Ready to Jump Ship? Wait! Know Your Real Friends!

You are a superstar. You have a few years of quality post-graduation experience under your belt. But you are not the laid-back kind; you want a lot more from your talent, leveraging your background in advanced Applied Math. Lately, you have spent many evenings and weekends working on a super-duper scientific application that will standardize and harmonize humans' food habits across all significant primary cultures and around the globe. You have also concluded the person inventing the applied science leading to humans' classic cuisine will be the first trillionaire. Granted, the vast majority of the current billionaires will agree with you, perhaps regretting that they took a much safer IT route. The good news is, they are now way too involved in their business to compete with you anymore.

Now that you have decided to quit your job and give your concept a full-time go, you should finally know who your real friends are at your workplace. You can apply the same logic to your previous workplaces too. Meanwhile, don't make too much splash until you patent your know-how, including the algorithm. This chapter is not about making a value judgment about whether you are (financially) ready to leap; instead, this is offered to help you understand who your real friends are.

When you are part of the system, you are always under the impression that the people around you are all your friends. Not really! Now is the time you will figure out who your real friends are. Given your near-perfect IQ, you will see that there are four emerging groups. The first two groups comprise the largest population, followed by the two much smaller ones. The fourth emerging group includes a handful, perhaps fewer.

Okay, let's end the suspense!

Group 1: Those who have been Encouraging you to become an Entrepreneur – These are the folks who have been encouraging you to become an entrepreneur by constantly reminding you, "You are too brilliant to waste your life here." These are generally the most ordinary people who are threatened by your presence. That is an essential characteristic of the average at workplaces. They do not like the presence of a superstar so they tend to fake up in their minds that their performance is continually being compared with yours, though you know it quite well that that's never been the case. It's the other way around: Your presence not only protects them but helps them improve their overall efficiency level. Now that they know you are on your way out, they are incredibly relieved, perhaps ending their worst nightmares. Wherever you meet them – by the watercolor, at the lunch table, in the elevator, etc. – they will congratulate you, not once or twice, but over and over again. These folks are neither your friends nor your well-wishers. Of course, you will expect the same from an over-rated boss and average peers, often broadening this group's base. In the end, you will be inundated with their contact information. You have to write them off and toss their info on to the first trash can outside your office building. Try not to use such average bosses and peers as references as they often go on a mindless rant confusing the counterparty.

Group 2: Those who are Openly Congratulating You – Invariably, this will be the largest group. These are also very ordinary people who, deep down, are either very uncomfortable or are moderately threatened by your presence. While these folks will not directly encourage you to leave, your resignation will be welcome news. They do not like a superstar's presence either, but they tend to be less aggressive and proactive in getting rid of a superstar than the prior group. Of course, they will also congratulate you every day upon face-to-face encounters until you leave. This group will also take the maximum initiative in arranging your farewell party (and what not), which has nothing to do with any gratitude or respect for your contribution to their general upliftment but to celebrate their final liberation from their hysterical mindset. Needless to say, while the last group is more like your enemy, this group is neither your friend nor your well-wisher. Again, you will be inundated with their contact information. Just toss them.

You will still hear from these two groups initially (as the free hand-holding suddenly ends) but not for too long. After your departure, departmental expectations will take a nosedive, paving the way for their favorite consultants and vendors to return and take over. Of course, your departure will make these outsiders as ecstatic as their inside counterparts. The lost paradise has been regained. Happy days are here again!

Group 3: Those who are trying to talk you out of it – While this tends to be a small group of smart people, they are not yet fully convinced that you are ready for the plunge. They are worried that it's premature, and you might be in severe financial trouble down the road. These folks will usually convince you to defer the departure until you line up some financing as an alternative way of validating your concept. Some will even mobilize their successful contacts and arrange for you to meet them to retest your overarching self-belief. Out of the deep sadness of losing an outstanding employee and a great mentor, they won't be too forthcoming with their contact information. In fact, until the last day, they will remain optimistic that there could be a change of heart. Either way, these are your good friends and stay in touch. They will be calling you from time to time, expecting exponentially-growing good news from you, and they will always be proud of your achievements. That's how the generous hearts bind into a larger than life group.

Group 4: Those who are Talking to your Boss to Hold You Back – A handful of people, often fewer, in your department will be frantically chasing and trying to talk to your boss to hold you somehow back. Unlike Group 3, these people are not only concerned about your well-being, but they are also profoundly alarmed at the thought that the department would be losing its hero. Sometimes they go this extra mile by risking their future. Case in point: When the boss is of the average kind, he would love to see you leave, heaving a big sigh of relief. When these folks approach such a boss with this plea, they unknowingly jeopardize or sacrifice their future. Of course, to them, the overall good is a lot more important than their future. It is part and parcel of their nature so that they will repeat it all through their lives. These are generally the future superstars too.

Have you ever wondered why the above-average folks are so much more successful at workplaces than the genuinely brilliant ones? The above-average ones follow the proven format while the genuinely brilliant ones could care less, usually walking away from the herd. Anyway, these are your best friends. They are very few and far between. In poor counties, people even sell blood to bail out their best friends.

From now on, your paycheck stops, so stay focused and stick to your mission. You will soon be there. When you become the first trillionaire, remember some of your friends perhaps silently sacrificed their future to see you become successful.

For now, know who your real friends are!

-Sid Som, MBA, MIM

homequant@gmail.com

Link to the Book

Are You a Future Superstar? Take the Test!

Save the obvious: You aced the SAT and GMAT, graduated from Ivy, completed a top MBA program, and joined a Dow component. Despite these astounding achievements, you are not a superstar -- yet. Just being brilliant does not make you a superstar. Let's put it this way: It is necessary but isn't sufficient. Only a tiny percent of brilliant minds go on to be recognized as true superstars. To be a superstar, you must uniquely and spontaneously rise above the smart peers, with a higher persona and more humane qualities. So, what are those other qualities?

1. They Protect and Promote Staff and Peers – Superstars are some of the most selfless leaders, always putting the interests of staff members and peers ahead of their own. Protecting and promoting others is not only their second nature, but they also go the extra mile in doing so. Atop, they achieve all this quietly and consistently, without letting anyone know that they are so selfless in taking care of their immediate environment. As a kid, I was confused about something, so I sought my mom's advice. Her spontaneous reaction was, "Son, whatever you do, always think of others first. If you act that way, you will never have to worry about yourself; God will always take care of you." That's the universal mantra all superstars subscribe to.

2. They are Very Humble, Pleasant, and Soft-spoken – Superstars tend to be incredibly humble, delightfully pleasant, and esthetically soft-spoken. Though the departments or agencies they lead invariably outperform all others, it is beneath their dignity to ever brag about it or take any personal credit for their achievements. They generally give full credit to their staff, or a collective effort, at best. Of course, the evil folks around them interpret these great virtues as signs of weakness. It's always the average and overrated that tends to be a snob and arrogant. On the other hand, superstars are like saints and are uniquely qualified to smile away all evil stimuli. 

3. They are Least Confrontational, moving on when the environment becomes Intolerant – Superstars are usually the least aggressive and mostly the low-key kind. They never waste time and energy on meaningless or greed-filled confrontations and exercises. On the contrary, they are incredibly smooth operators, uplifting the environment with exceptional intellectual faculty and superior emotional stability. As they know their mission all too well, they rarely stick to one job for too long. Despite conventional wisdom, they move on for newer and more significant challenges when they realize they do not have much more to contribute to that environment. Alternatively, when they face intolerant environments (e.g., psycho boss, confrontational peers, unmanageable staff, hostile labor unions, etc.), they move on, knowing very well that there is a better home elsewhere. Money, power, and prominence do not entice them. Contributing to the highest level is the sole mission of their existence.

4. Steve Jobs' Manpower Plan is tailor-made for them -- Steve Jobs (RIP) used to say, "It does not make sense to hire smart people and then tell them what to do. We hire smart people to tell us what to do." In other words, great institutions hire the best and let them work on their choosing projects, thus allowing them to maximize contributions to the business objective. Superstars always look for such flexible environments, with adaptable supervisors. They do not enjoy environments where they have to take instructions from the second-rate supervisors frequently. As they get started, they quickly learn and understand the big picture, figuring out where they could be most productive and contribute optimally. A fantastic operations manager is a great employee, but not a superstar. A superstar is an original thinker, a consistent enterprise-level solutions provider, a selfless team player, and a passionate protector. They love what they do. 

5. They Prove their Vision in important Management Meetings – While superstars tend to be low-key, they take control of the critical management meetings, ensuring that their vision sets the agenda. This is not a selfish act; this is done to educate the attending senior management of the availability of the forward-looking plan that aligns more effectively with the corporate objective than the erstwhile program often promoted by the incompetent supervisors (in place due to political appointments, nepotism, favoritism, quotas, etc.) to maintain the status quo and control. When the unfit steals the limelight, the irrelevant agenda disparages the big picture, denigrating the greater good and weakening its power. Superstars' DNA forces them to fight tooth and nail to strengthen the institution and not undermine it. 

6. To them, quality is everything – Their lives revolve around quality, leaving the quantity to the great employees. So, they carefully research and join environments that continually emphasize and consistently promote quality ahead of quantity. Steve Jobs used to say, "One home run is much better than two doubles." Many brilliant minds dilute themselves by trying to strike a balance between quality and quantity. Fortunately, the budding superstars figure out from the get-go that they are mutually exclusive, so they learn to focus on quality, i.e., research and innovation. To entice and hire the superstars, the great visionary entrepreneurs offer disruptive opportunities leading to world-class creativity and innovations, coupled with an unrestricted domain of flexibility with the power of decision-making -- the two elements that helped fashion the great institutions like Apple, Google, and others.

7. They Know the Importance of Time in Professional Life and how to Manage it Optimally – This is one area where the superstars beat the other brilliant minds. Superstars come to terms that time is the most precious thing in professional life, so they learn to utilize every moment of it efficiently. Their inherent aversion for arrogance teaches them to accept mistakes honestly, making it part and parcel of their professional learning and growth, which helps them grow into natural perfectionists. In a way, superstars' lives closely resemble those of the cake decorating champions who never fail to complete their masterpieces on time, every time. Whether they are decorating the next masterpiece or working on applying more intelligence to the Rover on Mars to seek out water under the surface, they are continually monitoring and managing time, with utmost precision and respect, considering how brief the human life span is and where time waits for none.

8. They believe that the Total is Greater than the Sum of the (Contributing) Parts – Superstars never waste time and energy looking at the glass as half full or as half empty; to them, it's always full. They know the sum-total of people's strengths far outweighs their weaknesses, so their management style is still strength-based. From their young life, they learn to figure out how to harness the power of an available resource pool to the max. As a result of their ever-positive attitude and outlook towards life and work, the departments or agencies they manage to perform incredibly efficiently, remaining consistently ahead of the competition. While the game evaluates each resource as a combination of strength and weakness, they look at resources as an all-strength event or a composite, which helps them deploy and utilize resources faster, more effectively, and often incredibly cheaply. 

9. They are Incredibly Efficient Budget Managers and Lead by Example – While the average and overrated perennially cry for an ever-expanding budget (that's the only thing they are good at!) to run from their incompetence, the superstars, on the other hand, continuously prove to the world the need for and the ultimate use of asset management. They are the living proof that when a group of ordinary people is placed under a great leader, it rocks -- just a matter of time. Of course, the flip side is equally valid. The reason some great institutions go down the tube is the poor leadership with bankrupt vision. On the way down, they keep pointing fingers at everyone and everything except themselves. Superstars never pass the buck. They also develop an excellent eye to seek out talent, putting them in charge of the key and strategic nodes to strengthen their departments or agencies, setting examples for others to follow. Setting and leading by example is inherent in them. But one will never hear them asking for a bigger budget or bragging about their performance. They are smooth and quiet operators.

The departure of a superstar often leaves behind a long-lasting vacuum that is rarely replaced. Evils drive them away. Fools rejoice after regaining their paradise. The smart ones share their fond memories for years, telling the world it was their once-in-a-lifetime privilege to have known and worked with a superstar.

Sid Som, MBA, MIM

homequant@gmail.com

Link to the Book

How Uninformed Media Adds to the Destruction of Property Tax Base

The analysis of Assessment Rolls of major Jurisdictions requires advanced technical training and quantitative knowledge. It's hilarious when a local staff reporter settles the score annually, with a lengthy and superficial article and the politicians run with it, silencing the unhappy taxpayers. And the cycle continues, year in and year out. A recent local newspaper article indicated that the percent error rates "of the five largest cities for which studies have been completed in the last two years...include New York at 17.6 percent, Chicago at 25.1 percent and Philadelphia at 20.2 percent. Houston’s error rate was 7 percent in its most recent study, and Phoenix’s was 8.1 percent." 

Though Automated Valuation Modeling ("AVM") was used to develop all of the above Assessment Rolls ("Roll"), the modeling error rates as indicated above (generally defined by the Coefficient of Dispersion or "COD" of the underlying AVM) are not comparable. 

While there are general AVM guidelines, they are not like the SAT or GRE. In fact, the development of AVMs is highly subjective, depending largely on the acumen of the in-house modeler(s) or the hired consultant. Since the actual models are not published, the re-validation of those model CODs, externally, is even more subjective and circular.  

So, why are the above CODs are not comparable? Here are the basic reasons:

1. Sales Validation -- All market AVMs are developed off of recent, arms-length sales. Thus, all sales have to be validated and then a random or a stratified random sample of arms-length sales serves as the modeling sample. Of course, there is no hard science behind the sales validation process. Therefore, if Jurisdiction X considers all of its border-line cases as arms-length, while Jurisdiction Y aggressively removes them from its identical universe, the resulting AVM of the former, ceteris paribus, will produce a higher COD than the latter's. Unfortunately, when the local reporters compare the competing CODs, they will have no idea as to how the sales were validated by the respective jurisdictions.

2. Sales Sampling -- From the universe of the validated arms-length sales, a sample properly representing the overall population is then derived. In fact, the sales sample must statistically "represent" the population, failing which the resulting AVM will be invalid, paving the way for a flawed Assessment Roll (statutorily, an Assessment Roll must be fair and equitable). Again, there is no hard and fast rule as to the extraction of the sales sample. If Jurisdiction X restricts the representative test to 1st-to-99th percentile range while Jurisdiction Y takes a more lax approach of 5th-to-95th percentile, the AVM of X, ceteris paribus, will have higher COD than Y's. Of course, the local reporters would not even know of this requirement, let alone performing the test.

3. Removal of Outliers -- As part of the model optimization, a set of outliers are systematically identified and removed. While there are various methods to identify and remove outliers, the (sales) ratio percentile range is a common one. Of course, some would use a very conservative range or approach while others (those who are obsessed with better stats, i.e., lower CODs) would be more aggressive. Ceteris paribus, the modeler who conservatively defines and removes outliers below the 1st percentile and above the 99th percentile range will have a much higher model COD than someone who aggressively removes all below the 5th and above the 95th percentile range. Case in point: Chicago's 25.1 vs. Houston's 7. Unfortunately, the local reporters would try to justify both – perhaps they already have, without even knowing the underlying modeling criteria as models are rarely published.

4. Sub-market Modeling -- Many modelers and consultants build their AVMs bottom-up, instead of the customary top-down. Here is an example of what a bottom-up modeling means: Let's say that the Roll is for the County as a whole, though the County comprises five Towns. Now, if the modeling takes place at the Town level (bottom-up), instead of at the customary County level (top-down), the average Town-wise CODs would be lower than the customary top-down modeling, despite the fact that the objective remains unchanged: To produce a fair and equitable County-wide Roll. The problem of this type of bottom-up modeling is that there will be significant noise along the Town lines, generating significant amount of inconsistent values. Of course, the rush-to-approve local reporters would never know any of this, as those models are rarely made public. They even disregard the FOIL requests by citing 3^rd party software copyright, etc.

5. Spatial Tests -- Irrespective of #4 above, publications of Town-wise results are not common. Again, while the County-wide COD could be compliant, the Town-wise CODs could be far apart. If Town-1 is highly urban (requiring complex modeling, hence higher COD) whereas Town-5 is highly suburban (involves easier modeling, hence much lower COD), the CODs are expected to be quite different. Of course, the modeling criteria (sales sampling, outliers, etc.) must remain uniform across all Towns. Absent publications of the actual models, taxpayer advocacy groups must, at least, insist on the CODs by major sub-markets (e.g., Towns), in addition to the system-wide COD. They must also insist on knowing if the modeling criteria were uniform across all of the major sub-markets. Of course, the local reporters vouching for the Rolls would confidently do so without even knowing how the modeling had taken place.
   

6. Equity Analysis -- A system-wide COD is just the beginning. It does not confirm that the Roll is fair and equitable. Let's assume that the reported COD is 15, which is compliant, a priori. Now, let's also assume that the unreported Town-wise average sales ratios range between 85 and 115. Since the Rolls tend to be regressive, it's highly likely that the 85 ratio would pertain to the richest Town in the County while the 115 would represent one of the middle-class Towns. In essence, the poor and middle-class neighborhoods perennially subsidize their rich counterparts. While the rich would make a lot of splash about their Roll values, they would be totally quiet when they sell their homes at twice the same Roll values. The average ratio of 85 does not mean that all homes in that Town are assessed strictly at or around that level. In fact, the 1st-to-99th range could be 70 to 100 (generally wider), while the Town with an average ratio of 115 could have a 1st-to-99th range of 100 to 130. Now, let's compare 70 to 75 with 125 to 130. The local reporters who boldly confirm the Rolls would be clueless about this regressivity. 

7. Data Maintenance -- Intra (i.e., within the Jurisdiction) comparison: Sales are dressed and staged so the sale data are inherently cleaner and more up-to-date than the unsold property data, thereby producing lower CODs for the modeling sample. Also, the sold parcels with data inconsistencies fall off by way of model outliers, simply to resurface upon application of the model on to the population. It's a classic hide and seek, unless those data errors are heeded to before the model application. Of course, nobody knows what happens behind the curtain. Generally, the local MLS plays a big role in (indirectly) forcing the Jurisdiction to keep the sale data up-to-date (obviously, sale data are easy picking by the media and other interested groups). Inter (i.e., across Jurisdictions) comparison: Two adjoining Jurisdictions may have vastly different outlooks in terms of managing the population data. One may be very proactive while the other may be reactive, at best. Ceteris paribus, the lot fraction defective of the former Roll would be significantly lower, generating far fewer tax appeals (a good metric to follow) than the latter's. Again, the local reporters confirming those Rolls would be clueless of these competing scenarios.

8. Model Testing -- The modelers and consultants who apply their draft models on to the mutually exclusive hold-out samples, ceteris paribus, will have more sound and reliable Rolls than those who tend to skip this extremely important modeling step. This step helps identify the errors and inconsistencies - from sample selection to outliers to optimization to spatial ratios and CODs - in draft models, often to the extent that they get sent back and are reworked from square one. The hold-out sample must have the same attributes of the modeling sample (and, in turn, of the population) so this test is one of the most established ways to finalize a model, leading to its successful application. Again, the Jurisdiction that methodically performs this step produces a more sound and reliable Roll, with potentially far fewer tax appeals than its counterpart that boldly skips it. Of course, the local reporters confirming these Rolls would not know any of these important details.

9. Forward Sales Ratio Study -- A forward sales ratio study would be an ideal way to begin the Roll investigation process. For example, if the Roll was developed off of 2018 calendar year sales, it could be tested against a set of forward sales ratios (comprising validated Q1/Q2-2019 sales, etc.). In order to bolster the forward sales sample, seasoned listings could also be added. The forward sales ratio test, when time-adjusted back to the valuation date, must produce results that closely parallel that of the published Roll. Therefore, before rushing to hire expensive consultants, the taxpayer advocacy groups should consider hiring local analysts to compile forward sales samples and run the ratio tests. The results must then be studied multi-dimensionally, meaning by major sub-markets, value ranges, non-waterfront vs. waterfront, Non-GIS vs. GIS, etc. If the results turn out very different, a challenger AVM is in order. At that point, instead of hiring some from the universe of so-called industry experts (who would not shoot themselves in the foot), an outside economic consulting firm would be preferable as that firm would provide real analysis along with a coordinated strategic action plan.   

So, what is the solution? In order to minimize the damage done by the low-knowledge local reporters who rush to confirm the Roll (to please the ruling party or whatever), the taxpayer advocacy groups must present their critical viewpoints via op-eds in competing papers and magazines.

No wonder, the well-respected billionaire businessmen like Warren Buffett and Sam Zell have written the print media off.

- Sid Som, MBA, MIM

President, Homequant, Inc.

homequant@gmail.com

Link to the Book

Replacing Property Taxes with Middle-Class friendly Progressive Consumption Taxes

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.

- Sid Som, MBA, MIM

President, Homequant, Inc.

homequant@gmail.com

Link to the Book

How to Reduce Dependence on H-1B Foreign Workers

Studies show that almost 2 million H-1B visas have been distributed between 2000 and 2018. Here are some basic facts about the H-1B visa program:

a. The program was created by the Immigration Act of 1990

b. It allows employers to hire foreigners to work on a temporary basis, for up to 6 years, with two 3-year back-to-back stints

c. It allows foreigners to work in jobs that require highly specialized knowledge and a bachelor’s degree or higher.

d. Visas are awarded to employers on a first-come, first-served basis, with applications accepted each year beginning in April

e. If the number of applications exceeds the annual cap set by Congress (currently at 85,000) during the first five business days of April, visas are awarded through a lottery system

g. Though it's a temporary non-immigrant visa, many workers have been allowed to adjust to permanent status with green cards (adjustment data are unavailable).  

How to Steadily Reduce Dependence on H-1B Skilled Foreign Workers – A 5-Point Solution

1. Provide Corporations Significant Tax Benefits to Hire Local STEM Graduates – Instead of incentivizing the US corporations to hire more of H-1B workers, the federal government should allow them significant tax incentives to hire the local STEM (Science, Technology, Engineering and Math) graduates at the prevailing rate. This special tax incentive should last, say, up to five years (or the longevity of the employee, whichever comes first), thus vastly negating the incentive to hire foreign workers at a reduced rate. Of course, in order to neutralize the arbitrage (lower hiring rate vs. additional tax advantage), it must remain effective for the proposed tax incentive period (could be more or less). This tax incentive will also encourage the future STEM students, foreseeing a fast leveling playing field. Without this assurance, it would be difficult to entice local students to venture into the STEM field. Today, the qualified American workers are training their far-less qualified foreign counterparts to take their jobs. Hopefully, the tax incentive would force corporations to hire local STEMs while a renewed interest among future students would reinvigorate the field, the sum of which would reduce the dependence on H-1Bs.      

2. Introduce Higher Educational Qualifications for H-1B Applicants –

According to the 2018 Congressional mandate, 65,000 H-1B applicants need only bachelor's degrees while another 20,000 require master's or higher. Unfortunately, a bachelor's degree in SE Asia (which accounts for 80%+ applicants) is not equivalent to an US bachelor's. In order to effectively meet the US standard, Congress should consider transposing the degree requirements, meaning 65,000 applicants with master's+ and 20,000 with bachelor's. It makes no sense to displace a truly qualified American degree-holder with a much lesser qualified foreign degree-holder. That is why the replacement wages tend to be much lesser for foreign workers. Since H-1B is meant for the highly skilled foreign workers, Congress should gradually move to an all-master's+ requirement, at least leveling the playing field.

3. Until Higher Educational Requirements are Established, Congress must Insist on Degree Evaluation by ETS (and Other Entities) – While Congress debates on upping the ante on degree requirements, they must require that the foreign degrees are properly vetted and evaluated, a priori, by well-known education evaluation organizations like Educational Testing Service (ETS), thus forcing the sponsoring organizations to prove that their selected candidates, at least, satisfy the basic educational requirements. This simple yet independent step will surgically (identify and) disqualify many applicants from the export-oriented private schools as they will not meet the US degree requirements. Ideally, Congress must additionally require all applicants to pass a US-administered standardized test (good for 3 years), along the lines of Foreign Medical Graduates Exam (FMGE). Conversely, these requirements will work to the advantage of the truly qualified candidates as they will pre-qualify themselves (by getting their degrees evaluated and passing the exam in advance). Needless to say, the rouge employers will not be able to abuse the truly qualified workers either (by forcing them to work outside of the US labor laws, etc.).

4. Let the Sponsoring Companies Recruit Foreign Students Graduating from the Major US Universities First – Foreign students graduating from the major US Colleges and Universities are more valuable candidates for these unfilled jobs than their all-foreign counterparts. There are other advantages to this hiring approach too:

(a) No need for the equivalency assessment;

(b) Since the vast majority of them undergo internship or practical training in the US, they are already used to the requirements of the American workplace and work ethics;

(c) Graduates from the major US schools are at least as good as the best and brightest from foreign nations;

(d) They will command the prevailing wages, negating the aforesaid arbitrage that many sponsors have been trading on;

(e) Rouge sponsors will be discouraged;

(f) Will foster the enrollment of foreign student population, benefiting the US Schools;

(g) Better English proficiency (both verbal and written) and so forth.

5. Let the Annual H-1B Quotas Steadily Decline as we Promote STEM Education – If we switch to a merit-based immigration, H-1B will be a thing of the past. Whether that comes to pass or not, the rapid and aggressive promotion of STEM education here will help lower the quotas steadily. Hopefully, the current 85,000 level would decline by 10,000 annually, leading to a total phase-out in 8-9 years. In fact, if we are able to promote STEM education in keeping with the needs of the labor force, this phase-out could take place even sooner. Of course, the promotion (of the positives) of STEM education must start early in high school so the students are always in the know of the unrestricted domain of opportunity the STEM universe offers. 

The advantages of lessening the dependence on H-1B are numerous:

a) Producing thousands more of home-grown engineers, scientists and technologists (by far, the best on earth!) every year;

b) No need for a debate everyday whether the spouses of the H-1Bs must be given work permits or not;

c) Our politicians won't be able to convince us of the need to admit 85,000 (yes, per year!) foreign engineers and scientists at the expense of our own;

d) The Housing boom and the list can go on and on.

- Sid Som, MBA, MIM

President, Homequant, Inc.

homequant@gmail.com

Link to the Book

Local Governments should seriously Consider Outsourcing Non-essential Services

Most people I talk to still define outsourcing as “shipping out” services (hence, American jobs) to highly specialized companies in other countries, especially to the front-runners like China, India and Mexico. But that’s half the story. The other half of the story is that there are many great American companies that provide very similar services at very competitive rates.

Likewise, the local governments (counties, cities, towns, etc.) will do themselves a big favor if they start outsourcing some of their non-essential services to such great American companies, without having to worry about the data privacy or compromise of sensitive records, as they tend to have much better systems in place than the local governments can ever envision and implement. It will be win-win, meaning those government services would be more efficient while lessening the financial burden on the taxpayers. Let’s save the obvious: Before worrying about Unions, Civil Service, Labor Contracts, Collective Bargaining, etc., governments and legislative apparatus need to strengthen their will, believing ‘if there is a will, there is a way.’ Granted, it won’t be pretty or perfect to start with, but it will provide a start, the future of which will be brighter by the day.

Now, let’s differentiate between essential and non-essential services. First off, the outsourcing of essential services – law enforcement, public health, public schools, public transportations, public works, correction officers/prison guards, fire fighters, social services, sanitation, the office of management and budget, etc. – is strictly non-negotiable. While both essential and non-essential services are needed, in this day and age when better and faster services are demanded by the public, the need for agency’s direct involvement in providing non-essential services could however be independently studied and decided upon (i.e., the cost-benefit analysis of outsourcing vs. keeping the services in-house). Here are some non-essential services of local governments that would make good outsourcing candidates:

     1. Employee Benefits, Payroll and Time Processing – These are some of the most commonly outsourced functions in the private sector. While some small and mid-size local governments have already been outsourcing these functions, the large cities and counties are still far behind. These functions generally return the best bang for the buck when bundled across essential and non-essential services; for instance, there is hardly any difference between the processing of payrolls for law enforcement and that of the assessment office. Managing and processing of human resource components like payrolls, benefits, time, leave, talent, etc. go hand in hand, often inter-connected via the different modules of the same HRIS software, as well as a central customer service system with specialty units. ADP is perhaps the most well-known in this space.

     2. Sales Tax Collection and Processing – Many large counties and cities across the country levy additional sales taxes, charging local sales taxes on top of the usual state sales taxes. In addition to the local sales taxes, some of them have local income taxes, commercial rent taxes, sanitation taxes, water district taxes, etc. All of these taxes may be bundled and outsourced to companies specializing in this domain. In many local governments, these taxes are often managed and collected by separate units under different verticals altogether, thus wasting significant taxpayer dollars on redundant or inefficient services that could easily be grouped or combined. In a scenario like that, the outsourcing is the ideal way out, to avoid having to maintain them separately, without any additional return on such parallel and wasteful investments.     

     3. Property Data, Assessment and Tax Collection – This is the local juggernaut that needs serious considerations. In fact, if the counties need to just single out one function to begin the “outsourcing” experimentation, this obviously is the one – no two ways about it! As we all know, the local elections are often won or lost on the issue of property assessment alone. Unfortunately, after the winning party takes over, it reinvents the same losing experimentations, expecting different results. Of course, the only long-term solution to this age-old problem is the total abolishment of the existing property tax system and replacing it with a set of middle-class friendly progressive consumption taxes. Meanwhile, the mayors and county executives will hopefully understand the need for real (not make-shift) solutions to this age-old problem and start outsourcing it to quality economic consulting firms. In fact, the leading consulting firms like Accenture, Boston Consulting, Deloitte, EY, KPMG, McKinsey, PwC, etc. should seriously look into this emerging multi-billion dollar outsourcing business. It will be great for taxpayers as well, considering the kind of forward-looking solutions these firms will finally bring in. Taxpayer advocacy groups must also fight to have the full assessment umbrella outsourced, helping taxpayers get out of this unfair cycle they have been trapped in for a long, long time.

     4. Property Tax Appeals Review and Processing – In an effort to provide fair and independent review and processing of property tax appeals, both residential and commercial, almost all major jurisdictions have established separate bodies (departments, agencies, statutory commissions, etc.). In fact, some are larger (in headcount) than the vast majority of mid-size assessment offices. Since the day-to-day functioning of these bodies does not depend on the assessment office, they could easily be outsourced to economic consulting firms as well, eventually saving taxpayers a ton. Additionally, their AI-based expert system will do a much better job in introducing true fairness and equity in the appeals system. Their solution could then be ploughed back into the tax roll, forcing the assessment staff to improve the overall quality of future rolls. As long as the property assessment system is alive and ticking, the rapid introduction of AI-based solutions is the only meaningful way forward. And, that is possible with the direct outsourcing of the assessment review functions to major consulting firms.

     5. Information Technology (IT) and Help-Desk Services – This is the most common service in the private sector that gets outsourced to the specialized global players like Accenture, IBM, Capgemini, TCS, Infosys, etc. Local governments should also consider outsourcing these services to well-known companies, not only for efficiency, cost improvement and scalability but also for minimizing redundancy and duplications. In any case, whenever they need enterprise-level applications and solutions, they depend on outside vendors. Unfortunately, the applications they develop in-house are generally low quality and ad hoc. For example, in this age of modern technology, they still take pride in developing applications in MS-Access that their own IT does not support. This is a terrible use of taxpayer dollars. Even when the outside vendors are used, the RFPs are circulated within a very limited pool of vendors, that are rarely known for the world-class quality and service taxpayers would expect. Even within the local government, agencies are generally run mutually exclusively, generating significant amount of duplication of services. Outsourcing is the only way to address these inefficiencies and minimize the resulting wastefulness.

     6. Public Parking Maintenance and Traffic Ticket Processing – Private operators like Laz are already managing numerous public garages and surface lots for government agencies. Similarly, there are many private companies that help government process parking and traffic tickets. Considering the fact that these companies not only use cutting edge technologies, but they also continually upgrade them to remain competitive. Some of them also provide general (parking) building and lot maintenance services, and arrange for renovation and reconstruction services. Some companies even work with the Wall Street investment firms to help issue bonds and/or securitize the revenue streams. Therefore, the outsourcing of parking and traffic ticket processing services makes the system, on the whole, a lot more efficient, generating significant amount of savings for the government agencies over a period of time.

     7. Public Housing Maintenance and Rental Processing – In almost all major cities in this country there are (local government owned and operated) affordable public housing projects. For instance, the NYC Housing Authority provides housing for over 400,000 low and moderate income residents and employs over 13,000 employees. A number of their basic services like rent and application processing, building maintenance, safety and security, etc. could be outsourced. Additionally, it makes no economic sense to use the regular law enforcement personnel to provide the basic safety and security services for those facilities which, unfortunately, is quite common; in fact, outsourcing the security service to established private security firms would be just fine. Some of these government agencies even provide free vocational and financial education, job training, transportation, child/day care and a host of other subsidized services in partnership with other social service agencies and non-profit organizations, so those services could easily be outsourced as well. Of course, the same case can also be made for the maintenance of all office buildings owned and operated by local governments. 

     8. Public Parks and Recreation Facilities – Many parks and recreation facilities are within the jurisdiction of the local governments. They can either be leased to the private institutions or run as joint ventures with revenue-sharing agreements. Under the private auspices, these facilities will not only be better managed and run, but they will also free up the local governments of the on-going fixed overheads. Selling naming rights for those facilities, especially of the round-the-year recreational components like indoor swimming pools, skating rinks, bowling alleys, golf courses, marinas, etc., could also be viable revenue options. Land lease for future restaurants, food courts, 3D movie theatres, concert halls, science parks, miniature golf, Go Karts, etc. within popular parks are other revenue options.   

     9. Management of Shelters for Women and Children – Almost all major local governments operate shelters for women and children. Instead of having to rent from slum landlords and unsafe hotels and motels, government agencies should seriously consider working with quality private operators where the operators own and operate dedicated facilities – in line with the private adult homes – with better living conditions, safety, job training, day care, emotional therapy, transportation services, etc. It’s totally immoral to house these unfortunate women and children in poor and unsafe facilities. Of course, in addition to living and safety condition, the emphasis must also be on job training and education so these facilities continue to serve only as transitional facilities. It’s equally immoral to operate juvenile detention centers. Instead of building and operating such detention centers, governments must hire more social workers, school counselors and adolescent/family therapists, thereby creating long-term solutions to the growing juvenile issues. The reinvented juvenile functions could be outsourced as well. 

As we all know, labor unions are very powerful so they will fight tooth and nail to protect the status quo. By the same token, the new generation of local politicians must campaign and run on platforms that protect taxpayers from the ever-mounting tax burdens. They need to approach and market the outsourcing issue on humane grounds, walking down on the curve where the taxpayers are currently being the hardest-hit. Obviously, one of the most critical areas is the out-of-control property taxes that heavily favor the rich at the expense of the poor and middle-class, of whom the minorities and seniors suffer the most, often to the extent that they are ousted from their roots. Therefore, the umbrella of property assessment and taxes should be the mother of all outsourcing for local governments. 

The next on the queue should be the establishment of a central processing agency across the entire local government which will process the vast majority of services indicated above, thus removing the need for agency-wise duplication of expensive infrastructure, personnel and mutually exclusive processing. The advantage of having a central processing agency is that people could be cross-trained on variety of related processing, gradually ironing out the seasonal impact (seasonality) from the different services.

Again, unions are not going to be silent spectators but the concept of central processing (in-house) might be an easier sell than the outright outsourcing of other services to external institutions.

Now is the time to emancipate the maxed out taxpayers.

- Sid Som, MBA, MIM

President, Homequant, Inc.

homequant@gmail.com

Link to the Book