Building Newton’s Future has posted this video on YouTube featuring Mayor Setti Warren making a pitch for the overrides…
Mayor Setti Warren’s overrides pitch
by Village 14 | Feb 5, 2013 | Newton | 13 comments
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Only 50c per $1000 valuation of your home… Wow, that’s peanuts!
So according to the financial wizards at Newton City Hall, that’s a median override cost to each taxpayer of $343/year!
Assuming you can afford the mere $343, if you invest it in a high-quality diversified portfolio of stocks and bonds at an expected 12% annual rate of return you would have over $82,000 in 30 years. That’s WITHOUT compounding (adding the earned interest back into the original annual investment). Food for thought, right? Saying the cost is only 50c per homeowner is what is fondly referred to in sales as “reduction to the ridiculous”.
Mea culpa!
I think this is an excellent pitch for the override package by Mayor Warren. In particular, his comments about the aging schools hit the bullseye. How can anyone look at those photos and not see the desperate need to fix these problems with our school infrastructure? I support the Mayor, and his override package.
Having offered that support, I still believe there is more Mayor Warren should be doing to get our city on solid financial ground. As he himself points out, this is not just an infrastructure problem with the schools, there is a space problem resulting from increasing numbers of students. It is clearly not in Newton’s best interest to make this overcrowding problem worse by continuing to accept new METCO students. If the Mayor supports taking new METCO students during a time of overcrowded schools and appeals for property tax hikes, I feel he owes taxpayers an explanation of his position.
Also, Mayor Warren rightfully points to the need to address the Newton Centre Fire Station. But the fact is that the Mayor walked away from a public-private-partnership deal, which would have landed a new fire station and Fire Department Headquarters at NO COST to taxpayers. This is where his lack of private sector experience really hurt the city. If the Mayor didn’t like the terms of the proposed deal, he should have tried to restructure the terms of the deal, rather than letting it die and leaving taxpayers to foot the bill.
I could add a few more things I think the Mayor should be doing. He should have appointed an air-rights Czar to explore cultivating that enormously valuable asset over the Mass. Pike. He should be exploring municipal distribution of electricity, which could add tens of millions of dollars a year in revenue for the city. And even though he supported the School Committee’s naming-rights initiative, he should have pushed harder to get that passed.
All criticism aside, we still need these overrides to address most of the problems the Mayor articulated in his video-pitch. But it’s not just the “need” that causes me to reach that conclusion. To me, an equally compelling case can be made for the value of return on investment. A home is the biggest investment most people make in their lives. The value of our homes is inextricably tied to the quality of our school system, and the performance level of City services. The $350 per year this package of overrides will add to the average homeowner’s cost, will come back to them many times over in the value of their home. I strongly urge residents to vote in favor of all three overrides.
@Janet, just where can you expect 12% in a “high quality diversified portfolio of stocks and bonds” over the next 30 years?
I think Bernie Madoff was only getting 10 percent.
Wait – what? 12% return? I guess the recession is over!
@Janet, even leaving aside the attainability of 12%, real math indicates that WITH compounding (monthly) $343 would grow to only $12,330.73 in 30 years.
Janet, allow me to respond to Max’s questions:
Janet’s projection was based on $343 annually for 30 years. Let me break down the model assumptions:
$343 annual contribution
30 year time period
12% annual expected rate of return
annual frequency of contributions
If you use a financial calculator (I recommend the BA-II Plus by Texas Instruments) here are the appropriate entries:
$0.00 PV
$-343.00 PMT (represents your cash contribution)
12 I/Y (represents annualized return rate%)
30 N (represents time periods
CPT
FV: $82777
As for “just where can you expect 12% in a “high quality diversified portfolio of stocks and bonds” over the next 30 years?” Considering that the allowable annual returns on equity for Northeast Utilities (NU) range from 11-13% for its various business units as set by the regulators, earning 12% on a portfolio of high quality stocks and bonds is not out of the realm of possibility.
http://www.sec.gov/Archives/edgar/data/13372/000007274112000084/f2012eeipresentation.htm
Considering that the President’s friend Warren Buffett has increased the earnings per share of Berkshire Hathaway by a compounded annual growth rate of over 20% since 1970, earning 12% annually over a 30 year time frame is not out of the realm of possibility.
http://www.tilsonfunds.com/BRK.pdf
The President’s friend Whitney Tilson pointed out that Berkshire’s recent $1.2B buyback bodes well for investors because it puts a floor on Berkshire’s share price at about 1.2X Berkshire’s book value.
http://www.tilsonfunds.com/BRK.pdf
Dan Fuss at Loomis Sayles has generated a compounded annual return of 9.4% managing the Loomis Sayles Bond Fund (LSBDX) since 1996.
http://finance.yahoo.com/q/hp?s=LSBDX&a=4&b=31&c=1996&d=1&e=6&f=2013&g=d&z=66&y=4158
Verizon (Bell Atlantic) has generated a compounded annual return of 10.5% since it was spun-off from AT&T Corporation in 1984.
http://finance.yahoo.com/q/hp?s=VZ&a=04&b=31&c=1983&d=01&e=6&f=2013&g=d&z=66&y=7326
Whole Foods racked up an 18.6% compounded annual return of 18.6% since its IPO 21 years ago.
http://finance.yahoo.com/q/hp?s=WFM&a=04&b=31&c=1983&d=01&e=6&f=2013&g=d&z=66&y=5280
If one was to have foregone stock selection and invested in the S&P 500 through an index fund, they still would have generated a compounded annual return of 8.35%.
http://finance.yahoo.com/q/hp?s=SPY&a=04&b=31&c=1983&d=01&e=6&f=2013&g=d&z=66&y=5016
I saw a guy named Max Marcus Goldsmith who owned a jewelry store in Newton Center.
If Max Goldsmith bought shares of Tiffany & Company at the end of 1987 in his IRA and sold them today, he would have generated a compounded annual return of 16.44%.
http://finance.yahoo.com/q/hp?s=TIF&a=11&b=30&c=1987&d=01&e=6&f=2013&g=d&z=66&y=6270
If Max Goldsmith bought Tiffany’s competitor Signet at the beginning of June 1998, he would have had to settle for a compounded annual return of 12.66%.
http://finance.yahoo.com/q/hp?s=SIG&d=1&e=6&f=2013&g=d&a=5&b=3&c=1998&z=66&y=3564
First, thank heaven Mike Striar wasn’t elected mayor, given his medley of suggestions.
Second, I think the $343 is low. It’s $11.4 million and there are about 20,000 houses, which pay most of the taxes here. So that’s about $575 per home. Add to that the 2 1/2 % automatic rise in property tax, or about $200 per home on the average (year after year), and the average home-owner will spend up to $775 more in taxes, to increase after that. And these over-rides are just the beginning. There are other infra-structure needs that aren’t being addressed here. Setti will be back for more over-rides, for sure. Add to that what we are going to be taxed additionally by other units of government and we will all be working just to pay taxes.
Newton needs to seriously address how to spend less money, especially on personnel and their retirement benefits, and on building these new schools for less money, not just tax more. This is just the kind of thinking that I saw in the TAB today in the article supporting over-rides. Why, it’s just like Barack Obama at the Federal level. Of course it is, and that’s what’s killing the average person financially.
@Barry– I think you may have left out commercial properties from your calculation, which is why your average per-home increase came in higher.
Beyond that, allow me to draw some distinctions between our philosophies. As I’ve noted previously, it is my belief that we are substantially underfunding public education. I don’t want to mischaracterize your position, but I don’t think you share my opinion.
I also believe Newton should have a higher quality of city services than we currently enjoy, and I’d like to see more money go toward those things. When the City claims it doesn’t have enough money to clear the sidewalks of snow, I think that’s a problem which needs to be addressed with more revenue. Again, not sure if you agree.
I am of the opinion that municipal government has a lot to learn from the private sector and non-tax based institutions. So I see things like public-private-partnerships for development, or municipal distribution of electricity as opportunities from which this city can benefit financially. I look at non-profits like the YMCA or JCC, and note their ability to provide relatively high service levels at low cost and without the benefit of tax revenue. I think there are lessons to be learned from those institutions. It’s fine if you disagree, but you’re sadly mistaken if you honestly feel spending less money and building new schools for less money is a plausible solution to the complex fiscal problems facing this city.
@ Joshua Norman – I acknowledge your first post, in that I failed to comprehend the annual contribution. Mea culpa.
As to the second post, your cherry-picking of outliers hardly constitutes a “high quality diversified portfolio of stocks and bonds” and in fact mixes various accounting treatments e.g. return on equity allowed by regulators (NU), eps growth, etc. for actual stock performance. I also doubt you “saw a guy Max Marcus Goldsmith who owned a jewelry store in Newton Center (sic)”. Max was Allen’s son, maybe five years old at the time, neither of whom are me. And your gratuitous insinuations of friendships with the President? What has that got to do with anything?
Max, “also doubt you “saw a guy Max Marcus Goldsmith who owned a jewelry store in Newton Center (sic)”.
I think I should have said I saw a listing for Max Marcus Goldsmith and Fine Jewelers.
http://www.yellowbook.com/profile/max-marcus-goldsmith-and-fine-jewelers_1837088244.html
I don’t know if you are related to Max Marcus Goldsmith but I thought it was interesting that if a guy put his money in the two largest publicly traded jewelers in the world, he would have generated a 12-16% compounded annual rate of return on his investment over a 15-25 year time period.
“and in fact mixes various accounting treatments e.g. return on equity allowed by regulators (NU)” Northeast Utilities has generated a compounded annual total rate of return of 11.85% over the last 26 years, which is in line with the 11-13% expectation based on its allowable ROE.
http://finance.yahoo.com/q/hp?s=NU&a=2&b=27&c=1987&d=1&e=6&f=2013&g=d&z=66&y=6468
“And your gratuitous insinuations of friendships with the President? What has that got to do with anything?”
Well, I figured that Buffett and Tilson’s friendship and support of Obama would show one that you don’t have to settle for 2% on certificates of deposit. If they can get 12% or better annual returns over a long-term time horizon, than so should regular folks by buying Berkshire Hathaway or Tilson’s Mutual Funds.
“your cherry-picking of outliers hardly constitutes a “high quality diversified portfolio of stocks and bonds”
Actually, I chose a high quality bond mutual fund (diversified portfolio of hundreds of bonds professionally managed by Dan Fuss), a stock index ETF (500 stocks that are part of the S&P 500 Index), Berkshire Hathaway, which is made up of hundreds of stocks, bonds and wholly owned businesses as well as other stocks that are of local interest.
Mike, I won’t address all your suggestions again, most of which I disagree with.
However, you miss the point with this comment:
“It’s fine if you disagree, but you’re sadly mistaken if you honestly feel spending less money and building new schools for less money is a plausible solution to the complex fiscal problems facing this city.”
I would have no objection to paying more money if I felt all efforts had been made to reduce the problem with things they may “learn from the private sector”. A major company for whom I worked dropped its pension plan sometime in the 1980’s, and went to a 401(k). The employee leaves and you have no continuing stream of money to pay. Same for health care. It’s up to the employee how to manage his 401(k) and his Social Security upon retirement. Companies also pay competitive salaries based upon business conditions. We have public service unions that prevented the salary drops that people in the private sector accepted or job losses that people suffered when times were tough. When times are tough for a government body, why, just raise taxes or add new taxes, like the added state sales tax and now more state taxes. But don’t control spending. And private business is bottom-line-oriented. That means you can’t have everything you want just because you want it. You have to be able to afford it and still make a profit. Government bodies don’t work on a profit motive. They work on giving their friends gifts, some involving kickbacks to themselves, doing as many nonsensical programs as they can in order to buy votes, and generally acting with no concern for the fact that they take this money from taxpayers. Setti Warren is no different, and clearly, had you been mayor, you’d have been no different as well.