The Long Island Power Authority should be converted into an investor-owned utility to end poor management practices that exacerbated slow and halting repairs of blackouts from October’s Hurricane Sandy, a New York state investigative panel said today.
Privatization would make management of the state-owned electrical system answerable to the New York Public Service Commission, which should be empowered by the legislature with stronger sanctions including the ability to revoke a utility franchise, the panel told Governor Andrew Cuomo today in a preliminary briefing.
Cuomo, a Democrat, convened the so-called Moreland Commission in November with the power to subpoena witnesses, after more than two million homes and businesses lost electricity from the storm, some for as long as 21 days. Some of the panel’s recommendations will need legislation and Cuomo said he’s waiting for its final report. No date was given for its release.
“The key to problems at LIPA was a fundamentally dysfunctional management structure,” Benjamin Lawsky, the commission co-chairman and superintendent of the New York Department of Financial Services, said at a meeting in Albany that was broadcast on the Internet. “The commission found that the only solution is for fundamental change at LIPA and how power is delivered on Long Island.”
The state-controlled authority owns Long Island’s electrical lines and contracted with National Grid Plc (NG/) to operate them. Under such divided and “dysfunctional” management, LIPA let consultants, rather than the utility operator, guide its spending and failed to properly replace aging poles or trim away overhanging trees as recommended in state studies, Lawsky said.
Bringing day to day operations into LIPA may not improve management and would add 2,000 employees to the state pension system, Lawsky said.
LIPA was formed in 1985 by state lawmakers because of a “lack of confidence” in Long Island Lighting Co.’s ability to supply power reliably and economically after its investment in the ill-fated Shoreham nuclear plant. Shoreham, the most expensive U.S. nuclear power project, never operated commercially after the state raised questions about the ability to evacuate Long Island in the event of a radioactive release.
LIPA bought the lighting company’s remaining assets in 1998, including its power lines and power plants.
The authority has about $7 billion in debt and $4 billion of assets, Lawsky said.
National Grid operates, maintains and repairs LIPA’s power lines through Dec. 31, 2013. The authority picked in 2011 Public Service Enterprise Group Inc. (PEG), owner of New Jersey’s largest utility, to take over the contract in 2014. The management structure is unique to LIPA.
Public Service is preparing to manage LIPA’s lines and intends to work with Cuomo and legislators as needed, Karen Johnson, a spokeswoman, said today in an e-mail.
LIPA is “reviewing the report and will continue to cooperate with the state and the Moreland Commission to do what is in the best interest of Long Island’s ratepayers,” Mark Gross, an authority spokesman, said in an e-mail.
The New York Public Service Commission, which regulates investor-owned utilities, needs the authority to impose stronger sanctions to compel better performance, said Robert Abrams, the other commission co-chairman and a former state attorney general.
The maximum penalty for violating the commission’s orders is $100,000 a day, Abrams said. A more effective sanction would be 0.02 percent of gross revenue, or about $2 million a day for Consolidated Edison Inc. (ED), the state’s largest utility owner, he said.
Storm response plans should be subject to commission approval and compliance enforced by more staff, Abrams said.
“Superstorm Sandy devastated our region,” Chris Olert, a Con Edison spokesman, said in an e-mail. “All of us must participate in the discussions on infrastructure investments and new policies.”
An October 2011 strategic review of LIPA by the Brattle Group concluded that privatization may raise costs by $438 million a year because an investor-owned utility can’t issue tax-exempt bonds. Cost of capital for the privatized utility would be 10.73 percent compared to LIPA’s current cost of capital of about 5 percent, it concluded.
A 10-year LIPA bond backed by bill payments traded Dec. 31 with an average yield of 2.27 percent, 0.58 percentage point above an index of benchmark municipals with similar maturity, data compiled by Bloomberg show. That yield difference has narrowed from when the bonds first priced in June with a spread of 0.81 percentage point.
Privatizing the Long Island authority “is just not realistic and practical,” said Matthew Cordaro, a former chief operating officer of Long Island Lighting. Refinancing LIPA’s tax-exempt bonds would raise power rates that are already among the highest in the country, he said today in a telephone interview.
Converting the authority into a full-service municipal utility that employs professional managers is a better option, he said.
Rising home values, affordable prices, pent up demand and fewer households underwater on there are motivating more American families to move more often. The average home buyer is expected to stay in a home only 13 years, down from a peak of 20 years in 2009.
Based on a long-run calculation that averages mobility tendencies over a number of years, the typical buyer of a single-family home-including first-time buyers as well as move up buyers- can be expected to stay in the home is now approximately 13 years, according to recent article published by the National Association of Home Builders.
The NAHB work updates a previous article that used data from the American Housing Survey (funded by the Department of Housing and Urban Development and conducted in odd-numbered years by the Census Bureau) through 2007. The new study incorporates AHS data through 2011.
The mobility tendencies observed in the 2011 data imply that the expected length of stay in an owner-occupied, single-family home would be about 16 years (the time it would take half of single-family buyers to move out). However, 2011 is likely to be an atypical year, so the article repeats the analysis using mobility tendencies observable in earlier years, with results as shown in the figure below.
If a single estimate is needed for how long buyers who move in today or in the near future can be expected to remain in their homes, the article recommends 13 years, based on the rounded average across all data points.
The article also shows that, over the 1987-2011 period, the expected length of stay in a single-family home has been consistently longer for trade-up buyers than for first-time buyers. Averaged over those years, the expected length of stay in a single-family home is about 11 and a half years for first-time buyers, compared to 15 years for buyers who have owned a home before.
The National Association of Realtors reported that the average tenure is still nine years in its recent 2012 Profile of Home Buyers and Sellers, up from six years before the housing crash in 2007, but the average buyers expectation is to live in theuir new home 15 years.
Though a number of critical questions face the US economy, from the unfinished business in Washington like the debt limit and spending cuts to lackluster growth, the outlook for mortgage rates is relatively predictable and not very exciting.
Rates will stay low, below 4 percent on a thirty-year fixed mortgage, predicts Bankrate.com senior financial analyst Greg McBride. Even the prospect that Congress might finally act on reforming the GSEs does not deter him from his view that the Fed will not abandon QE3 in light of the fragility of both the national economy and housing economies.
With Fannie and Freddie originating 90 percent of new mortgages, removing the government guarantee that helps make these loans possible would ruin the recovery. “Say what they want about ending the GSEs, it’s not going to happen,” said McBride.
Nor does he see significant changes in lending standards that many claim are making it too difficult for first-time buyers to get financing. “Today’s median FICO of 750 and other financial qualifications are not insurmountable to young buyers with low debt and good jobs.” he said.
“Lukewarm jobs reports of 155,000 to 160,000 new jobs are not enough. We need to see job growth twice that size before the Fed should even think about changing its policies,” he said.
This week on Bankrate.com’s Rate Trend Index, 55 percent of the panelists believe mortgage rates will rise over the next week or so, 27 percent think rates will fall, and 18 percent believe rates will remain relatively unchanged (plus or minus 2 basis points).
Bankrate.com surveys experts in the mortgage field to see if they believe mortgage rates will rise, fall or remain relatively unchanged. The panel is comprised of mortgage bankers, mortgage brokers and other industry experts who provide residential first mortgages to consumers.
Home prices are overvalued and price growth is not being driven by fundamentals but by technical factors that could easily change, advised Fitch Ratings Friday. The ratings service believes national prices are 10 percent overvalued, but will likely drop by no more than 2 percent due to inflation. Low prevailing mortgage rates, the limited supply of existing homes for sale (either due to the few foreclosure completions or the number of underwater borrowers who cannot sell), and the anemic levels of new home construction are facilitating affordability and feeding demand. They are also offsetting weak fundamentals like unemployment, low wage growth, Fitch said in a special report. In addition, Fitch stated it believes price movement is “highly dependent on the pace of distressed sales and liquidations.” For example, states such as Michigan, Arizona, and Georgia have been able to dispose of their distressed inventory quickly and have also seen “both steeper drops and quicker stabilization,” while states with long foreclosure timelines-New York, New Jersey, and Connecticut-may see price declines. In order to determine sustainability, Fitch conducted an analysis using its Sustainable Home Price (SHP) model. The ratings agency found 22 metros out of 41 are currently “undervalued” or “sustainable,” while five were categorized as “overvalued” by 5 to 10 percent. In 2010, 23 metro areas were overvalued by 10 to 25 percent. The report highlighted hardest hit metros such as Phoenix, Atlanta, and Riverside, noting they are now beginning to recover and are currently considered “undervalued.” New York and New Jersey, though, were categorized as overvalued by 10 percent to 15 percent, hindered by their large inventory of distressed properties and long foreclosure timelines, according to Fitch. And, high unemployment could hurt Los Angeles and Union, New Jersey and lead to a roughly 10 percent decline. On a national level, Fitch said price growth “is likely to be muted or even modestly negative in the near-term as liquidation volumes increase and expand supply, particularly in the lengthy judicial states where inventory has been off the market.” Fitch warned “short-term price movements can be misleading when the impact of distressed properties has been withheld from the market.” “Many models place a high value on price momentum, which can skew long-term projections. Another factor differentiating our model from many in the market is that our projections are in real terms as opposed to nominal dollars,” said Stefan Hilts, director of Fitch Ratings.
North Salem 2012 Sales Up 76% – Prices drop 7.8% | RobReportBlog
North Salem NY Sales 2012 2011 46 Sales 26 76.92% UP $472,500.00 Median Price $512,500.00 7.80% DOWN $125,000.00 Low Price $147,500.00 $2,600,000.00 High Price $6,480,000.00 2762 Ave. Size 3545 $224.00 Ave. Price/foot $280.00 238 Ave. DOM 244 93.04% Ave. Sold/Ask 92.66% $639,674.00 Ave. Sold Price $1,188,035.00
In the next stage of the “fiscal cliff” fight — news outlets are already calling it the “debt ceiling fight,” though the White House would probably prefer to think of it as a sequester fight — the debate will essentially boil down to two questions: What kind of entitlement and spending cuts will Republicans be demanding? And will Democrats manage to get revenue on the table? On the Sunday morning shows, leaders from both parties laid down their opening positions.
The challenge for the Democrats will be to make the case that changes to the tax code shouldn’t stop with the George W. Bush tax cuts, which they’ve so monolithically focused on in the lead-up to Dec. 31. On Sunday, CNN’s Candy Crowley challenged Sen. Dick Durbin (D-Ill.) to answer whether he thought “that taxes have been raised enough on the wealthy.” Durbin’s response was revealing: Rather than focus directly on the tax treatment of the wealthiest, he framed the need for more tax revenue in terms of broader “tax reform” to get rid of loopholes and deductions, eluding to the need to eliminate tax breaks for the “1 percent”:
I can tell you that there are still deductions, credits, special treatments under the tax code which ought to be looked at very carefully. We forgo about $1.2 trillion a year in the tax code, money that otherwise would go to the government, and when you look closely, some of those things are near and dear to us individually and to the economy — the mortgage interest deduction, charitable deductions, deductions for state and local taxes, but beyond that, trust me, there are plenty of things within that tax code, these loopholes where people can park their money in some island offshore and not pay taxes, these are things that need to be closed. We can do that and use the money to reduce the deficit.
Durbin, in essence, outlined the Democratic strategy for the next round of the “fiscal cliff” debate: Find revenue to offset the sequester by promising to get rid of “loopholes” in the tax code, framed as common-sense tax reform. (Tax policy experts Len Burman and Joel Slemrod have some ideas about where to start.)
The recent outcry over the corporate tax giveaways in the recent “fiscal cliff” deal could help them make the case for finding more revenue, as Durbin suggested (though the White House’s promise for revenue-neutral corporate reform could complicate matters). “Max Baucus has been the first to say we need to sit down and look at these,” he said. “And who knows who represents the algae lobby on Capitol Hill, but they must have been very happy with the outcome.”
However, Republicans have made their opening position as clear as well: They believe the debate over tax revenue has been closed altogether. “The tax issue is behind us. Now, the question is what are we going to do about the real problem. … Now it’s time to pivot and turn to the real issue, which is our spending addiction,” Senate Minority Leader Mitch McConnell told ABC News’s George Stephanopoulos.
Last week, in a post titled “Secrets of the Fiscal Cliff,” I set about identifying six of the lesser publicized tax aspects of the American Taxpayer Relief Act of 2012 (ATRA). In the final item, I wrote the following:
Ask a C corporation shareholder why he hasn’t converted to an S corporation, and the most common response is “the built-in-gains tax.” As a reminder, the built-in-gains tax prevents a C corporation from circumventing double taxation by converting to an S corporation and then immediately selling its assets or liquidating. In simple terms, it does so by requiring an S corporation to pay corporate level tax on any gains that were inherent in the assets of the S corporation on the date of the election and that are recognized within the first 10 years after the S election is effective.
Recent law changes, however, have provided for truncated recognition periods for existing S corporation that have reached certain landmarks in their 10-year period. For example, the 2009 Recovery Act provided that for S corporation tax years beginning in 2009 and 2010, no tax would be imposed on the net unrecognized built-in gain of an S corporation if the seventh tax year in the recognition period preceded the 2009 and 2010 tax years.
Note, however, that these law changes merely abbreviated the recognition period for certain existing S corporations that have already begun their recognition periods. For newly electing S corporations, the recognition period has always remained 10 years. Until now. The fiscal cliff deal surprisingly calls for only a 5-year recognition period for corporations that elect S status in 2012 or 2013.
I reached this conclusion based on the language of Section 326 of the ATRA, which reads:
EXTENSION OF REDUCTION IN S-CORPORATION RECOGNITION PERIOD FOR BUILT-IN GAINS TAX.
IN GENERAL.—Paragraph (7) of section 1374(d) is amended by inserting after subparagraph (B) the following new subparagraph:
(C) SPECIAL RULE FOR 2012 AND 2013.—For purposes of determining the net recognized built-in gain for taxable years beginning in 2012 or 2013, subparagraphs (A) and (D) shall be applied by substituting ‘5-year’ for ‘10-year’.’’
For a point of reference, pre-ATRA Section 1374(d)(7)(A) read:
(7) Recognition period.
(A) In general. The term “recognition period” means the 10-year period beginning with the 1st day of the 1st taxable year for which the corporation was an S corporation.
Putting it all together, I concluded that Section 326 of the ATRA provided a different type of relief from previous amendments to Section 1374. The fiscal cliff deal, it appeared to me, was abbreviating the typical 10-year recognition period for newly electing S corporations in 2012 and 2013 on a prospective basis. Why did I reach this conclusion, particularly in light of the fact that previous amendments to the recognition period had all been made on a retroactive basis?
For starters, the previous changes to Section 1374(d)(7) used very specific language to indicate the effect of a truncated recognition period. Consider Section 1374(d)(7)(B), which was added in 2009:
(B) Special rules for 2009, 2010, and 2011. No tax shall be imposed on the net recognized built-in gain of an S corporation—
(i) in the case of any taxable year beginning in 2009 or 2010, if the 7th taxable year in the recognition period preceded such taxable year, or
(ii) in the case of any taxable year beginning in 2011, if the 5th year in the recognition period preceded such taxable year.
Looking at it logically, I assumed that if Congress intended Section 326 of the ATRA to simply exclude from built-in-gains any gain recognized in 2012 or 2013 by an S corporation that had reached the five-year point in its recognition period, it would have written the proposed Section 1374(d)(7)(C) in the same manner as Section 1374(d)(7)(B). More to the point, Congress could have avoided adding a new subparagraph and simply amended Section 1374(d)(7)(B)(ii) by adding 2012 and 2013.
Adding a differently worded new subparagraph didn’t make sense, which is why I concluded that the language of new Section 1374(d)(7)(C) was meant to accomplish something else: to shorten the recognition period to five years for corporations electing S status in 2012 or 2013.
But over the weekend, something gave me pause, and it wasn’t just the fact that such an approach would be a departure from previous Congressional motives; it was the language of the title to Section 326 of the ATRA. As indicated above, it reads:
EXTENSION OF REDUCTION IN S-CORPORATION RECOGNITION PERIOD FOR BUILT-IN GAINS TAX.