FOIA
DOCUMENTS: STATE, LRSD UNPREPARED
FOR
DEFLATION IN PROPERTY VALUES SCENARIO
(April 2012) The state
Department of Education and the Little Rock School District, Arkansas’ largest
district, have no plan to respond to deflation in property values, a problem in
states like California, according to documents obtained under the Freedom of
Information Act by the Policy Foundation.
Deflation in property
values is a macroeconomic problem that has emerged in numerous markets
nationwide since a real estate bubble burst earlier this century. It can lead to a decline in property values, assessments
and tax collections. Arkansas officials’
failure to develop a contingency plan means citizens could face tax hikes or a
reduction in services if deflation emerges.
FOIA:
Citizens Guardian
The Arkansas Freedom of
Information Act1
explains it “is vital in a democratic society that public business be performed
in an open and public manner” in making policy.
FOIA provides citizens with a powerful tool to understand how government
officials are responding to a problem or whether they comprehend the potential
for it to emerge in the future.
The Policy Foundation cited
FOIA and asked to inspect any plans to respond to deflation in property values,
defined as “a decline in prices.” The
state Department of Education, in response, stated “it cannot locate any
records responsive to your request.”2 The Little Rock School District replied it
“does not have any records pertaining to your request.”3
Deflation: Other
Arkansas Officials Pay Attention
Public records and
interviews reveal other Arkansas officials are aware of deflationary scenarios.
Arkansas Gov. Mike Beebe, while state Attorney General, issued Opinion 2005-291,
which cited the Policy Foundation’s research on deflation. State Rep. Tim Summers, R-Bentonville, explained, “I’ve expressed my concern
to several different people at various levels of government.” Summers said the issue is “probably not” short-term. “I’m talking about 10 years from now,” he
said.
Deflation:
Markets Aware of Issue
Financial markets are
aware that deflation in property values has occurred in real estate markets in
the United States, the world’s largest economy, post-2005; and Japan,4 the world’s third largest
marketplace, post-1990.
“Data through December
2011,” Standard & Poors reported Feb. 28, “showed
that all three headline composites ended 2011 at new index lows.”5 The S&P/Case-Shiller Home Price Indices are the leading measures for the
US residential housing market, tracking changes in the value of residential
real estate both nationally as well as in 20 metropolitan regions. Housing prices hit a new 10-year low in the
March 27 Case-Shiller release.
Deflation:
Fiscal Consequences in California
States with deflation in
property values are experiencing some of the greatest revenue shortfalls in the
ensuing post-bubble period. These include California, the bubble’s ground zero.
Stockton, a Central Valley city illustrates the fiscal consequences. Stockton
has defaulted on bond payments for some municipal debt,6 and bankruptcy is being
discussed.7
Analysis:
Reactive or Proactive Government?
Two approaches to solving
problems are reactive and proactive. The reactive approach denies or ignores the
problem. The proactive approach prepares a solution for every contingency. The state Department of Education and Little
Rock School District’s lack of preparation for a possible deflation in property
values sets the stage for a future crisis.
Arkansas citizens deserve better: a proactive solution to maintain
educational services without future tax hikes.
--Greg Kaza
1 PA 93 of 1967
2 Correspondence from ADE General Counsel
Jeremy C. Lasiter, September 15, 2011
3 Correspondence from LRSD CFO Kelsey Bailey,
October 19, 2011
4
Deflation is sometimes termed kakada hakai, i.e., price destruction. Bank of Japan Governor
Masaaki Shirakawa discussed the Japanese central
bank’s efforts toward overcoming deflation in a February 7 speech posted at: http://www.boj.or.jp/en/announcements/press/koen_2012/ko120217a.htm/
5 S&P/Case-Shiller
Home Price Indexes (http://www.housingviews.com/)
7 Feuerstein, Abram S. “Stockton should consider bankruptcy as
option.” The Stockton Record, March 21, 2009
Fitzgerald, Michael. “City may be guinea pig for new law.” The Stockton Record, February 24, 2012
Breitler,
Adam. “Council faces tough choices in
meeting.” The Stockton Record, February 28, 2012