In Business and Finance….

The Free Press WV

►  New rule gradually bringing corporate tax breaks to light

Want to know how much money governments give away in corporate tax breaks? Good luck.

For years, the figure has been incredibly difficult to calculate. That’s because states, cities and other government units haven’t been directed to uniformly report the value attached to the various tax incentives, abatements and financing deals they agree to as a way of stimulating economic growth.

A major accounting shift taking place across the U.S. now is changing things.

The nonprofit Government Accounting Standards Board changed its guidelines beginning in 2016 to require reporting of economic development tax breaks.

For the first time, state, local, county and township governments were instructed to include in their annual reports information on their tax abatement programs. That included how many such deals they had going, the amount of tax revenue foregone and the value of any non-tax commitments, such as land purchases or utility structures, they had agreed to contribute in order to seal the deals.

Watchdog groups praised it as an important precursor to debating whether such incentives are a good investment for taxpayers.

“Before you get to the question of whether they’re getting their money’s worth, you have to know how much is being spent,“ said Zach Schiller, director of research for Policy Matters Ohio, a Cleveland-based think tank that tracks government budget issues.

Rollout of the new guidelines has not been without its hiccups, however. The accounting board late last month had to issue a clarification to its rule to assure that governments are reporting one of the most widely used economic development tools: the tax increment financing, or TIF, district.

The mechanism has been used to develop the Polaris Fashion Place mall in Columbus; the Harbor Point Project in Stamford, Connecticut; Mesa del Sol in Albuquerque; the downtown Union Station in Denver; the Red Wings hockey stadium in Detroit; the Naval Air Station in Alameda, California; and a Cabela’s in Fort Worth, Texas, that promoters expected to draw more tourists than the Alamo, among dozens of other projects.

Columbus, one of the first big cities to comply with the new rule, had opted not to list its TIFs in the tax abatement section of its 2016 financial report. Its decision appeared to comply with guidance on the matter issued by Ohio’s state auditor, Republican Dave Yost.

Yost spokesman, Ben Marrison, said the guideline was based on the fact that there’s no reduction in revenue to the city under a TIF.

“The existing taxes remain unchanged,“ he said. “The property taxes that would have been collected on the improvements are collected from the property owner in a different form, but generally in the same amount.“

With more than 50,000 local and state government bodies expected to reveal tens of billions of dollars in previously unreported tax break spending under the new accounting rule, disagreement over reporting tax increment financing deals concerns transparency advocates.

“GASB Statement No. 77 is a promising new tool for taxpayers to better understand government spending,“ said Greg LeRoy, executive director of Good Jobs First, a nonprofit, nonpartisan center that tracks economic development spending. “Let’s get this right the first time!“

LeRoy said whether cities are abating, forgiving or rebating taxes as part of economic development deals shouldn’t matter. It still represents a foregone cost to taxpayers.

LeRoy commended the track record of Columbus Auditor Hugh Dorrian for openness in financial reporting. He called his criticism of the city’s latest report “friendly.“ Dorrian said the city’s report was thorough and that he would change his reporting methods when the accounting board told him to.

Since the accounting board’s clarification was issued, Yost’s office has explained how to report tax increment finance under its Frequently Asked Questions. It did not amend its guidance.

►  Justices make it easier for companies to defend patent cases

The Supreme Court is making it easier for companies to defend themselves against patent infringement lawsuits.

The justices ruled unanimously that such lawsuits can be filed only in states where defendants are incorporated. The issue is important to many companies that complained about patent owners choosing more favorable courts in other parts of the country to file lawsuits.

The case involved an appeal from TC Heartland, an Indiana-based food sweetener company sued by Kraft Foods in Delaware. Lower courts refused to transfer the case to Indiana.

But the Supreme Court’s ruling will have the biggest impact on federal courts in eastern Texas, where more than 40 percent of patent lawsuits are now filed. Local rules there favor quick trials and juries tend to be more sympathetic to plaintiffs.

The ruling will have a major effect on lawsuits from so-called patent trolls — companies that buy up patents and force businesses to pay license fees or face expensive litigation. Many of those cases now may have a tougher time getting to trial or result in jury verdicts that are less generous.

Companies including eBay, Kickstarter and online crafts site Etsy had urged the high court to restrict where such cases can be filed, saying they have been sued repeatedly in courts hundreds or thousands of miles away from corporate headquarters. Even Texas Attorney General Scott Keller led a coalition of 17 states calling for an end to so-called “forum shopping” in patent cases.

Groups representing inventors and patent owners said new restrictions would place burdens on patent holders and encourage infringing behavior and piracy.

Writing for the court, Justice Clarence Thomas relied on a 1957 Supreme Court case that said patent cases can be brought only where the defendant company is incorporated. He said the federal appeals court in Washington that handles patent appeals was wrong to say that Congress had changed those rules.

The ruling is a “seismic decision” that will affect patent litigation around the country, said John O’Quinn, a Washington, D.C., lawyer specializing in patent law. He said it may lead to a surge in patent cases in Delaware, where many companies are incorporated due to favorable state law.

That shift will mean a dramatic decline in cases at the federal courthouse in Marshall, Texas, where hundreds of patent lawsuits are filed each year.

Justice Neil Gorsuch did not take part in the case, which was argued before his confirmation.

►  Fields out at Ford; new CEO Hackett known for turnarounds

Ford is replacing CEO Mark Fields as it struggles to keep its traditional auto-manufacturing business running smoothly while remaking itself as a nimble, high-tech provider of new mobility services.

The 114-year-old automaker said Fields is retiring at age 56 after 28 years at the company. Fields will be replaced by Jim Hackett, a former CEO of office furniture company Steelcase Inc. who joined Ford’s board in 2013. Hackett has led Ford’s mobility unit since March of last year.

In a press conference Monday at Ford’s Dearborn headquarters, Hackett said Ford does a lot of things well, but is not as good at handling complex strategy questions. Hackett plans to have a small executive team that can set the company’s plans, communicate them clearly and make decisions quickly. That’s a contrast to Fields, who had 20 direct reports and was a product of Ford’s bureaucratic culture.

“The biggest challenge I had (at Steelcase), and I will have here, is to have everybody see the future. They can see their opportunity in that. And secondly, that it’s our right to win and we don’t have to cede that to anybody, Tesla or any of them,“ Hackett said. “I love that challenge because I know how to do that.“

In three years as CEO, Fields began Ford’s transition from a traditional automaker into a “mobility” company, laying out plans to build autonomous vehicles and explore new services such as ride-hailing and car-sharing. Silicon Valley companies such as Google were pushing into the car business, while Uber and Lyft threatened to change people’s attitudes toward car ownership. In fact, it was Fields who put Hackett in charge of those projects as head of mobility.

Under Fields, Ford achieved a record pretax profit of $10.8 billion in 2015 as SUV and truck sales soared in the U.S. But there were rumblings that Fields wasn’t focused enough on Ford’s core business. Popular products like the Fusion sedan and Escape SUV grew dated. Ford lagged behind rivals in bringing long-range electric cars to the market. Ford couldn’t pivot quickly; when subcompact SUV sales boomed in the U.S., for example, it didn’t bring over a small SUV being sold in other regions. The stock price sagged — electric car maker Tesla Inc. even passed Ford in market value earlier this year.

Ford’s shares jumped nearly 2 percent to $11.06 in morning trading. The company’s stock price has fallen almost 40 percent since Fields became CEO in July 2014.

Hackett was the CEO of Steelcase for 20 years. He is credited with transforming that company, in part by predicting the shift away from cubicles and into open office plans. He cut thousands of jobs and moved furniture production from the U.S. to Mexico to stem massive losses at the company.

In an interview, Ford Motor Co. Executive Chairman Bill Ford called Hackett a “visionary” who knows how to remake a business.

“These are really unparalleled times, and it really requires transformational leadership during these times,“ Bill Ford said.

Hackett also served as the interim athletic director at the University of Michigan from 2014 to 2016. In that role, he lured star football coach Jim Harbaugh.

Bill Ford insisted that Fields wasn’t fired. He called Fields “an outstanding leader” who orchestrated the company’s turnaround a decade ago when he was head of Ford’s Americas division.

“He and I sat down Friday and really decided this was the right time for him to go and for us to have new leadership,“ Bill Ford said.

Fields resurrected Ford’s luxury Lincoln brand and grew sales in China. His bet on using aluminum for Ford’s trucks paid off in terms of better fuel economy and strong sales. Fields opened an office in Silicon Valley to hire talented young researchers and scout out promising startups.

But investors worried about Ford’s sliding U.S. market share and product decisions. U.S. sales are plateauing after years of growth, and Ford has been losing share in that all-important market. Unprofitable small cars have chipped away at some of the profit from SUVs. And in the electric car market, General Motors put the Chevrolet Bolt, with 238 miles of range, on sale last year; Ford is working on an electric SUV with 300 miles of range, but it’s not due out until 2020.

Meanwhile, Mary Barra — who became GM’s CEO about six months before Fields became Ford’s — has made a series of headline-grabbing moves, such as forming a partnership with the ride-hailing company Lyft and pulling GM out of unprofitable markets, including Europe, India and South Africa. Even though GM shares are trading a few cents below the $33 initial public offering price from November 2010, the board appears satisfied with Barra’s performance.

Hackett is confident he can placate and discontent on Wall Street.

“The way that that gets fixed is the nature of the innovation and the ideas making their way into the market,“ Hackett said. “It even sounds a little corny but the stock price is a consequence of the actions we’re going to take to make the company more fit, more profitable and a more fun place to work.“

Barclay’s analyst Brian Johnson predicts more emphasis on cost-cutting under Hackett. GM has exceeded Wall Street’s profit expectations, while Ford’s results have been softer. Ford needs to turn that around for the share price to grow, Johnson said.

Fields also had the tough job of following CEO Alan Mulally, another auto industry outsider who was hired away from Boeing to lead Ford. Mulally, who joined Ford in 2006 when it was near bankruptcy, was widely credited with ending internal bickering at Ford and streamlining manufacturing.

As part of the shake-up, several Ford executives are taking on new roles as of June 01. Jim Farley, who led the company’s European division back to profitability, will become vice president of global markets and will oversee Lincoln, sales and marketing. Joe Hinrichs, president of Ford’s Americas division, will oversee global product development, manufacturing and quality. Marcy Klevorn, Ford’s chief technical officer, will oversee a new mobility division.

In Business and Finance….

The Free Press WV

►  Many women think men are the better investors; they’re not

Many men and women think men are the better investors. They’re wrong.

After checking how 8 million of its customers did during 2016, Fidelity Investments found that women did better than men by an average of 0.4 percentage points.

The difference in performance is small, and it’s always dangerous to make big generalizations out of small slices of data. But it slots in with other research that suggests women tend to take a longer-term view of investing. They are more likely to buy and hold their investments, and they take fewer risks, for example.

Researchers are generally loathe to declare one gender as absolutely better than the other in investing, and other studies have shown men doing slightly better than women over other periods of time, but the figures underscore that women at least shouldn’t be too pessimistic about their own abilities. That would be a dangerous thing if it discourages them from investing for retirement or other goals.

“When women actually take the step of investing, they do a good job,“ says Kathleen Murphy, president of personal investing at Fidelity. “It doesn’t surprise us, but I think it will surprise them. The issue is: How do we get women to have the confidence in themselves to take care of something that is fundamental to their future well-being?“

To check confidence levels, Fidelity asked pollsters to survey about 1,000 investors early this year and ask whether they thought men or women had the better returns in 2016.

Men and women answered roughly the same way. Nearly half of each group thought there would be no difference (49 percent of men and 47 percent of women). But among those who guessed that one gender would come out on top, the vast majority said it would be men. Only 9 percent of women (and 9 percent of men) said they thought women earned higher returns in 2016.

One of the main reasons for the lack of confidence among women may be the financial services industry itself. It’s one that was created by and, for a long time, run for men. So much so that Sallie Krawcheck, a Wall Street veteran who earlier ran Merrill Lynch and Smith Barney, cited that when she co-founded Ellevest, an online investment adviser that says it helps customers “invest like a woman.“

The disparities run up and down Wall Street. Less than 10 percent of all U.S. fund managers are women, and the percentage has been on a slow decline since 2008, according to a recent study by Morningstar. Managers attribute much of that to the small percentage of women throughout the financial industry. When relatively few analysts are women, that leaves few potential fund managers.

To better engage with female customers, Fidelity now writes all its promotional materials with an imaginary, 38-year-old target customer in mind. She’s a woman, and her name is Susie.

“Everyone in the company knows Susie and says we need to walk in Susie’s high heels,“ Murphy says. “Whether it’s financial planning or saving for retirement or retirement income, we pause and ask if this will meet Susie’s standards.“

Financial companies certainly have an incentive to engage more with women. Divorce rates are rising for older Americans - it’s roughly doubled since the 1990s for those aged 50 and above - which means more women are becoming a sole financial decision maker. And women continue to have longer life expectancies than men. In blunt market terms, that makes them a bigger pool of potential customers.

Fidelity says it has already seen improvements in recent years following its increased outreach to female customers, with more getting their portfolios in better balance. That means they’ve got an appropriate mix of stocks and bonds for their age, rather than being in all cash at a young age or in all stocks during retirement. But there’s still more room for improvement.

“I remember being at an AARP event doing one of these speeches, and I was telling them that I was flying from to D.C. to New York that night to meet with a group of 1,000 millennials,“ Murphy says. “So I asked them, ‘What advice should I give millennials, which are your daughters and granddaughters.‘ And they said, ‘Tell them to break the cycle. Don’t let this happen to them, too, not being engaged enough. Take control of your future.‘“

►  The worst-paying jobs for college grads boast this sneaky advantage

The job title “Wall Street trader” once evoked sleek suits, martini-soaked lunches and chaotic offices – a gateway to prosperity at a relatively young age. But earlier this year, Marty Chavez, the chief financial officer of Goldman Sachs, revealed that some of the investment bank’s well-paid humans were being replaced by unpaid robots.

Over the last 17 years, the number of stock traders at the firm has shrunk from 600 to two, he told a Harvard computer science symposium in January.

“We are rapidly transforming the business model,“ he told the crowd, according to a video of the event.

Chavez’s talk offers a cautionary tale to the next generation of job seekers: As technology advances, a fat paycheck doesn’t necessarily guarantee job security. In fact, a report on lifetime earnings across college majors suggests the lowest-wage jobs are actually more likely to withstand the digital revolution.

Researchers at the Hamilton Project found that students who studied finance, engineering and computer science tend to make the most money after graduation, while those who majored in counseling, social work and early childhood education saw the lowest wages – but in fields computers aren’t likely to dominate.

“The hardest activities to automate with the technologies available today are those that involve managing and developing people,“ noted the authors of a recent McKinsey study.

Robots can’t feed toddlers or break up disputes among cranky 4-year-olds. Their grip isn’t gentle enough to lift a crying child. Preschool teachers, who earn an average of $35,000 annually, can’t be replaced by the machines of today or the near future.

“A lot of child care has to do with taking care of physical and emotional needs, like changing diapers or providing food,“ said Elise Gould, a senior economist at the Economic Policy Institute.

Caring for children demands nurturing instincts, such as knowing when to wipe away a tear or spotting a child who isn’t interacting with others. Artificial intelligence isn’t great at reading emotions or helping to regulate them.

Those jobs, Gould said, aren’t going away – though a tough market prevents them from growing much. Preschools and day cares across the country, both public and private, tend to stay at or around capacity.

The cost of employing licensed teachers is high, but raising the price of child care carries a risk of pricing out parents. This is one reason some economists argue the country’s child-care system needs more state or federal financial support to flourish.

“There’s absolutely demand, you see that in the waiting lists,“ Gould said. “But a lot of parents can’t get in or afford it.“

Robots also can’t feel empathy, the special ingredient that helps us connect with other people. Like social workers, who make an average of $43,000 per year, they can ask about your childhood – but they can’t then help you work through issues with your mom.

“There are robots that can mimic empathy,“ said David Deming, a Harvard professor who studies the market of social skills. “They can read human faces and try to pick up on responses. But they’re just pretending. They don’t really understand you.“

Apps can deliver counseling services on your phone, but real people are still sending the therapeutic texts. Talkspace, which emerged in 2012, just removes the face-to-face part of counseling. (Licensed counselors in the U.S. make an average salary of $44,000).

The top-paying work in the Hamilton Project’s report, on the other hand, demands less of a human touch, said Amy Webb, founder of the Future Today Institute, a technology consulting firm.

“Investment banking is next on the chopping block,“ Webb said. And engineering isn’t off the hook, either. “The next iteration of artificial intelligence,“ she said, “is artificial intelligence creating software for itself.“

In one Google Brain experiment, for example, software became better at teaching itself tasks – such as navigating a maze, for example – than the engineers who were charged with making it smarter.

“That obviates the need,“ she said, “for a human engineer.“

Average U.S. 30-Year Mortgage Rate Slips to 4.02%

The Free Press WV

Long-term U.S. mortgage rates inched lower this week. It was the fifth straight week that the benchmark 30-year rate hovered around the key threshold of 4 percent.

Mortgage buyer Freddie Mac said the average rate on 30-year fixed-rate home loans slipped to 4.02 percent from 4.05 percent last week. The rate stood at 3.58 percent a year ago and averaged 3.65 percent in 2016, the lowest level in records dating to 1971.

The rate on 15-year mortgages eased to 3.27 percent from 3.29 percent last week.

Amid growing worries that deepening political turmoil in Washington will hinder President Donald Trump’s plans to enact tax cuts and other business-friendly policies, the stock market had its steepest drop since September on Wednesday. Bond prices rose as investors shunned riskier assets. That depressed the yields on long-term Treasury bonds, which mortgage rates tend to follow.

“Political drama in Washington prompted mortgage rates to fall as investors scale back their expectations for the passage of legislation that might boost economic growth,“ said Svenja Gudell, chief economist at real estate data provider Zillow. “Expectations for slower economic growth could translate into a slower pace of interest rate hikes by the Federal Reserve in the months ahead.“

To calculate average mortgage rates, Freddie Mac surveys lenders across the country between Monday and Wednesday each week. The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for a 30-year mortgage was unchanged this week at 0.5 point. The fee on 15-year loans also held steady at 0.5 point.

Rates on adjustable five-year loans declined to 3.13 percent from 3.14 percent last week. The fee remained at 0.5 point.

In Business and Finance….

The Free Press WV

►  The Coffee Cost Her $2.50. It Cost Starbucks $100K

The Venti Pike Place coffee cost her about $2.50. It ended up costing Starbucks about 40,000 times that. In the latest hot-coffee lawsuit, a Florida woman was awarded $100,492 Thursday after a 2014 incident at a Starbucks drive-thru in Jacksonville left her physically scarred, reports the New York Post. According to defense lawyers, Joanne Mogavero, a 43-year-old mother of three, had received a cup of coffee from a barista and was attempting to hand it to a passenger when the lid popped off and the 190-degree drink spilled in her lap, leaving her with permanent scarring from first and second-degree burns.

Mogavero accused Starbucks of “failing to adequately” fasten the lid, while her lawyers argued Starbucks should warn customers that lids may pop off, reports the Wall Street Journal. After a Starbucks rep testified that the company receives 80 complaints about lids per month, a Duval County jury found Starbucks 80% at fault for the spill and awarded Mogavero $15,492 for medical bills, plus $85,000 for pain and suffering. “My client didn’t want sympathy from the jury—she wanted justice—and the jury gave it to her,“ her lawyer says. Starbucks’ stance: “As we said in trial, we stand behind our store partners (employees) in this case and maintain that they did nothing wrong.“ The coffee giant is considering an appeal.

►  Stock market waking up to political reality

The physical distance from Washington to Wall Street is but a few hundred miles, and, of course, the two places are incalculably enmeshed in each other’s business. But even in these days of endless information, there’s a strikingly clear way in which Washington and Wall Street talk past each other.

Basically, the markets – by which I mean investors’ expectations – heavily discount our dysfunction. For all their complex financial analysis, much (not all) analysis of the Washington/stock-market nexus tends to be simplistic.

This has been no more evident than in the case of Trump, as markets leaned way over their skis with expectations that all sorts of goodies in the form of tax cuts, infrastructure spending and market deregulation would soon be climbing on the Acela at Union Station (first-class car, of course, and heading up to Wall Street).

But, in every case, a close observer could see problems right out of the gate.

Sequencing problems: On health care, it was clear that all the Republicans knew was that they hated Obamacare. It was just as clear that they would need a replacement, which they didn’t have, and thus the decision to go with health care before tax cuts meant they would be bogged down from the start.

The BAT spat: I admit that I didn’t think they’d have as much trouble with tax cuts as they’ve been having – that’s their brand! – but that’s partly because I didn’t see the Border Adjustment Tax fight coming. This idea, favored by influential Republicans, split their caucus, as importing businesses were not entertained by economic arguments that once currency markets adjusted, they’d be fine.

Red ink: Perhaps investors were remembering the George W. Bush years, when big, regressive tax cuts were quickly forthcoming. But they overly discounted the fiscal outlook at the time: Bush inherited President Bill Clinton’s budget surpluses. While Republicans don’t care as much about deficits as they pretend to – otherwise, they wouldn’t be talking about tax cuts, for which there’s no clear economic rationale – they do care about optics. So that’s slowing them down, too.

Amateur hour: Team Trump has no legislative chops. They pay no attention to the substantive and political groundwork necessary to move legislation, and they have a tendency to get . . . um . . . a bit distracted. “Infrastructure” sounded good to them (it sounds good to me, too), but most congressional Republicans weren’t interested, and Trump’s plan was, and is, a confusing mash-up of tax credits for private investors, which can’t work for most public goods.

Figures from Goldman Sachs Researchers plot a number of measures of policy expectations showing that such expectations have largely shed their initial excitement about the legislative future of the Trump agenda. They show the performance of stocks sensitive to tax policy and infrastructure, compared to the rest of the market. Another set of figures makes a similar comparison for bank stocks (which got excited about financial market deregulation), and the lower right panel shows inflation expectations (reflecting, in turn, macro-growth expectations).

In every case, these metrics got a Trump bump. And, in every case, that bump has faded as reality has set in.

Are the markets right about all this? I still think there’s a tax cut coming, but I’ve long said it will be smaller and come later than investors expect. Now, with the Russian scandal heating up, I’d push its birth date out even further, maybe 2018, second half. As for financial deregulation and infrastructure, I suspect (and fear) executive actions on the former and not much on the latter.

It took you long enough, but welcome to my world, Wall Street. Buckle up: It’s going to be a bumpy ride.

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