Mortgages

Some evidence that my prognostications were correct:

The areas studied, and the gross metropolitan product growth expected next year, include Appleton at 2.7 percent, Duluth, Minn.-Superior 2.6 percent, Eau Claire 2.8t, Fond du Lac 3.1, Green Bay 2.9, Janesville 3.3, La Crosse 3.1, Madison 3.4, Milwaukee 2.5, Oshkosh 2.7, Racine 2.3, Sheboygan 2.6 and Wausau 2.6.

Diffley said the result is better in Wisconsin because area prices and mortgage values did not climb as much or as rapidly as in other parts of the country.

Even a blind squirrel finds an acorn once and awhile.

Bonding

I was just interviewed for a piece on WSLU/WPR concering this article in the Journal Sentinal.

According to the Legislative Fiscal Bureau, the state had $8.28 billion in general-obligation, transportation and environmental debt in mid-2006; the same debts totaled $4.41 billion in 1996.

The 87% increase was three times the U.S. inflation rate over that period.

Figures show that debt rose the most - by $1.8 billion- under Thompson between 1996 and 2001, when he resigned to become a cabinet secretary for President Bush. Debt increased by more than $1.5 billion in Doyle's first three years.

Todd Berry, president of the Wisconsin Taxpayers Alliance, said the growing debt is another risky budget decision governors and legislators have made to benefit themselves politically.

Also rising is annual debt-service payments on those bonds: Principal and interest payments on general-obligation bonds will exceed $700 million for the first time this year; and payments on transportation bonds will cost an additional $174 million.

That $874 million is cash that can't be used for other important programs. By comparison, that amount is close to what it cost to run the state's prison system last year.

There are two real issues. The first is that the increase in bonding burdens future generations, which is alright if they are the ones who benefit. The second issue concerns the state's bond rating. As it falls debt service costs rise, crowding out other budget items.

The article could have been improved by publishing the debt as a percentage of the state economy, as it has grown by 50% over the last 9 years. That makes the outstanding debt about 2.9% of Gross State Product in 1997 and about 3.6% in 2006. Not exactly an enormous increase.

Stadium Memo

Below is a memo I've written on the stadium:

DATE: 11/07/2007

TO: Interested Parties

FROM: Taggert J. Brooks

Associate Professor of Economics

RE: Memo on Stadium Finance Request

I’m writing this in response to questions I have received regarding my letter to the La Crosse Tribune editor dated October 26^th, 2007: In the letter I note that academic research by economists finds little support for the idea that stadium projects have a positive net economic impact on their communities. That is not the same thing as saying they always have a zero net economic impact, and it is not the same thing as saying all money invested in such projects has a zero rate of return.

My comments in the rest of this memo will pertain directly to the request for the county to provide $250,000 to the UWL Stadium plan.

If we consider that an alternative investment for the county might earn a 5% annual rate of return, then a one time investment of $250,000 would return $12,500 annually.

How might the new stadium project achieve this? The main return for the county will happen through increased county sales tax revenue due to attendance at stadium events and its associated tourism. In order for this return to have a positive net impact it must have a net increase in sales relative to the alternative scenario. There are many possible alternatives that could be considered.

More specifically in order to generate an additional 12,500 in sales tax revenue, there needs to be an increase in annual county wide taxable sales of $2,544,529. This represents an increase of 0.13% over sales for the entire 2006 year. It is only a 1.58% increase in the amount of sales in an average month.

One important note, there are many different things the county can do with 250,000 it is up to the elected officials to evaluate the relative merits and therefore relative returns on those alternative projects.

Below are the details of these calculations.

250,000	County Investment
5.00%	Annual Rate of Return
12,500	Dollar value of annual return
0.50%	County Sales Tax
1.75%	DOR take on county sales tax
0.4913%	Net county sales tax after DOR take
$2,544,529	Required increase in taxable sales to generate 12,500 Dollars in additional tax revenue
$1,932,219,847	December 2006 Retail Sales for Previous 12 Months
0.13%	Required increase in sales as percentage of total annual sales
$161,018,321	December 2006 Retails Sales Monthly average for prev 12 months
1.58%	Required increase in sales as percentage of total monthly sales

This position is not inconsistent with my earlier statements. I still believe the economic impact of the project will be quite small, however it need not be very large to justify (from a return on investment standpoint) the amount of money the county is being asked to commit.

I am free to answer any questions anyone might have of me. You are also free to share this memo with anyone you wish, so long as it is shared in its entirety.

Sincerely,

Taggert J. Brooks