New Geography

Author: Matthew Leiphon

  • Little Housing Boom on the Prairie

    The great North Dakota boom, driven by oil development and strong agricultural markets, has continued to put the state at the top of economic growth rankings. The state can now add “housing growth” to the list.

    As the region’s oil industry expands and matures, the market for more permanent housing solutions has heated up. According to recently released Census data, North Dakota led the nation in housing growth in 2012, increasing its supply of housing by 2.3% in just one year. Overall national growth was 0.3%.

    While much of this growth has been focused on the oil patch, the entire state has seen strong economic growth, job creation, and accompanying strength in the housing market. Cities located hours outside the oilfield are reporting shortages of housing and tight markets for existing housing. Shortages of housing have also been reported in small towns throughout the state, as job-seekers move to the region looking to find work in the state’s growing oil and ag industries. A review of the new Census data bears out such reports. North Dakota is home to 8 of the top 100 counties nationwide for housing growth, including 4 of the top 10. Williams and McKenzie County, in the heart of the Bakken development, placed number one and two nationally, respectively, but counties far outside the oil patch also showed strong rates of growth.

    The new shift towards more permanent housing construction will probably come as a relief to communities and officials throughout the state, who have been scrambling to find solutions to shortages. While temporary housing for oil workers has boomed throughout the oilfield, local officials have begun to explore limits on such “man camps”, citing their negative effects on local communities, impact on permanent development, strain on infrastructure, and safety concerns. The state has also seen rising rates of homelessness, and faced challenges finding enough workers to fill job openings- often due to lack of places for those interested in moving to the region to work. As estimates of the amount of recoverable oil in the Bakken continue to climb, larger, out of state developers have begun to enter the region, looking to take advantage of what may be a longer, more sustained expansion. With 21,000 job openings currently unfilled statewide and the potential for tens of thousands of wells remaining to be drilled over the next three decades, the pressure for more housing growth to meet the needs of expanding businesses is likely to continue.

  • On The Move

    Overall migration rates in America appear to be down in the wake of the Great Recession, reaching the lowest levels recorded since the 1940’s. While some statisticians argue that changes in data collection over time have led to an overstatement of such changes, there seems little doubt that “interstate migration has been trending downward for many years,” regardless of recent recessionary effects. That said, Americans remain a mobile people. Each year, millions of Americans make an interstate move. While overall migration rates may be down, “the commonly held belief that Americans are more mobile than their European counterparts still appears to hold true.” In good times and bad, the draw of opportunity in a new state still remains a siren call for many Americans.

    Adding a bit of information on current American migration patterns, Atlas Van Lines, a major American moving company, recently released it’s annual data on interstate moves. A plurality of states (24) had a balance between inbound and outbound moves. Magnet states included the upper south (TN and NC), the capital region (DC, VA, and MD), and hubs of energy production, including North Dakota, Texas, and Alaska. Many Midwest and Great Lakes states had more outbound movers than inbound. While the Atlas numbers don’t mesh completely with Census migration estimates, they may lend some support to Wendell Cox’s argument that domestic migration may be returning to some sort of normalcy. Simply put, people continue to go where they can find work, economic opportunity, reasonable costs of living, and good weather.

  • The Great Dakota Boom

    The Census Bureau released their yearly population estimates today. As noted by Wendell Cox, the estimates showed signs of the South’s continued leadership in population expansion. While the overall numbers of people involved are much smaller, the Dakotas, in particular North Dakota, also showed signs of growth worthy of note. According to the Census Bureau, North Dakota now has an estimated population of around 683,000, up over 11,000 in just one year. This made it the 6th fastest growing state in the nation over the past year- a notable achievement in its own right for a state more accustomed to dealing the challenge of outmigration.

    However, the most interesting thing about the new estimate is that it represents a new record population for the state. There have never been more North Dakotans then there are today. The previous high count was about 680,000 way back in 1930. With the onset of the depression, the state entered a long period largely marked by periods of population decline and stagnation.

    As a lifelong North Dakotan, I’ve occasionally found myself having difficulty coming to grips with our state’s recent prosperity. North Dakotans can be a self effacing lot, and it sometimes seems that there’s a still a healthy dose of skepticism among my fellow citizens regarding our current good fortune. We’re not used to being on top like this, seeing our often ignored home highlighted in the press for its economic strength and tagged as “the state the recession forgot.” For decades, we’ve been trying to find ways to deal with what seemed an inexorable cycle of rural decline and depopulation. While the new estimate is just a number, it does serve to break a bit of a psychological barrier for the state. We’re not just making up lost ground anymore- we’re now in uncharted territory and building beyond previous limits. It’s a refreshing change.

    Historians refer to the 1880s and period from 1900-1915 as the “Great Dakota Booms”. Growth was unchecked in what became North and South Dakota, and the population soared as immigrants poured into the region in search of economic opportunity. While oil has taken the lead role in place of land in this performance, it appears that our corner of the nation is in another “Great Dakota Boom” for many of the same reasons. Hopefully it will prove lasting. I, and my fellow North Dakotans will just have to learn to deal with prosperity. Call it “How North Dakota (and Matthew) Learned to Stop Worrying and Love the Boom”.

    All in all, it’s a good time to be a Nodak.

  • The Impact of Federal Cutbacks

    During my college days, I had the opportunity to interview a local government official tasked with conducting various disaster response programs. North Dakota had, at the time, been dealing with severe flood issues for nearly a decade, and the interviewee had vast experience dealing with the ins and outs of working within the system to find mitigation solutions. Asked about the challenges of having to deal with a multitude of state and federal agencies, he informed me that the most vital contacts he had were at the federal level. His reasoning?

    “That’s where the money is.”

    Given the current political winds blowing from D.C., the conditions that spurred that view might be about to change in substantial ways.

    With the recent failure of the “Super Committee” to find a deal on potential budget cuts and tax reforms, states may soon find themselves faced with a set of federal spending cuts to programs and services that undergird large parts of their economy. These automatic cuts, triggered in 2013 by the committee’s failure, will total nearly $1.2 Trillion and be between domestic and defense expenditures. While many may laud such cuts as a way to help bring the federal budget back towards a semblance of order, it is worth noting that the impact on state economies moving forward could be substantial.

    Federal spending, be it on defense, salaries for federal workers, infrastructure, or procurement makes up a sometimes major part of state economic activity. As outlined in a recent piece at stateline.com, some states have far greater exposure than others. In New Mexico, home to several major federal research institutions, over 12% of Gross State Product (GSP) is attributable to federal government spending. Virginia and Maryland, home to so many federal workers and contractors are even more economically dependent on federal spending, with 13.5% (MD) and 18.5% (VA) of their economies being due to federal activity. The spillover of cuts at the federal level can’t help but impact on the overall economic health of such states. The impact will likely be felt throughout the nation as federal agencies find themselves forced to tighten their belts.

    Scholars of federalism often refer to the period since the late 1970’s as the era of “New Federalism.” Beginning under President Carter, and embraced fully by the conservative movement during the 1980’s, New Federalism was marked by increasing devolution of powers and responsibility to state governments and calls for states to be given more control over the reins when spending allotted federal dollars.

    While states continue to play an important role in the system, actions taken over the past few years under the Bush and Obama administrations seemed to hearken back to the earlier, cooperative model of federalism, with the federal government taking on a more assertive role in working with and through state and local governments to provide stimulus, reform healthcare, and implement post 9/11 security initiatives. While state leaders might have chafed at the strings tied to certain lines of funding, the dollars provided offered states a way to backfill budget shortfalls during a time of economic stress.

    With the demise of the Super Committee, continued calls for deeper spending cuts and gridlock over raising revenues are setting the table for a changed federal-state relationship. As federal agencies strike their tents on various programs and initiatives, states will find themselves receiving less direct federal largess and facing lower economic activity as federal dollars working their way through the local economy are reduced. Budget austerity may lead the federal government to increasingly leave the states to their own means- devolution by force, instead of by choice.

  • “A Cloud of Contagion”: States, Cities, and Federal Default

    The Pew Center on the States has released a new report examining the impact a potential federal default would have on state and municipal governments. The picture isn’t pretty.

    According to Pew, “A federal default could have a serious impact on states and cities by constricting their borrowing and budgets while they are still feeling the aftershocks of the Great Recession.” Loss of faith in federal debt securities could have a knock-on effect on government debt at all levels, causing jittery ratings agencies to downgrade state and local credit ratings in turn. One ratings agency, Moody’s, has already warned that up to 7000 municipalities could see their bond ratings lowered in the wake of a federal default, and has placed five currently AAA rated states on a downgrade watch list. Ratings downgrades would lead to increased borrowing costs for state and local governments, restricting their long-term ability to finance desperately needed infrastructure upgrades.

    In addition to raising borrowing costs, a federal default could also directly impact federal program dollars currently allocated to state and local governments. According to Pew, such transfers amounted to “$478 billion in 2010 alone.” States and municipalities, already stressed by years of budget challenges, might suddenly find themselves even more cash strapped. In addition, the report points out that the suspension of federal payments to individuals, such as social security recipients and government contractors, could cause a drop in state and local tax receipts as individual incomes drop and commerce slows. While Pew feels states and local governments are “highly unlikely” to face a shutdown as a result of a federal default, they could be left scrambling to find alternative funding sources to cover already budgeted expenses they were expecting to meet with federal support.

  • Mixed News on Trade

    The Department of Commerce released trade balance numbers for January this morning, reporting that the monthly deficit jumped to $46.3 billion, up from $40.3 billion in December. Economists had been projecting a deficit of $41.5 billion. The larger than expected number may lead some economists to “lower their estimates for economic growth in the January-March quarter based on the wider deficit.”

    However, buried within the dark clouds is a silver lining. U.S. exports actually hit an all time high of $167.7 billion during the month, potentially showing signs of a strengthening economic recovery. This is up from $125.4 billion in January, 2009 and $144.7 billion in January, 2010. American exporters appear to be on a roll, and gaining momentum.

    Exports of services also continues to be a point of trade strength for the nation. While year over year increases were smaller than those in overall exports (47.2 billion, up from 44.2 billion in January, 2010) the nation actually had one month trade surplus of $13.4 billion in services. This is up from past years, and is not an anomaly- the nation has marked a trade surplus in the services sector throughout the past two years.

    The increase in the size of the deficit can largely be attributed to issues in two areas; petroleum and consumer goods. As oil prices continue to rise, the cost of oil imports have surged as well. In January alone, the nation imported 34.9 billion in petroleum products, leading to a deficit of $26.7 billion. This represents an increase of 21.5% over last January, and up 4.7% over the previous month.

    The rise in the consumer goods deficit may actually be good news, of a sort. While the deficit itself is disconcerting, the detailed numbers show that imports of apparel, textiles, appliances, and other household related products are up notably. While increased imports in these sectors serve to worsen our trade balance with China (up to $23.3 billion in January, from $20.7 billion in December), increased demand for such retail goods could be a sign that the American economy, largely centered around consumer spending, is starting to catch some momentum again. According to economist Joseph LaVorgna, interviewed by CNN, while the deficit is wider, “the numbers actually imply a very healthy economy… The gain in imports was in every category. Domestic demand is still very firm and producers are rebuilding their inventories.”

  • The MERS Mess

    In 1995, seeking to streamline mortgage processing, Fannie Mae, Freddie Mac, and a group of banks came together to create a new company to register and assign mortgages. The company, Mortgage Electronic Registration Systems, Inc. (MERS), served as a way for mortgage originators to quickly process new mortgages, centralizing files and cutting down on the need to deal with local government record keepers. With banks increasingly focused on bundling, securitizing, and selling off mortgages they had originated, MERS was designed to move mortgages more rapidly off their hands and into the booming mortgage-backed securities market. The goal of the process, as stated by MERS, was to simplify “the way mortgage ownership and servicing rights are originated, sold and tracked” while also eliminating “the need to prepare and record assignments when trading residential and commercial mortgage loans.”

    The business model proved wildly successful. According to the New York Times MERS now “claims to hold title to roughly half of all the home mortgages in the nation — an astonishing 60 million loans.” However, as the system boomed in an era of rampant mortgage speculation and securitization, criticism arose. Detractors, such as Professor Christopher L. Peterson of the University of Utah School of Law, argue that MERS is based on a “problematic legal doctrine,” and that by “adopting such a radical shift in how mortgages are recorded and foreclosed, without legislative change, the mortgage finance companies have rebuilt their industry on a legal foundation of sand.” According to Peterson,

    “The shift away from recording loans in the name of actual mortgagees and assignees represents an important policy change that erodes not only the tax base of local governments, but also the usefulness of the public land title information infrastructure. MERS did not, by itself, cause the mortgage finance crisis and its ensuing aftermath. But it was an important cog in the machine that churned out the millions of unsuitable, poorly underwritten, and incompletely documented mortgages that were destined for foreclosure.”

    As foreclosure rates have risen, so have legal challenges to the role of MERS in the process. Such cases have, among other issues, questioned the right of MERS to act as the “mortgagee of record,” and to initiate foreclosure proceedings. Results have been mixed. Judges in California, Massachusetts, and Kansas have ruled that MERS “has the authority to initiate home foreclosure proceedings.” MERS itself points to rulings in several other states that it claims show it stands on solid legal ground. However, courts in New York, Florida and Oregon have ruled otherwise, with multiple rulings in Oregon throwing a wrench into the foreclosure market in the state. MERS, in an apparent attempt to clear up issues of standing in foreclosure proceedings,recently began encouraging its members to stop making foreclosures in its name, and is now proposing new rules to curtail the practice.

    Some local governments are also exploring potential legal and legislative investigatory proceedings against MERS, upset at the banking industry’s use of MERS to avoid paying local recording fees for mortgages. Given the dire state of state and local budgets, and the unpopularity of the financial industry, it bears watching to see if more local governments follow their lead in an attempt to recoup a source of funding that was previously theirs. MERS and its financial industry backers appear to be girding themselves for coming legislative battles, launching “an aggressive campaign on Capitol Hill to bolster the legality of the way companies have turned mortgages into securities.” With housing markets already on shaky ground, and talk of a double dip in prices beginning to surface, the uncertain future of MERS and the mortgages it holds is yet more potentially bad news for areas struggling to recover from the housing bust.

  • In the Hunt for a Red October

    California’s precarious budget situation appears to be driving the state closer to potential fiscal ruin. The state is now 28 days into a new fiscal year, operating without a budget, and the deadlocked legislature in Sacramento appears unable and/or unwilling to strike a deal on a new budget able to cover the state’s massive $19 billion deficit.

    With no fix on the immediate horizon, California faces a cash shortage. State Controller John Chiang claims that at current burn rates, the state will find itself out of cash by October if the budget impasse continues. In order to sustain the state’s remaining reserves for as long as possible, Chiang plans to start issuing IOUs to contractors “in August or September to preserve cash”.

    Today, in another effort to defer the date the state will run out of funds, Gov. Schwarzenegger issued an executive order requiring state employees to “take three unpaid days off per month.” This move comes in the wake of the Governor’s proposal to impose minimum wage pay on state workers to save money, currently stuck in the courts.

    If the state legislature is unable to find a solution to the deficit, and creditors prove unwilling to accept more IOU’s, California may be forced to effectively default on its debts. According to Newgeography contributor Bill Watkins, under such a scenario bond issues could fail, state operations grind to a halt, and the “mother of all financial crises” might be unleashed. Even if California is able to find ways to juggle debt load and convince creditors to accept IOU’s while the budget impasse drags on, such stop-gap actions may place its already shaky credit rating at risk of being slashed further towards junk status. The state, legally unable to declare bankruptcy, must find some solution to its budget dilemma or it will become the first state to default since the Great Depression.

  • Striking a Balance

    As noted by Wendell Cox, commuting and congestion have a large economic cost. Time spent behind the wheel, slowed by traffic, is time that could otherwise be put to more productive economic pursuits. Commuting and congestion also have social costs. Every minute lost trapped in snarled traffic is time that might have been spent with family, friends, relaxing, or getting involved in community building activities. Commuting can also lead to elevated stress levels, with studies showing finding that “greater exposure to congestion is related to elevated psycho-physiological stress among automobile commuters.”

    One proposed solution to the challenges presented by commuting and congestion is an enhanced embrace of telecommuting. Proponents argue that businesses looking to increase productivity, burnish their “green” credibility and reduce fuel use, and allow workers to strike a better balance between life and work should offer employees the option to work from home. Whatever the motivation, it does appear that there has been a rise in the adoption of telecommuting. According to varying estimates, somewhere between 20 and 35 million individuals telecommute occasionally. Numbers appear to be on the rise, with projections showing up to 63 million workers will be making use of some form of telecommuting by 2016.

    As businesses increase their adoption of telecommuting, they may also want to provide workers with increased schedule flexibility. A recent study conducted by BYU finds that workers given the option to make use of telecommuting and flex-scheduling had a much higher “breaking point” at which family life and work begin to interfere with one another. According to the study, “for office workers on a regular schedule, the breaking point was 38 hours per week. Given a flexible schedule and the option to telecommute, employees were able to clock 57 hours per week before experiencing such conflict.” As the study points out, this added flexibility allows workers to potentially make use of the equivalent of an “Extra Day or Two” in each work week, adding to productivity. According to the lead researcher, E. Jeffery Hill, the use of flexible scheduling can also contribute to greater worker satisfaction and morale. In challenging economic times the promise of increased worker productivity, improved worker happiness, and potential cost savings realized through reduced office space and facilities should be an attractive spur to increased corporate adoption of telecommuting.

  • Is Illinois ‘Bankrupt’?

    While California’s much publicized budget battles have made the dire financial straights faced in Sacramento a topic of regular media conversation, other states are also experiencing major fiscal woes. According to experts interviewed by Crain’s Chicago Business, Illinois currently finds itself in a state of de facto bankruptcy, with the state’s ledgers appearing “to meet classic definitions of insolvency: Its liabilities far exceed its assets, and it’s not generating enough cash to pay its bills.”

    According to Crain’s, “While California has an even bigger budget hole to fill, Illinois ranks dead last among the states in terms of negative net worth compared with total expenditures.” The state had a record $5.1 Billion in bills past due at year’s end, has failed to pay some vendors for months, and has seen the average time to pay a bill double to nearly 92 days. The state also faces rapidly mounting pension obligations, and has seen it’s ability to borrow restricted by its worsening credit rating. Facing piles of liabilities, and recession reduced receipts, the state is currently “living hand to mouth, paying bills as revenues come in each day, building up cash when special payments are coming due. Cash on hand varies from day to day, sometimes dipping below $1 million”.

    A business or municipality facing such financial challenges might be tempted (or forced) to seek the shelter of bankruptcy protection in order to place it’s books in order. States, however, do not have recourse to that option under existing federal law. As a result “rather than having a court restructure its finances as in a bankruptcy filing, a state [has]to reorganize its spending and debt on its own.” Lawmakers in Springfield, faced with a situation that is bankruptcy in all but name, will have to make difficult decisions regarding future taxes and services.