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COUNCIL HOLDS OFF ON DEVELOPMENT FEE INCREASES, FOR NOW

The Boulder City Council was preparing to act on proposed development fee increases, some approaching 100 percent, at its November 25, 2008 meeting. Input from the business community and the leadership from a couple of city council members pulled the item from the agenda. Meaning the fee increases will likely be reconsidered in December or after the newly formed Blue Ribbon Commission on Revenue Stabilization (BRC) files its report and recommendations to council in the first quarter of 2009. Last year the BRC reviewed city revenue and discovered a growing shortfall that could only be partly made up with new revenue sources or extended taxes. The BRC did not consider city spending or budget reductions to close the gap. This year, the City Manager appointed a newly constituted BRC to look at the expenditure side and make comprehensive recommendations to the city council. Days ahead of the November 25 council meeting, BARA and a broad base of business leaders were crafting a joint letter to council asking them to delay consideration of the fee increases until the BRC report is filed. We never sent the letter. Instead, a letter was delivered to council members supporting the decision to postpone the fee increases and to reconsider only after the BRC reports back to council. See an excerpt below under ‘Worth Repeating.’

Extra!!         Big News, Greater Thanks         Extra!!

     Yesterday the Fed announced that it would begin to buy mortgage and other private debt securities -- easily the most dramatic and unprecedented action in the Fed’s 95-year history.
     Mortgages immediately fell a half-percent to 5.50%. An immense volume of loan-rate locks has pushed rates back up a bit today, but the decline is highly likely resume. For the first time in the last 18-months’ credit-market nightmare the authorities have moved in front of the crisis, jumping past broken banks to fund the nation.
     The Fed buys and sells short-term T-bills every day, managing monetary policy and short-term rates. However, the only prior Fed direct purchase intervention to push down long-term rates was during and shortly after WWII, and that operation was limited strictly to Treasurys. This time the Fed will buy a wide spectrum of consumer credit, driving down rates, and will eventually re-open private markets in volume.
     The Fed’s actual purchases will not begin until next week, but it said it would continue to buy “over several quarters.” The Fed did not indicate any target for how far it intends to push down mortgage rates.
     Why now? Two things. Last week marked the ultimate fracture in the credit markets: Treasury yields to the floor, rates for all other IOUs to the sky. No credit, no bottom for the economy. Previous efforts to cut the cost of credit (loaning cash to banks, TARP injection of capital) had not yet worked, and could not be expected to work in time. Second: the next ten days will bring awful news of economic decline in November, and the first washout of Thanksgiving shopping in modern times.
     Will it work? Oh, my, yes. In my first week on a trading desk in 1983, the Fed entered the market in a surprise purchase of T-bills. An itty-bitty thing. A roomful of calm-to-bored pros leaped in the air, screeching, “The Fed is IN!!!” And so that roar went up yesterday. All-powerful. The Fed hasn’t spent a dime, but is already swinging a psychological hammer. The markets had priced for Great Depression II. “If the Fed is in, then we aren’t going to have GDII... If the Fed is in, what am I doing out?”
     When will it work on the economy? When it does. Recessions cannot bottom without plentiful and cheap credit. Credit-sensitive industries lead the way, houses and autos; both will take a while even with credit restored. Unemployment will not crest until the recession is over. Hence, the Fed will be in for “several quarters.”
     Where will the Fed get the money? If you or I print money, we go to jail. When staring at a Depression, the Fed is supposed to print money. It has infinite capacity to do so, and in this case is buying very high quality IOUs that will rise in quality as the economy heals, can be sold then, or held to maturity. The main risk is off in the future: next time we’re in a little trouble, the troubled will ask the Fed to buy again. Answer: only once every 95 years.
     At your dinner table tomorrow someone will say: Hang the Fed for this! Let the market work! Inflation is certain to follow! The dollar will crash! The Fed is a giant conspiracy! Gold gold gold! Hand this individual a turkey bone and hope he chokes. No Heimlich until he admits the Depression was not cool.
     How to play refinancing? Any deal that recaptures closing costs in a year or so after tax effects, do it! As always... closing costs are not deductible, interest saved is; hence savings are overstated. Calculate interest savings, not changes in payment distorted by amortization. Avoid points and origination (deductible only over the whole life of the loan!). If you have an ARM... move now.
     Whose idea was this? Many of us thought it was inevitable a year ago. The idea is in Perfesser Bernanke’s book. I’m a zero on a scale of conspiracy theorists, but I have to believe that when Obama’s new team reviewed options with the exhausted group still in charge, somebody said, “What in hell are you waiting for?” If it was Hapless Hank Paulson’s work by himself... or not... hand that man some pie. It is Thanksgiving.

Boulder County

COMMISSIONERS APPROVE VACATION RENTALS

On October 30^th the Boulder County Commissioners unanimously approved amendments to the County’s Land Use Code today to authorize short-term residential rentals. The Commissioners approved a plan that addresses short-term dwelling rentals, often referred to as “vacation rentals,” with requirements that vary according to the intensity of the rental property and its zoning district. The measures only apply to dwellings that are rented for short durations (less than 30 days each) and do not apply to long-term rentals or those being rented on a month-to-month basis. A property owner is allowed to rent out a property on a short-term basis by right and without any special restrictions for up to a total of 14 nights per year. After that, restrictions may apply depending upon the zoning of the property. Homes rented for 46 or more nights per year, will require staff review, neighbor notification and Limited Impact Special Review. For more details, visit: http://www.bouldercounty.org/lu/code_updates/lodging_dwelling/

GE Energy recently announced it will relocate 180 employees from its Loveland facility to Longmont. The Control Solutions unit of GE manufactures and provides control systems to power plants and oil and gas facilities. That unit will move from a 70,000SF building to a 152,000SF facility in the Longmont Business Park campus at 1800 Nelson Road. The move was prompted by the booming energy industry resulting in Control Solutions of GE outgrowing their existing facility.

CITY COUNCIL APPROVES LUXURY APARTMENT DEVELOPMENT

Final plans for a 254-unit high-end apartment project were approved by City Council on November 18, 2008. The Prana apartments were approved as part of the SoLa mixed use project at Colo. 42 and U.S. 287, north of Exempla Good Samaritan Medical Center. Prana will be located on an 11-acre parcel that will provide a 2 plus-acre park, clubhouse, fitness center and swimming pool. The apartments will be available for occupancy in late 2009 or Spring of 2010. SoLa plans to add a hotel, senior living, retail, restaurants, commercial and medical space to the mix.