Income Disparity Part Two Or What Is Wrong With This Picture?

In the previous post (Income Disparity 10-20-13) Analysis took advantage of a perfect storm of news articles appearing in The Newark Advocate to understand how and why income disparity is as it is, with the middle class shrinking, and the lopsidedness vigorously continuing to grow. No attempt was made to critique what was being proposed re: the picture presented of vitalizing downtown Newark through subsidizing the developers. What if Liz Argyle and Steve Layman succeed with their intentions to create more residential housing units in downtown Newark? Will Steve or Liz move their families downtown to take advantage of these new urban living opportunities? Since Liz and Steve will probably not be relocating, what benefit will be promoted to attract tenants considering that 43% of Newark’s residential housing is already non-owner occupant? Why should someone choose to live in a retrofitted school house or next to a moldy abandoned jail rather than apartments or condo’s in other parts of town that are already within close proximity to restaurants, grocery stores, and shopping outlets; places that are open in the evening and weekends, when the tenants are home from work (ask Jerry McClain about downtown Newark during those times)? Will Mr. Layman and Mrs. Argyle primarily rely on tenants qualifying for government subsidized housing? How does that play with all those folks clamoring for less government (or no government) as well as less taxes (or no taxes) in order to grow our economy with less regulation and tax cuts for top earners (the job creators)? The picture of subsidizing more residential housing units through public assistance to the developers of such housing in a city that has one of the highest percentages of non-owner occupant residential housing in the state is ludicrous. It makes about as much sense as subsidizing the building of another gas station on a street that already has one on each corner.

In a previous post (Ohio Tax Credit 3-26-13) Analysis looked at what all goes into “developing” the farm land in places like New Albany, Rt 79 south of Heath, Pataskala, etc. Within that dynamic, the one embraced by the state’s JobsOhio and local CIC’s, there is a concerted effort to attract tenants on the part of multiple entities. The developers who purchased the farmland (by the acre) long ago for a song are only too willing to “build to suit” any new tenants (as this enhances the value of their speculative real estate investment). As that post points out, tenants moving into these industrial parks are given various tax cuts, credits and breaks, some as much as 100%! All this is touted as a win-win with developers (landlords) eager to get tenants along with the ensuing construction business for their subsidiary companies. Municipalities are eager for the commerce generated as well as taxing the workers enabling that commerce. Why isn’t this the model promoted for the vitalization of downtown Newark?

Perhaps because that model gives all the perks and benefits to the tenant, serves and values the tenants of these developments rather than the current one that puts landlords (developers) first. What about this for a picture: the city of Newark offers 100% municipal income tax breaks for those opting to commit to a 15 year residency in downtown Newark. As with Liz and Steve, the state could offer a 25% income tax break, with the federal government providing 20% off the prospective resident’s income taxes. Reason to move downtown, that’s for sure! Indeed, reason for current landlords to upgrade their properties, on their own (like their industrial park counterparts), through locally available financing . “The community’s wealth will be there when they are ready.” Downtown employees who relocate their residences would not only have more discretionary income to spend on downtown business (making for a resurgence) but would appreciate the time saved not driving to and from work, the health benefits of commuting on foot, and the money saved on vehicle expenses like gas and insurance. Many business owners who currently rent would look to own the buildings their offices are located in since they could use the home business tax credits for their second floor residences. Maybe Steve and Liz would choose to live downtown above their businesses. Impossible you say? If folks like Jay Hottinger can support and pass legislation creating all the incentives for corporate tenants in New Albany there is no reason it couldn’t be done for residential individuals in cities like Newark, Cleveland, Youngstown, Mansfield, etc. On the federal level, I’m certain Pat Tiberi would get lots of support from his colleagues who are the representatives of constituents in cities like Detroit, Gary, Cleveland, etc. If the potential residential tenants of downtown Newark were offered similar incentives as those of the industrial parks, venture capitalists would be only too eager to oblige with development. Demand creates supply is the model of capitalism that Christopher Columbus sailed on, isn’t it?

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Income Disparity

            Three articles in this Sunday’s Newark Advocate inform each other and present wonderful evidence as to the “why” of income disparity in this country (and its continuous growth). OK, you haven’t kept up with the figures. Well, yearly there is a steady decrease in who owns what in this country. The numbers are everywhere – 1% of the population earns 36% of the country’s income, etc. If you aren’t current, start doing some insightful reading. Few, however want to tackle the why. Fewer still want to recognize and identify the why within their midst, their neighborhood, their community. Taken together, today’s Newark Advocate articles do just that. The three are: Ohio Pushing Local Governments Toward Self Reliance, Benjamin Lanka for Central Ohio.com (Gannett), Ohio Banks Swimming In Cash, Russ Zimmer for Central Ohio.com (Gannett), and Downtown Housing Projects To Pursue Historic Tax Credits, Kent Mallet Newark Advocate (Gannett). All are dated 10-20-13. For context let’s look at two online commentaries to the Lanka report. One, from someone named Steve Thorp, ““It is clear … that people all across are deeply concerned about tax policies that disproportionately favor the top and hurt working- and middle-class Ohioans,” Rep. Tom Letson, D-Warren, said in a September news release. “The impact of this tax shift has been made worse by deep cuts to schools and local communities over the last two state budgets.” Now isn’t that just like a Democrat. Heck let’s just tax all businesses out of Ohio. All this moron wants is a free hand out.” And part of one from some fellow named Urban Chronotis, “Government spending is out of control, there is very little accountability if any. Punishing the wealthy to bail out cities, or states, who’s elected officials have not been good stewards of their position and power is wrong. The government can be funded sensibly via taxes…” This coupled with the recent brinksmanship re: the default and legislatively self-imposed debt ceiling clearly highlights the polarity surrounding and supporting income disparity in the US.

 

            “There is plenty of space in older buildings, but the massive cost of renovating such structures has discouraged the investment needed to convert them into residential units.” (Mallett) “Randy Cole, state Controlling Board president and Kasich policy adviser, said the state is not walking away from the fact the local government fund was cut in half, but instead is trying to put that cut in context with the entirety of support the state gives to communities. He said Kasich’s policies have improved the state’s bottom line, allowing it to cut taxes and improve the business climate in an effort to encourage economic growth. “If we do, both state and local governments will have what they need,” he said.” (Lanka) “Steve Layman and Liz Argyle have the enthusiasm, the buildings and the design plans to follow through, but need the available state and federal tax credits to make their projects feasible.” “The 25 percent tax credit from the state and a 20 percent tax credit from the federal government would make Layman’s $2.5 million project viable, he said. “With credits it becomes a reasonable investment, not a great investment,” Layman said.” “Layman said. “There are thousands of examples across the country where this can be done.”” “Argyle has owned the building about seven years, but the project expected to cost almost $500,000 has been beyond her means. “We’ve always wanted to put apartments above the studio,” Argyle said. “It was our original intent when we bought the building. You can’t have successful commercial without residential. “It’s so expensive to rehab an old building. It’s cheaper to build new. We got to a point we couldn’t do it, couldn’t finance it for what we have available.” “The third floor has been unused for about 80 years and the second floor was used as an FOP Lodge many years ago, she said.” (Mallett) And finally, ““Deposits are the primary source of funds that banks tap into for loans.” “A bank with more money has the potential to send more of it out into the community through small business loans or home mortgages, but that’s not a guarantee, said Mike Brandl, who teaches global finance and economics at Ohio State University. “Many large banks find that they can be rather profitable while holding onto to large amounts of cash — not lending — because they use that cash for trading instead,” he said.” “A spokeswoman for the Federal Reserve Bank of Cleveland noted the rise in deposits is happening despite low interest rates for depositors, which banks pay to attract money that they can then lend out to customers at higher rates.” “Banks, by and large, have plenty of money to lend and interest rates for loans have remained low but small business owners are hesitant to extend themselves, said Brown [John Brown, president of Richland National Bank in Mansfield], who also leads the county’s economic development group. The community’s wealth will be there when they are ready, he said.” (Zimmer) Along with this Russ Zimmer provides a statistics with regard to Licking County’s “wealth [which] will be there when they are ready” ($1.2 billion with Park, $209.8 million with JP Morgan Chase).

 

            OK, all sounds pretty noble: cut us some slack and we’ll have an energized and vital downtown. Analysis needs to provide some further context. During the Clinton and Bush presidencies the legislature chose to deregulate the financial industry, thereby allowing banks to become insurers, brokers, speculators, etc. and retailers to become banks (like Walmart, State Farm, etc.). Bear in mind that JP Morgan Chase did precisely that with the London Whale debacle and lost 2 Billion dollars (ten times what is available at Chase in Licking County, “will be there when they are ready”), poof, vanished (no biggie according to Jamie Dimon). So Mr. Brandl’s insights as to why banks don’t lend to local small businesses (even though they are sitting on the cash) is very pertinent and must be understood. Return on investment becomes a rather ignoble motivation (as opposed to renovate and vitalize the downtown!). Now we see that if Liz and Steve, Park and Chase can make enough on their investment, they’d be more than glad to oblige. This is where the economics, at the heart of income disparity and the polarization that it nurtures, comes into play. Basic economics states for every debt, there is someone owed that earns surplus on that amount due (principle and interest). Bank deposits are considered as a debt on the bank balance sheet (the depositor must be paid if they demand a withdrawal), so they are essentially borrowed money (much as certificates of stock are borrowed money since they must pay a dividend). Bank loans are considered assets (because they generate revenue, make money on what is owed). As the Federal Reserve spokeswoman points out, depositors are receiving a pittance. But a pittance is not enough of a return of investment to make it worthwhile to renovate a salvage value school building, or a two thirds abandoned downtown high rise. There must be more. Enter the government. Needless to say, the same folks who are clamoring for less government (no government) likewise want less taxes (no taxes). Mr. Chronotis believes “The government can be funded sensibly via taxes”. But Mr. Layman and Mrs. Argyle (and the large corporate entities like the banks) want the government to collect less tax revenues so that they can receive a greater return on their investment. The math seems to be there alright. For large investments (large sums of money), the money is not only available to be lent (Jumbo home mortgage rates have been going down to match that of the Bush era’s!), but these investors must likewise be given a tax break to make it worth their while. If the government receives less (tax) revenue, where is the funding for government’s functioning to come from (“There are thousands of examples across the country where this can be done.”)? At the same time the worker with her deposits in the bank, making regular payments to the financial corporation on her student loan and the mortgage of her totally occupied residence, receives a pittance on her savings deposit, must pay a state and federal tax on that very pittance, is passed over because the collateral on her fully occupied 50-100 year old residence is insufficient, and the state of Ohio now taxes her more on each of her “non-investment” purchases. “All this moron wants is a free hand out.” One wonders what Mr. Thorp believes to be the function of government — local, state or federal — if not to provide the infrastructure, the security (fire, police, emergency response), the educational facilities, public health care, etc. Analysis assumes Mr. Thorp believes it is the morons who should pay for these things. As Mrs. Argyle astutely notes, “You can’t have successful commercial without residential.”

Brown Shirt-ism

            It is a difficult, and delicate, subject to write about; one that can be adumbrated but not specifically elaborated, one that could occupy a book in terms of research, reference and analysis. But there is no time for that. It is difficult, and delicate, to speak of because of the charged words involved. Language is all we have, yet many words become “icons”, designating meanings popularly attributed; some even to the point where they cannot be used but only referenced by their first letters. Historically, brown shirts referred to a certain kind of political strategy/activity in which a problem is created only to misdirect attention to the “other” (the opposition) as the source of the problem, and then claiming the problem’s (real) undisclosed perpetrator as the solution. This was very prevalent in many democratic countries throughout Europe in the 1930’s. The Hollywood version we are more familiar with revolves around some gangster type causing damage to a business or family, then claiming that the community, the civil authorities or municipal government is ineffective in “protecting” the business, and that the victims should put their trust (and payoffs) with the gangster for “protection”. How do you deal with it? If only Gary Cooper were still alive!

 

            The Sunday, October 13, 2013 Newark Advocate brought this to mind with a series of articles on the recent (and final) push by the North Fork School district to get a levy renewal passed on the November ballot. One of the articles claimed to assess the opposition and its legitimacy in the reasonable discourse. The reported story was disappointing in that it highlighted only what the opposition has already claimed (that the voters are without resources, vote no). The source of the campaign against the levy was spottily presented (specifically unmentioned), and primarily as being from outside the district.  “Fill” for the article was provided by all the compensatory statements by levy proponents (specifically mentioned, that is, named) trying to show the nameless opposition that various attempts already have been made to meet their demands. This, in addition to the other articles related to the necessity of the levy, was the “reasonable” reply – what has been done, what things cost, state requirements, etc. Analysis found nothing in the short Advocate article to learn what the opposition’s reasonable demand or alternative scenario could be, other than refusal to oblige the state mandated public school requirement to educate. We don’t wish to pay for public school education (and don’t wish to promote/support its funding on the state level) was about all that Analysis could glean as the opposition’s reasons (with “we don’t wish to be taxed” as the primary, fundamental logic further on upstream). No funding creates a problem for everyone.

 

            Heather Gerken, in an interview on Bill Moyers & Co, touched on the recent Supreme Court case, McCutcheon vs. FEC. The same folks who brought us Citizens United now want unlimited individual campaign contributions; unregulated as well with no disclosure requirements. She pointed out that the full disclosure and transparency route, which seems to be a reasonable foil to the corrupting influence of big money on political governance, is now the very tactic used to argue for why it should not be allowed. It is based on precedent Supreme Court implementation of disclosure and transparency restrictions in order to protect the first amendment rights of politically active participants from retribution and intimidation. Sunday’s events surrounding the WWII monument reinforce the strategy of brown shirts prior to that cataclysm. The government shutdown (which precipitated the monument’s closing) was brought about by the very folks who actively promote smaller or no government. Shutting down the government is precisely what they campaigned on in order to be elected. Bringing an end, or stop, to government, and its functions, be they in terms of education, business regulation, public health, social programs, etc. has always been their unambiguous and proclaimed intentions. With their short term success in hand (of shutting down the government) the leaders of this group now appear at the WWII monument blaming the “other” (their opposition) and promoting themselves as the solution (to a problem which they created). Those seeking the demise of the North Fork Schools are not far removed. “Let them fail” is their unifying intent. With that, they point to distractions like anecdotal evidence regarding private schools as solutions to public education. The private schools’ privilege of exclusivity now, somehow, becomes the route to universal, state-wide educational inclusivity. The Supreme Court Justices are buying this argument. Are you?

 

            One of the things Analysis regretfully did not bother to note this week was a short article that appeared online, saying that the real legislators at fault in Washington are the moderate Republicans for their refusal to stand up thereby giving tacit approval and support to the minority’s tactics. This is the same indictment history handed down with regard the destructive “success” of the brown shirts.

             

Sharona’s And Jerry McClain

            Sharona’s is closing tomorrow. The online Advocate (updated) stories Kent Mallett reported drew over 50 comments. This is a human interest story more than a quotable news item. Sharona’s appears to have been very well liked with a strong customer base. Analysis finds something incongruous with the various headlines, owner’s reasons, etc. given in the accounts. Parking is cited as a problem though attendance is not. Restaurants in the Short North, German Village, The Arena District and even Easton would kill to have the ease, access and amount of parking available to Sharona’s customers. About a block away, just south of the eatery, is a huge public, no-pay lot (in addition to the on street, no-pay parking and various private lots). Perhaps the headline should have read “Lack of Valet parking contributes to Sharona’s closing”.

 

            Maybe this blog posting should read “The More Things Change, The More They Remain The Same”. Kent Mallett reports Downtown Hotel May Become Double Tree (The Advocate 10-2-13). Glowing endorsements of what a significant impetus to the downtown economy an international franchise will bring. ““There is something to be said for brand recognition. People recognize it. They trust it. They believe in it.”” (Dan Moder, executive of the Licking County Convention and Visitors Bureau). Speaking of conventions, didn’t Jerry McClain promote and promise a convention center on the north side of Locust Street before “the removal of dilapidated houses”? Memory brings back architect’s renditions of this promised gateway to Newark appearing in The Advocate. Speaking of memory, wasn’t the hotel a national franchise hotel/motel at one time during its various reincarnations under different identities? (no time to research that one). In Kent Mallett’s article “The Hilton name will be another key downtown improvement, McClain said, after the removal of dilapidated houses along Locust Street, construction of Heartland Bank at the Ohio16 exit ramp and McClain’s own office building under construction on the corner of Fourth and Locust streets.” Analysis finds it delightful that a name will be an improvement as The Heartland Bank is a (totally material) projected afterthought to the original “development/improvement” of the land along Locust between Third and Fourth (it is located on the west side of Fourth). What we in actuality are witnessing is a vacant lot, same buildings with new names and a stick built, two story structure on a slab foundation that most new home construction today definitely would outsize. But those homes wouldn’t be “named” an office tower. Name says it all, I guess. I think the original “improvement/development” involved a request/demand for a TIFF that didn’t materialize. Maybe someone finally got things right.

           

            Analysis finds Sharona’s and Jerry McClain bring to light the stark contrast in the approach to the economics involved with reinvigorating downtown Newark. The “Name says it all,” “They believe in it.” reveals the globalism economic emphasis – it is only something “out there” that will bring wealth and better our community. The local without franchise cannot be trusted. Sharona’s suggests a community centered, local economic approach. It closes though it had a lively and continuous customer base. Analysis suggests two speculative insights. If “parking” had anything to do with it, then maybe downtown Newark should be reconfigured as a strip mall for the convenience of all. Perhaps profit margin had more to do with it. The snide remark would be “Mamma’s don’t let your babies grow up to be restaurateurs. Make them be doctors, and lawyers, and such.” Analysis suspects Sharona’s was expected to show return on investment. For someone able to make that kind of investment, other instruments may bring a larger return with much less personal involvement, hassle and headache. Starting a second profession for entertainment reasons is great, if you can walk away from it whenever you would like (which you can’t do with the commitment a restaurant requires). Maybe it stopped being fun. This is where the two economic approaches clash. Rents are too high in downtown Newark. They are so because the landlords can point to outside traffic filling the downtown during the week days. Weeknights and weekends? See McClain’s hopes for the efficacy of the new name. Local economics? There are a lot of vacant storefronts downtown, even more vacant lots (parking lots). In addition, expectations of a global market return on investments produces expectations of a much larger profit margin and higher rents. Local community business proprietors often point to a smaller profit margin, but also integral membership in the community as part of their return on investment. If improvements, developments in Newark are all geared, focused, directed and based on a belief in the great wealth and dynamic “out there” which will sweep in and make it all better, then it will price out the local enterprises like Sharona’s. There is much to be said for the multiple riches of a local, community economy; one where everyday people, showing up every day, fuel community with everyday budgets while global economy convention centers remain only a gleam in the eye of Jerry McClain.

Our Representative Democracy In Action

            According to Jeremy Petzer, Northeast Ohio Media Group (9-19-13 and 9-25-13), Bill Seitz, state of Ohio legislator and representative of the people, is promoting Senate Bill 193, “making it easier for third parties to win ballot access and run candidates for office”. Amongst other things the bill requires minor parties to submit their qualifications (to run a candidate) 125 days before the election (as opposed to the previous 120 before the primary contest for that election). Also, previously to qualify for the presidential ticket, a party needed to show 5% of the total votes cast in the last presidential election. Under this bill it drops to 3%. Currently Ohio recognizes (for “other” reasons) 4 minor parties – the Socialist party, the Constitutional party, Libertarians and Greens. These can presently run candidates showing qualifications within the current 120 days before a primary. Reading the fine print of Senate Bill 193 reveals that it likewise “resets” Ohio’s minor party recognition. The 4 would no longer be recognized as viable third parties, requiring them, and any other potential third parties, to submit 56,000 signatures in addition to the previous mentioned conditions as well as the requisite 500 signatures to qualify for the governor’s ballot location. The bill has been dubbed the “John Kasich Re- election Protection Act” as a segment of the governor’s own party has been promoting the candidacy of Charlie Earl for governor in 2014. A Tea Party stalwart, he would be running on the Libertarian ticket. Gongwer News Service (9-30-13) has the bill set for a vote on Wednesday, October 2. Big of Mr. Seitz to want to expand our democratic process and enable more to participate, isn’t it?