Wednesday, February 20, 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.

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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.

Sunday, February 17, 2019

Let’s Phase out the Unfair and Inequitable Property Tax System and Replace it with something that’s truly Fair and Transparent

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.

Phasing out Commercial Assessment/Property Taxes -- Future Post

Wednesday, February 13, 2019

A Good "Quick Look" Office Valuation Site must be Mobile-friendly, working as an App as well

How Mobile-friendly Looks and Works as an App on iPhone

(Click on the image to enlarge)

Most Websites are built on the old web technology so they are not mobile-friendly, needing separate Android or iOS Apps. 

SkylineValue site is 100% mobile-friendly so it does not require any such special Apps. From your smart phone, just access internet (e.g., Safari on iPhone) and type in the URL (as shown above) as you would from your laptop or desktop and you would be using the site as if it were an App. 

SkylineValue produces simulated office valuations in 60 secs or less. Try out your own subject office property. It's totally FREE and NO login or registration of any sort is required. 80 Major Office Markets in the US and Canada are currently covered. 

Just click on the market of your choice on our homepage and follow the prompt. If you need help, use 'TRY IT' from the homepage.

What the Experts are Saying

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Monday, February 11, 2019

Homequant Offers Automated Valuation Modeling (AVM) for SFR Rental Portfolios

Homequant Offers QA/Review AVM for SFR to 4-Family Homes

Tuesday, February 5, 2019

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.

DisclaimerThe 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.

Homequant Offers Benchmark Automated Valuation Modeling (AVM)