Young Homebuyers Face a Shortage of Good Schools for their Kids
One effect of the U.S. housing market crash was to cripple homebuilders and their lenders, forcing construction workers to find jobs in other fields. Today, homebuyers have returned to the market in full force, but the lack of new construction over the last decade has contributed to an inventory shortage that is pushed home prices out of reach for many. Now, the same young homebuyers who must cope with bidding wars to buy a first home may face a shortage in another key resource: schools for their kids.
State and local governments spent $12.6 billion on elementary school construction in 2016, according to Census Bureau data—the highest amount in six years, but a 31% decrease compared with 2008, even before adjusting for inflation. Meanwhile, while construction spending has plummeted, enrollment has increased by 4%.
Most funding for school construction comes from local governments, said Alex Donahue, deputy director for policy and research at the 21st Century School Fund, a Washington-based nonprofit. With local finances continuing to suffer years after the collapse, there is less money for school funding in general, and facilities upgrades in particular. “Spending declined during the recession mainly because 80 percent of that spending is local dollars, and the local governments didn’t have the money,” Donahue said.
The shortfalls were compounded by state and federal funding cuts to education. Thirty-five states provided less total funding per student for primary and secondary education in 2014 than they did in 2008, according to a report last year from the Center for Budget and Policy Priorities (CBPP) that covers the most recent available data. Those cutbacks were driven by lower income and payroll tax revenue during the recession. Rather than raise taxes—an increasingly suicidal political option despite infrastructure needs—states sought to close budget shortfalls by reducing spending. Those cuts placed a greater burden on local governments to pay for total education funding at a time when their ability to raise property tax revenue—an important source of school funding—was impaired by plummeting home values. Budget shortfalls forced school systems to defer maintenance on existing facilities and put off building new ones, said Elizabeth McNichol, a senior fellow at CBPP.
Compounding the problem, McNichol said, state and local governments have become more hesitant to borrow money, viewing the assumption of debt as being just as politically untenable as tax hikes. “It doesn’t really make sense at times when there’s low interest rates,” she said. “They’re missing a chance to catch up. Debt has become a dirty word.”
Nationally, public schools need an additional $46 billion annually to maintain and update existing buildings and pay for new facilities, according to a 2016 report from the 21st Century School Fund. Only three states—Georgia, Florida, and Texas—exceeded the minimum capital construction and maintenance spending levels needed to uphold basic standards. Eighteen states spent less than 60% of the amount needed.
Meanwhile, because school funding is often driven by property tax revenue, the shortfalls expressed in the chart above are not distributed equally. A decade after the U.S. housing market began to implode, just 1 in 3 homes has recovered peak value, according to a recent study by Trulia. Quality of local schools, meanwhile, has long been a key selling point for house hunters—part of a feedback loop that helps rich school districts get richer. “If there’s a period of under-investment, particularly in places that haven’t recovered yet, that has implications for subsequent generations,” said Ralph McLaughlin, chief economist at Trulia. “That potentially is widening income equality for the next generation.”
Citations
- https://bloom.bg/2qzpOr8 Bloomberg
- http://bit.ly/1T6e2ge – National Council on School Facilities
Volvo Hints it will Move from Diesel to Electric Engines
Swedish carmaker Volvo’s latest generation of diesel engines could be its last as the cost of reducing emissions of nitrogen oxide is becoming too much, Chief Executive Hakan Samuelsson was quoted as saying recently. “From today’s perspective, we will not develop any more new generation diesel engines,” Samuelsson told German’s Frankfurter Allgemeine Zeitung (FAZ) in an interview. However, a Volvo Cars spokesman said Samuelsson had been discussing options rather than a firm plan to stop the further development of diesel engines.
Samuelsson later said, in a statement emailed to Reuters, that he believed diesel would still play a crucial role in the next few years in helping the company meet targets to reduce emissions of carbon dioxide, being more fuel-efficient than petrol engines. “We have just launched a brand new generation of petrol and diesel engines, highlighting our commitment to this technology. As a result, a decision on the development of a new generation of diesel engines is not required,” he said.
In the FAZ interview Samuelsson said Volvo would continue improving the current range, first introduced in 2013, to meet future emissions standards, with production likely to go on until about 2023. And until 2020 he said diesel would be needed to help meet carbon dioxide emission limits set by the European Union, but after that other regulations would come into play, with the costs of making engines compliant with ever higher anti-pollution standards meaning it would no longer be worth it.
Instead, Volvo will invest in the electric and hybrid cars, with its first pure electric model due on the market in 2019. “We have to recognize that Tesla has managed to offer such a car for which people are lining up. In this area, there should also be space for us, with high quality and attractive design,” Samuelsson said.
Samuelsson has previously said that tighter emissions rules will push up the price of cars with diesel engines to the point where plug-in hybrids will become an attractive alternative. The average carbon dioxide emissions limit for European carmakers’ fleets will need to fall from 130 grams per kilometer to 95 grams in 2021, forcing them to invest more in exhaust emissions technology.
Diesel cars account for over 50% of all new registrations in Europe, making the region by far the world’s biggest diesel market. Volvo, owned by China’s Geely, sells 90% of its XC 90 off-roader vehicles in Europe with diesel engines. The scandal over Volkwagen’s cheating of U.S. environmental tests to mask emissions of nitrogen oxides, which can cause or aggravate respiratory disease, means manufacturers are facing intense scrutiny over the true level of pollutants being emitted by their cars. In 2015 alone, over 38,000 premature deaths were linked to these pollutants. Contributing to that grim statistic is not something Volvo, with its impressive reputation for safety, wants to do.
Goldman Sachs believes a regulatory crackdown could add $325 per engine to diesel costs that are already some $1,408 above their petrol-powered equivalents, as carmakers race to bring real nitrogen oxide emissions closer to their much lower test-bench scores.
Citations
- http://for.tn/2pU6S83 – Fortune
- http://bit.ly/2qFlOEg – ARS Technica
The Good News Is . . .
- American industry expanded production last month at the fastest pace in more than three years as manufacturers and mines recovered from a March downturn. The Federal Reserve said that U.S. industrial production at factories, mines, and utilities rose 1% in April from March, its biggest gain since February 2014. Factory production rose 1% after declining 0.4% in March. Mine production increased 1.2% after falling 0.4% in March. And utility output rose 0.7% in April. It appears that manufacturing has recovered from a rough patch in late 2015 and early 2016 caused by cutbacks in the energy industry and a strong dollar, which makes U.S. goods costlier in foreign markets.
- John Deere & Co., a leading manufacturer of agricultural equipment, reported earnings of $2.49 per share, an increase of 59.6% over year-earlier earnings of $1.56 per share. The firm’s earnings topped the consensus estimate of analysts by $0.79. The company reported revenues of $8.29 billion, an increase of 16.6%. Management attributed the results to increased demand for is farm machinery products, particularly in the South American market.
- Already the largest owner of local television stations in the United States, Sinclair Broadcast Group announced that it has agreed to buy Tribune Media for $3.9 billion, beating out other suitors including Nexstar and 21st Century Fox. With the deal, Sinclair would reach more than 70% of American households, with stations in many major markets, including Chicago, Los Angeles and New York, giving it significant heft at a time of increasing consolidation in the industry. The acquisition would also provide Sinclair with a far-reaching platform for its news programming. A Pew Research study last year showed that almost 60% of adults get their news from television, and of those, almost 50% rely on local stations. Under the agreement, Sinclair will pay $35 a share in cash and 0.23 of one of its class A shares.
Citations
- http://bit.ly/2qGCBqs – Federal Reserve
- http://cnb.cx/2lwnm3s – CNBC
- http://bit.ly/2pUcFdD – John Deere & Co.
- http://nyti.ms/2qAcMK1 – NY Times Dealbook
Planning Tips
Tips for Rebalancing Your Portfolio
A willingness to rebalance an investment portfolio—to buy and sell investments at regular intervals in a way that keeps your intended asset allocation in place—can be a cornerstone of investing success. Everyone wants to sell high and buy low, and that is exactly what rebalancing helps you do. And yet, many investors struggle with portfolio rebalancing because they find it difficult and time consuming. Below are some tips to help you better understand portfolio rebalancing. Be sure to consult with your financial advisor to determine whether portfolio rebalancing is appropriate for your situation, and the best methods to use.
Pick a rebalancing method and stick to it – One approach to rebalancing is to do so at some regular interval – e.g., quarterly, semi-annually or once a year. You should try to strike a good balance between locking in profits proactively, and minimizing possible tax and trading costs. You probably should rebalance at least annually. Another approach is to ignore the calendar and simply rebalance whenever your portfolio strays significantly from its asset allocation targets, or when market volatility is great. Whichever method you choose, the key is to stick with the plan. Rebalancing requires discipline. It is too easy to tell yourself, ‘This market is too good, so I won’t rebalance this month.’ That is usually when you should do it.
Keep your portfolio simple – Restricting investments to a handful of well-diversified funds can reduce the complexity of rebalancing. The more holdings you have, the more difficult rebalancing becomes. As an example of a simple model is Vanguard’s LifeStrategy funds, which divide investments into just 4 funds: domestic and international total market funds, and domestic and international total bond funds. Another way to simplify your portfolio is to consolidate all holdings with a single financial services provider. Keeping a bigger balance with a single provider also may qualify you for a reduction in fees, and it is much easier to identify overall actual performance when assets are held in 1 place.
Consider tax implications – Before rebalancing, consider taxes, transaction fees and other costs. Otherwise, you may unnecessarily diminish your returns. For example, if you rebalance in a taxable account, you may owe capital gains taxes on any profit. For that reason, it often makes sense to rebalance inside a nontaxable account, such as an IRA or 401(k). For taxable accounts, generally limit rebalancing to just over 12 months to take advantage of long-term capital gains rather than being penalized with short-term gains. The latter are taxed at ordinary rates, currently as high as 39.6%, while long-term gains are capped at 20%. However, tax concerns should not prevent you from rebalancing. Over time, the value of keeping your asset allocation on target likely will outweigh the benefit of keeping taxes low.
Accept that you may miss out on returns – One of the toughest realities for investors to accept is that portfolio rebalancing sometimes will hurt their returns. Rebalancing can reduce performance, especially in the short run. For example, you may sell stocks as the market is climbing, only to see shares continue to climb afterward. But remember that rebalancing is not designed to maximize returns. Instead, it is intended to serve as a risk-reduction tool that keeps your asset allocation on track. Investors often make the mistake of rebalancing the wrong way by chasing hot investments. Instead of selling what is up and buying what is down, they often do the opposite, to their great detriment. Rebalancing is difficult for many investors because it is inherently “contrarian” in that you are selling high performing assets and buying lower performing assets. During a strong market rally, rebalancing will limit your gains. The key advantage is that it also limits your losses and forces you to add to the things that will protect your capital when the rally goes bust.
Rebalancing without the hard decisions – If you are struggling to sell winners and buy lower performing securities, remember that it is likely to pay off over the long haul. Rebalancing helps take gains out of riskier assets when they are up, and keep those gains when the market drops. If you just cannot bear the idea of selling higher performing assets, you might want to consider an index-based allocation or target-date fund to avoid having to make those decisions yourself. That will be done for you automatically.
Citations
- http://bit.ly/2qA4MbS – GetRichSlowly.com
- http://cnb.cx/2pUvpcY – CNBC
- http://bit.ly/2rABDer – Bankrate.com
- https://usat.ly/2rn9vPI – USA Today
- http://bit.ly/2pUvOfH – Kiplinger
