 3D TV and real-time VR entertainment is essential to keep test cricket competitive alongside the shorter formats. 

   9. Cricket needs to address some of its basic Pitfalls and Semantics –

a. Protective Gear for Fielders – It makes no professional or economic sense to allow a good percentage of the national players to sit out a good part of the season with finger injuries, so the fielders and bowlers must be allowed to wear one-handed baseball-type gloves;
b. Field Position Names – If international cricket bodies are really keen about selling either form of cricket to non-cricketing nations, the traditional field position names must be changed; for instance, “Silly Mid-on” will always sound silly to non-cricketers. Straight forward names (as in soccer) will be needed. 
c. Yellow and Red Cards – Umpires must be empowered to use Yellow and Red Cards to discipline the unruly players right on the field and at the point of occurrence. It is more important in test cricket than in one-dayers.
d. Tie-breaker – Though tie is a rare possibility in test cricket, there must be uniform tie-breaker rules on the book. In case of a tie, a 10 to 20 inning solution – depending on the time remaining – is in order. One-over solution, as in T-20, is totally detrimental to test cricket.

In order for cricket to survive and prosper as a sport, test cricket must survive and prosper, preferably leading the way. But its age-old rules need to be updated, format amended, and idiosyncrasies trimmed out. The time is now!

Thank you,

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


Also Read:
Introducing Reality Cricket on the Golf Course

Tuesday, July 9, 2019

Why Major Mass Appraisal Jurisdictions should Hire AI Engineers

“AI engineers don’t write code to build scalable data pipelines like a data engineer...instead, they understand how to extract data efficiently from a variety of sources, build and test their own machine learning models, and deploy those models using either embedded code or API calls to create AI-infused applications."

Conversely, Regression models are not intelligent as they are highly modeler-dependent (subjective). Thus, given the same sales dataset, five modelers may come up with five different models with very different results. Of course, the biggest failure is the Sales GIS (very dynamic) as it's representativeness to the population (more or less static) is difficult to establish. That is why, in my AVM book I proposed and reverted to fixed neighborhoods (not sales dependent and are population-derived).

AI engineers do not use any data variable modeling. Their data extraction process is extremely smart leading to very smart machine learning models. In mass appraisal environment, they will be able to precisely identify and demonstrate where the sales datasets and populations are at variance. Whereas, the mass appraisal (known as “cama”) modelers will simply remove them from the model as outliers, creating unexplainable gaps and major fault lines they won't even know.

In our future consumer environment (Homequant, Homeyada, Condoyada, etc.), we may ask the first-time users (optionally) to take a three minute tutorial. As the user interacts with the tutorial, our machine learning models will extract the data (by reading the responses) and fine-tune the model, specifically for that user. When the user returns to value a subject (log-in will be needed to identify the user), our model will populate the comps as soon as the subject is defined. So the ten minute exercise will be reduced to fifteen seconds.

Alternatively, in a traditional modeled environment, it's all sample-based so the results are, at best, bell-curved with the customary 68% efficiency. The error-based cama regression models fail to test the optimality of the solution; for example, is a model Coefficient of Dispersion (COD) of 8 better than a COD of 10? The COD of 8 could represent a post-optimal solution, whereas the COD of 10 could perfectly represent an optimal solution. But in cama environments, the COD of 8 would be universally preferred. In fact, several years ago, I presented a paper along these lines at a conference, raising some serious questions.

The mass appraisal industry is extremely antiquated. They are still using the 30-year old Regression Modeling and mostly Sales GIS. That is why I think the major mass appraisal jurisdictions should hire AI engineers, proving that the industry needs to look ahead. 

Granted, given the paucity of AI engineers, it is not going to be easy but they should try. They should also remember what Steve Jobs said, "It does not make sense to hire smart people and then tell them what to do. We hire smart people to tell us what to do."


Sid Som MBA, MIM
President, Homequant, Inc.

How to Run a Successful (Property) Re-assessment – Preemptively

1. Ideally, Residential and Commercial Re-assessments should not be Conducted Concurrently – When they are run concurrently, local governments are empowered to shift tax burdens across property groups (depending on the impact study). If it is statutorily required, the taxpayer watch groups must fight the statute to decouple them, thus making the re-assessment a truly transparent, as well as a fair and equitable exercise. If it is run concurrently, the watch group must hire an independent consultant to review the impact study, both inter (across property groups) and intra (within the group). Should they find any inconsistency, they must share the results with the local media.

2.  Hire an Econometric Consulting Firm to Run a Pilot – This is one area where private and public sectors tend to part ways. For example, instead of rushing into a full-scale (and expensive) marketing campaign, private companies will run a meaningful pilot (i.e., proper sampling, etc.) first, leading to the main campaign (assuming, of course, pilot results exceed expectations | FYI…just meeting expectations could force the project back into the mix of alternatives). Though the idea of pilot projects is not common in local governments, they must get into the practice of running pilots, to avoid having to spend too much money at the back-end on damage control. Since a well-constructed and properly run pilot is as representative as the main event, a good econometric consulting firm is a must to do justice to the pilot, paving the way for a meaningful and significant pilot and a reliable impact study.    

3. Recollect the Exterior Data for the Pilot Project as if it were the Main Event – Before publishing the data collection manual, the consulting firm must undertake a local market significance study, thus zeroing in on the variables that significantly impact valuations in that particular market. Then, with the assistance of the consulting firm (e.g., arriving at the actual sample, variable types, extent and use of technology, etc.) the assessing staff must recollect the exterior data pertaining to the pilot. In constructing the sample, all incomplete and on-going physical changes must be ignored. Similarly, the interior data collection is virtually meaningless for re-assessment as they represent mostly lifestyle fixtures/personal properties, not real properties. While significant interior renovations and improvements must be captured and reflected via the “Overall Condition” variable, new indoor pools, porches, etc. should be separately coded to ease valuation (only if they show up in the study as significant market variables). The data collection process must be thoroughly documented so the process could be precisely duplicated during the main event.

4. Publish the Pilot Results, Emphasizing the Potential Tax Impact – Considering this is not the actual re-assessment, the results could be published immediately, with a series of outreach seminars to educate taxpayers of the potential impact of the future re-assessment. Even the taxpayers facing tax increases would be less hostile at this point as they would be allowed a major voice in reshaping the final outcome. If the residential and commercial pilots are run concurrently, watch groups must scrutinize the study carefully, ensuring that the tax burdens are not being irrationally shifted from one group to the other, especially “inter” meaning from the commercial to the residential. Of course, they must also study the equity within the group. And that, of course, is the advantage of a meaningful front-ended pilot, providing a platform for all brainstorming before the fact.  

5. Jurisdictions with Unfair Statutory Limitations must work on Removing the Statute before Undertaking any Major Re-assessment – Hypothetically, if the state mandates that the county must reimburse its taxing districts (e.g., towns) the amount that is refunded to homeowners due to inaccurate property assessments, it would be prudent for the county administration to work with the state to remove this unfair mandate (or at least reduce the burden to a manageable annual limit graduating to a total phase-out) before embarking on any major re-assessment. Should this legislative effort fail, the county should seriously consider a de-centralized assessment system, to avoid having to take on monumental unwarranted liability. In this example, under the de-centralized system, towns would be responsible for their own assessments while the county would continue to provide the technical assistance, thus relieving the county of any potential refund liability.

Again, a front-ended pilot will do immense good before the full-scale plunge.

Disclaimer - The author is not offering this presentation as professional services advice in any shape, form or manner whatsoever. Every institution is different, so seek the advice of a competent professional before making any changes to your existing program(s).

Thank you.

Sid Som MBA, MIM
President, Homequant, Inc.

Thursday, July 4, 2019

How to Replace Personal Income Taxes with Middle-class friendly Progressive Consumption Taxes

Under the existing income tax system, 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. On the other hand, Warren Buffett claims he has a lower tax rate than his secretary. While much buzz was created about the carried interest, nothing has been done yet and as a result hedge fund billionaires continue to enjoy one of the lowest tax rates. According to Fortune, “Amazon will pay a whopping $0 in federal taxes on $11.2 billion profits.” These conflicting scenarios demonstrate how irrational our income tax system has become. Therefore, it’s high time that we (phase out and) replace the personal income tax with a set of progressive consumption taxes.

Of course, the one-size-fits-all consumption tax – which was proposed before and was justly unsuccessful – is inherently regressive, as poor and middle class folks tend to spend a much higher percentage of their incomes compared to the rich folks. Yet, the consumption tax could be an ideal replacement for the current income tax, as long as it is progressive. How? Quite simple – all non-food goods and services must be broken down into three tax-progressive categories: Basic, Luxury and Ultra-luxury. While the basic category will have the lowest tax rates, luxury and ultra-luxury will carry progressively higher rates; for example, the national sales tax rate (atop the state and local sales taxes as it replaces the federal income tax) for basic durable goods (e.g., appliance) could be 2 to 3%, whereas the luxury and ultra-luxury could carry 5% and 10% rates, respectively. Needless to say, the lower rates for the basic category will advantage the middle class while the rich will be more than happy to pay higher national sales taxes in lieu of their disproportionately higher share of the federal income taxes (case in point: the top 1% pays 40% of all federal taxes). 

So, how will the progressive consumption tax system work?

1. National Sales Tax on Basic and Luxury Durable Goods – In order to save, say $5K to $5M on annual income taxes, taxpayers would be amenable to an additional national sales tax – obviously atop the current state and municipal sales taxes – on durable goods. Unlike income taxes, consumption taxes are more humane meaning families can budget or plan for these expenditures. Since the basic durable goods impact the poor and middle class, the rate must be lower, say 2 to 3%, followed by progressively higher rates on luxury durable and ultra luxury durable goods demanded by the rich; for instance, all appliances under $10K could be basic, $10K to $20K being the luxury and >$20K as the ultra luxury category, with progressively higher rates. Likewise, automobiles could have three categories as well. Since this a national sales tax, it must cover all online purchases. While states and municipalities will continue to charge different sales tax rates, the national sales tax rates will be uniform across states as they will replace the federal income taxes.

2. National Sales Tax on Unhealthy (processed) Foods and Beverages – It’s about time that the health-conscious folks are not forced to subsidize those who basically live off junk foods and high-calorie beverages. This is a (preventive) health issue and, hopefully, this national sales tax will save citizens billions in health insurance premiums down the road. The counter case is equally compelling: Today smokers are paying a hefty 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 income tax system will take 5 to 7 years, during which as the income tax revenue starts to come down, the junk food/beverage sales tax should start at, say 10%, graduating up and perhaps leveling out at 20%.

3. National Sales Tax on all Name Brand Prescription Medications – When a particular medication (all forms: oral, injection, iv, etc.) has a generic counterpart, it must be subjected to the national sales tax. Since the name brands are significantly costlier, they are generally meant for the rich folks. Obviously, when the generic is not available (or is not easily/readily available), the brand must be exempted from the proposed tax. Even prescription generics produced in foreign facilities could be taxed (excise or sales).

4. National Sales Taxes on Million$-plus Home Sales – Since the rich and ultra-rich owning the upscale and expensive homes will be big beneficiaries of the phase-out (followed by no income taxes), the million$-plus home sales must be subjected to additional progressive national sales taxes. It must not be a blanket one-size-fits-all rate; instead, it must be progressive, for example, sale price $1M to $2M @5.00%, $2M to $3M @5.25%, $3M to $5M @5.75%, $5M to $10M @6.00% and $10M+ @6.25%, etc. At the individual level, unlike the income taxes, these sales will impact them once in a while, thus a far preferable option than the high annual income taxes they have been paying. On the contrary, in order to keep the upscale housing market liquid and economic, the property tax component of the SALT cap must be separated and de-capped. Should sales clusters start to balloon just under $1M, the threshold could be lowered to the jumbo mortgage (non-conforming) level.

5. National Sales Tax on Luxury Hotels (4 and 5-Star) – These hotels are primarily for the corporate executives and rich folks so an additional 5-6% national sales tax will not harm the hotel industry. In fact, these hotels might even use this sales tax as a promo (“We Will Pay Your National Sales Tax”) in order to compete for the traffic during off-peak seasons. 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. Similarly, all private golf courses must have additional surtaxes. None of these will adversely impact the middle class; even if they impact the middle class to some extent, it will be insignificant when compared to the tax savings they will be enjoying from the elimination of income taxes.

6. National Sales Tax on all Luxury Air Travels, Amtrak, Vacation Cruises and Car Rentals – Business and first class air travel, both domestic and international, is primarily for the corporate executives and rich folks so an additional 5-6% national sales tax will not harm the airline industry. Similarly, those who spend thousands more on luxury and ultra-luxury vacation cruise suites can afford an additional 5-6% national sales tax and it won’t harm the cruise industry either. Foreign cruises coming to the US shores may be subjected to additional port charges. Luxury car, charter flights and private jet rentals must carry sizable luxury and ultra-luxury national sales taxes. Likewise, upscale suites and berths on Amtrak must be subjected to the national sales tax as well. Again, none of these will adversely impact our middle class.

7. Consider Selling Non-specific National Sales Tax Data to Private Companies – Undoubtedly, the national sales tax data will pave the way for the largest warehouse of the most uniform consumer spending and market performance Big Data, so the Commerce Department might consider selling the generic data to private companies, reducing the importance of the back-door data from the social media. Private companies in the consumer sphere, including the market research and econometric consulting firms, will pay large sums on an on-going basis to have access to such central and uniform data. Since the data will constantly change in line with the economic cycles, companies will be dependent on it, perennially. Additionally, the sale of data to the end-user private companies will be directly taxed while the value-added resellers will collect sales taxes from their clients. In no time, the national sales tax data could be a big money maker for the federal government. Citizenry would be relieved as the dominance of the social media data taking a nosedive.


8. Consider Selling Naming Rights to Lesser-known or Un-named Federal Infrastructures – Let the rich people/private institutions pay to put up their names on lesser-known federal government buildings, town squares adjacent to federal buildings, highways, bridges, parks and recreational centers, education/job training centers, shelters, libraries, etc. (that the federal government owns and operates). Federal government must also take back/reserve the naming rights while funding (or primarily funding) non-profit institutions with federal dollars. If we build a wall on the southern border, naming rights to each stretch/segment must be auctioned off as well (in fact, this could provide partial funding for the wall, as well as on-going maintenance!!). 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. US DOT should 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.

9. Last but not least, Massive Savings will be generated by Downsizing IRS – IRS has over 80,000 employees with an operating cost of $11.5B. Obviously, the vast majority of them are expected to work on the personal income side. With the phase-out and eventual elimination of personal income taxes, the overall manpower could be significantly downsized, reducing the operating cost to $2B to $3B. Of course, a much smaller national sales tax group (Collection, IT and Data Science) will be needed under the umbrella of the Commerce Dept. Along with the reduced headcount, many IRS Centers around the country could be closed, data centers merged and cloud/storage scaled back. The corporate income tax rate has already been lowered to 21% and any further reduction would necessitate some compensating European Union-style VAT. 

Instead of forcing the top 1% to pay 40% of all federal income taxes, we should seriously consider switching to a more humane progressive consumption tax system wherein people at large get to plan and decide the amount of taxes they would pay. While progressive consumption tax is poor and middle-class friendly, the rich would also welcome the idea considering the trade-off. Studies will be needed to make the switch revenue neutral.



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


Tuesday, July 2, 2019

How to Excel at Work and Outclass the (Internal) Competition

-- Intended for New College Graduates --

As you look at the corporate ladder, you realize that your peers are your primary competitors while your boss happens to be the secondary. As you establish that maxim, you understand the need for a set of creative and consistent strategies to narrow the competition down – gradually. Of course, the smart and ambitious folks recognize this winning path quite early in their career, clearly defining their intermediate and long-term goals and steadfastly working on and fine-tuning the strategies. In the process, they also learn to remain unwaveringly focused, making navigational changes as and when demanded by today’s fast-evolving corporate environments.

And, that’s how they win – just a matter of time! Meanwhile, the competition remains busy on Monday morning quarterbacking, falling behind, often far behind. Obviously, the goals vary even amongst the winners, but the strategies they follow (to achieve those goals) tend to be similar, fairly similar. So, what do the winners have in common?

   1. They Never Underestimate or Lose Sight of the Big Picture – While they discharge their daily duties extremely diligently and efficiently, they are always in the know as to the positioning and importance of their work relative to the big picture (i.e., how their departmental work directly and indirectly contributes to the corporate goal). This skill comes naturally to all visionary leaders. On the other hand, the competing start-up folks who get bogged down, however ethically to their daily work only, end up becoming successful operational technicians, rather than enterprise-level solution providers. While the new management trainees are generally (hired and) trained together, this fork becomes increasingly apparent and visible to the bosses, quite early on. They easily stand out to the smart bosses as their questions and concerns are generally the big picture-oriented.

   2. They Rarely Develop a Rigid 9-to-5 Work Mindset – From the get-go, they learn to condition their work mindset and ethics on the heels of the other successful corporate leaders so they rarely nurture the conventional 9-to-5 habit; instead, they enjoy taking full ownership of their work, thus letting the work dictate their daily hours, irrespective of any allowable paid comp or overtime. In other words, the winners always know how to take total ownership of their work, while the rest tends to succumb to a structure of pre-defined rules and some superficial responsibilities. Needless to say, the smart bosses also foresee the budding leaders in the folks who believe in taking total ownership of all assigned projects and are always eager to take on new challenges.

   3. They Know how to Get into the Groove of Aiming High – Winners understand the value of time so they prefer working lunches with the smart bosses rather than lunching out with the peers. They recognize and appreciate the fact that the vast majority of smart bosses rarely have the extended time to enjoy outside lunches. Therefore, the idea of the working lunch makes more sense to both as they build better professional chemistry. Since the budding winners also realize that even during a working lunch they are being watched and evaluated as if it were a staff meeting, they learn to come totally prepared and stick to the most important issues and concerns related to the project(s) being discussed.                

   4. They Know how to Build a Brand to Make their Work Stand out – It’s in the DNA of all winners to reject plain vanilla work. Instead, whatever they do, they try to excel and outrival the competition by building their own brand. Over a short period of time, the smart bosses start to recognize and appreciate the additional effort. Even in a group project, their brand becomes clear and present. The branding not only gives them an instant recognition and enhances their image, but also protects their work from being inappropriately used or abused by others. Such brands also help bosses as they can easily present that class of work to their higher-ups without having to spend days on preparing a special report for a short one-off meeting. Linking brands are easier and time-saving as they are formed by the same feather.       

   5. They Develop the Moral fiber to always help Staff, Peers and Bosses – Winners know their help is always needed not only by their staff or peers, but by their bosses as well, making them some of the most highly sought after employees in their departments. But it’s never a negative or an annoying issue for them. They take it very positively from the beginning of their career and constantly build upon them, so much so that it becomes part of their work ethics, even as they move up the ladder. Developing this moral fabric is inherent in visionary leaders. In fact, the great CEOs are generally easily approachable. Jack Welch, the former CEO of GE, used to maintain an open door policy so employees could walk in and talk to him without prior appointments.   

   6. They always Know when and how to Walk away from the Herd – Their basic professional attributes – ability to critically think, solving enterprise-level challenges, staying intensely focused through the work stages and the determination to reach the finish line – are so different from the general competition that they start challenging the status quo and conventional (group) thinking as they settle into the job. The fact that the winners understand the importance of the big picture immensely helps them to articulate inherently better and more convincing cases, as well as enterprise-level or, at least, broad-based solutions. Of course, they also realize that the only way they can promote better ideas and solutions is by walking away from the group from time to time, and they are generally unafraid to do so, as it’s always for the greater good, not for personal championship.

   7. They Develop Strong Personality to Fend off Bully Bosses – Given an unrestricted domain of authority (due to weak superiors) bully bosses often resort to reign of terror, especially targeting the smartest (who make the vile look inferior!) and walking down on the curve. While the winners are generally some of the most polite and pleasant personalities, they also realize that developing a strong personality is equally important and they tend to nurture that trait in themselves from the school days, leading into the corporate life. Oftentimes, in order to make an initial assessment of the environment many new graduates from the top schools insist on personal meetings (job interviews aren’t enough) with the future peers and bosses before accepting an offer. By the same token, they also understand the importance of an exit strategy when the environment remains polluted beyond repair.  

   8. They Take Advantage of Leadership and Management Opportunities – While the competition remains iffy (makes and rationalizes excuses) of taking advantage of proper leadership or management opportunities, the winners not only recognize them but they confidently line up at the gate as well. They know it quite well that the early attempts to climb the ladder – even when the outcome is a foregone conclusion – are critical. The winners never balk at meaningful opportunities as they know the ladder turns into a pyramid, getting narrower and narrower as the climb continues. This is the inflection point where the major league gets separated from the minor league, so to say. The winners go on to become the EVPs, FVPs and CEOs, while the old competitors wish them good luck.

   9. They Learn the Do’s and Don’ts Early on and Practice them throughout their Corporate Life – It is generally beneath their dignity to even talk about their personal performance or achievements, let alone bragging about them. This is a practice that becomes their fail-safe second nature. Likewise, while they are extremely respectful of all races, religions, ethnicities, cultures, orientations, etc., they always avoid all unnecessary talks or discussions on such issues. They develop the habit of evaluating everything based solely on merit resulting in net positives, meaning for them to spend any time on any discussions they make sure that the positives far outweigh the negatives, a priori. They enjoy their work to the brim, thus always looking forward to Monday mornings. In the process, they learn to avoid all negative stimuli, distancing themselves from all negative personalities (as much as possible) and meaningless social talks around the water cooler (they will simply smile and walk away). Last but not least, as they start out, they practice discipline to a point they do not waste time wondering where to start; for example, they often get into the habit of writing self-addressed work summaries on Friday afternoons so they do not waste time on Monday mornings wondering where to start.  

Dear folks – The early start is absolutely critical. Please do not procrastinate and while your career away. Aim High.

Good Luck!

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

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