Makin’ power while the wind (subsidy) is still blowin’

Like a nice, steady breeze, the nation’s wind power capacity has been expanding, with Ninth District states making a major contribution. But whether that arc of increase continues could well depend on what Congress decides regarding an expiring tax credit.

After five years of strong growth, the United States now trails only China in installed capacity (47 to 62 gigawatts, respectively) and has 1.5 times the wind-generating capacity of Germany and seven times that of France, according to a comprehensive August report by the U.S. Department of Energy. Wind still makes up a small portion of domestic power generation, at 3.3 percent, but that’s a fourfold increase just since 2006.

Texas is the leader in wind development, and by a wide margin (see Chart 1). But Minnesota and North Dakota are in the top 10 in wind capacity. Minnesota installed as much new wind capacity last year—542 megawatts (MW)—as many states have in sum. South Dakota also made its mark. It has almost 800 MW of wind capacity, virtually all of it installed since 2007, and representing almost all of the state’s increase in power generation over this period. Wind’s share of electricity capacity in the state leapt from less than 2 percent in 2007 to 22 percent, the highest rate in the country (see Table 1).

But the industry is nervously awaiting congressional action on a federal wind energy production tax credit of 2.2 cents per kilowatt hour—currently equal to more than $1 billion annually and set to expire at the end of the year. The credit was created two decades ago and has been extended numerous times or reborn after being allowed to expire. Its renewal is questionable this time around given sentiment in Congress about budget deficits.

The credit's expiration could affect not only future wind power generation in district states, but also district employment at a fair number of manufacturing facilities that supply the various components and services for wind farm development (see map).

Already there have been rumblings, according to local news reports. Otter Tail Corp., of Fergus Falls, Minn., has announced plans to sell DMI Industries, a maker of wind towers in West Fargo, N.D., with the eventual fate of 216 employees unknown. St. Paul-based WindLogics, a wind forecasting company, recently cut 10 employees because development work has stopped.

Officials with Mortenson Construction, one of the largest wind farm builders in the country and located in Golden Valley, Minn., said several hundred jobs could be eliminated if the tax credit expires. In Aberdeen, S.D., officials at the Molded Fiber Glass plant have reportedly put on hold a plan to add 100 to 200 jobs in light of the tax credit limbo.

 Source: U.S. Department of Energy

Plenty of vacancy when it comes to rental data

While there seems to be more local news today about tight rental markets and new apartment developments, you’ll read or hear very little about rental markets on a national, statewide or even regional scale, and you’ll see even less hard data connected to those reports.

That’s because macro data on rental markets are sparse and decentralized. Most data are very local, and there is little aggregation of market activity like demand, rent levels and other matters the public takes for granted in the single-family housing market. In terms of centralized sources for data across states and cities, they start and end with multifamily permits from the U.S. Census Bureau. These data show that multifamily housing construction dried up after the recession and has only recently started to rebound (see cover article in the July fedgazette).

Other surveys by the Census offer some broad-based data on local markets, but come with considerable caveats. For example, the American Community Survey (ACS) and Current Population Survey (both conducted by the Census) measure vacancy rates in the Twin Cities. Unfortunately, annual data for each run only through 2010—a turning point in many rental markets. CPS offers quarterly vacancy rates for the Twin Cities, but these figures can have seasonal volatility. In any case, results from these two public surveys do not conform particularly well with vacancy surveys conducted by private firms in the Twin Cities (Marquette Advisors, CBRE; see chart).

Other “large” cities in the Ninth District are not large enough to attract much attention from private market research firms. The ACS offers data for smaller metropolitan statistical areas, including those in the district, but they tend to suffer the same caveats about timeliness and congruence with local sources.

As a result, understanding local markets is a hunt-and-peck effort. Local data sources are notoriously spotty, in both their volume and reliability, even for fundamental measures like rent levels and vacancies. Industry sources widely acknowledged the lack of good information on rental markets.

“We struggle with a lack of data,” particularly in outstate markets, said Mary Rippe, head of the Minnesota Multi Housing Association. She said rentals were harder to track because historically there’s been no Multiple Listing Service (MLS) that is standard with home sales (more on this in a bit). Turnover is also much higher for rentals and thus harder to track. Even the definition of vacancy introduces some complexity, as a corporate office might have a different definition of vacancy than a building manager for the same unit (if it’s empty but being repaired or updated, for example).

Some rental associations gather data; some do not. In their defense, local associations need to be wary of market surveys so as not to encourage collusion or rent setting, industry sources pointed out. For those associations that gather local data, some make that information available, but many do not. In more than a half-dozen cities with a rental association, information requests to rental associations via both phone and email were either refused or ignored.

The information gap is partially filled in some cities that publish annual reports on city housing, which typically include a section on rental housing. But most local governments “do not track rents charged by owners, and many communities do not even have a rental registration or license program. So they don’t even know who is operating rental housing in the community,” said Sue Speakman-Gomez, president of HousingLink, a Twin Cities clearinghouse of affordable rental housing information. The organization is trying to fill that void, she said, but acknowledged that “we still have a lot of work to do.”

Private data firms are starting to get their rental toes wet. Companies like Zillow have increased their abilities to identify and market local rental properties; the downside is that aggregate data are thin—there are no historical benchmarks for comparison—and privately held. MLS also has started to include rental housing, but Realtor.com—home of the National Association of Realtors—currently lists fewer than 350,000 units nationwide; this for a nation with about 40 million renter-occupied households, according to the Census.

Even among subjects with a strong policy bent, like affordable housing, surprisingly little centralized data are available that might allow for the analysis of broader patterns. For example, the U.S. Department of Housing and Urban Development confirmed that it does not aggregate waiting lists for various housing assistance programs, nor does any state, despite the fact that local housing authorities are required to gather this information. A check of local housing agencies shows that wait lists for public housing and Section 8 assistance vouchers have skyrocketed. (For more, see the July fedgazette article on low-income rental markets.)

REOs: A speedwagon in Minnesota and Michigan

The sluggish housing story is by now an old one, but there continue to be perplexing elements. Data recently released by the Federal Housing Finance Agency, the regulator of Fannie Mae and Freddie Mac, offer one such nugget.

The latest FHFA report on home foreclosure mitigation efforts by the two government enterprises shows that Michigan leads all states in the number of homes owned by Fannie Mae and Freddie Mac as a result of foreclosure (so-called real estate owned, or REO, in banking parlance). The two agencies held more than 20,000 REOs in Michigan at the end of March, the result of an economy decimated by the recession. The good news is that the state’s economy has been rebounding, and the number of REOs there fell by almost 1,700 just since the end of December.

Maybe more surprising, Minnesota ranks sixth nationwide in REOs, at about 8,500—ahead of states with much bigger populations (New York), those more negatively affected by the housing collapse (Arizona, Nevada) or those with seemingly weaker economies (Ohio). California, with seven times the population of Minnesota and an epicenter of the housing crisis, has merely twice the number of REOs. The Gopher State has more than twice as many REOs as neighboring Wisconsin (about 4,000), despite the fact that Fannie and Freddie hold similar portfolios in the two states.

As a percentage of total loans held by Fannie and Freddie, the rate of REOs in Michigan and Minnesota are tops in the country (2 percent and 1.3 percent, respectively; see chart) and almost double the rate of all but six states. The feeder system to REOs—delinquent loans—is not particularly out of whack in either Michigan or Minnesota. The number and rate of seriously delinquent loans (90 or more days past due) are elevated in those two states but well below the national average (see chart) and ranking (positively) in the top half of states.

There appear to be few easy answers behind REO rankings. Queried by the fedgazette, officials with FHFA could not pinpoint reasons for Minnesota's high rank, but indicated that elevated loan delinquency rates, a high incidence of both negative home equity and adjustable-rate mortgages, and even fraud might all be involved (a late-June release of the Mortgage Fraud Index ranked Minnesota third-highest in the country).

Another possible reason is regulatory in nature, as Minnesota and Michigan have longer-than-average redemption periods during the foreclosure process. The right of redemption gives an owner a window of time to completely pay off house-related debt (including fees and other costs) and reclaim the house from foreclosure. Typically, the redemption period begins after the foreclosure sale, according to a Fannie Mae handbook on REO sales, during which time the property cannot be marketed, which “puts most of the sales activities on hold” until the redemption period expires.

Currently, only 15 states have any redemption period, and those for Michigan and Minnesota happen to be the longest, running between six and 12 months, depending on the size of parcel. Redemption periods of one to four months are most common; only three states have redemption periods of six months, and the two of them are North and South Dakota, two states that have had neither the economic nor the housing problems seen in the rest of the country.

Health insurance: Minnesota leads the high-deductible trend

Over the past decade, high-deductible health insurance plans have caught on with firms as a way to reduce the costs of providing health care benefits—primarily by shifting a larger share of medical expenses to employees. These plans include health savings accounts, tax-exempt funds owned by employees that can be used to pay for medical care.

A recent annual survey by America’s Health Insurance Plans, a national trade association, found that HSAs provided coverage for more than 13.5 million people in the United States—about 8 percent of total private insurance enrollment. That’s a marked increase since 2008, and most states in the Ninth District mirror the trend (see chart, at bottom).

The recession and a tepid recovery have had something to do with those increases; cash-strapped employers have turned to high-deductible health plans as an antidote to rising insurance premiums. But the AHIP data reveal considerable variation among Ninth District states in participation in such plans—differences that are difficult to attribute to the downturn or a general rise in premiums.

As of January, 487,000 Minnesotans—roughly 14 percent of private insurance enrollees in the state—were covered by an HSA. In Minnesota and Montana, HSAs accounted for a bigger share of private health insurance coverage than in the country as a whole. However, in other district states, HSA participation rates were lower than the national average.

Some of the divergence in HSA uptake among district states may be a statistical fluke; in this year’s survey, over 2.7 million people nationwide were not assigned to any state because some health plans missed AHIP’s reporting deadline. But health care experts point to differences in health care models and average business size across states as possible explanations.

“Minnesota was an early proponent of high-deductible health plans” in the early 2000s, giving it a head start in HSA growth, said Stephen Parente, a professor of health finance at the University of Minnesota. And Parente notes that a large share of Montana employers are small businesses with fewer than 50 workers. Small firms paying relatively high small-group premiums tend to offer less comprehensive health coverage than big firms.

Less aggressive marketing of HSAs by insurers and a greater emphasis on managed care in clinics may partly account for lower participation rates in Wisconsin and the Dakotas.



CRP: Production potential trumping conservation

Critics of farm subsidies often say the programs “pay farmers not to farm.” While that isn’t a fair characterization of most ag policy, it is literally true of the Conservation Reserve Program, where farmers can collect rental payments from the federal government for voluntarily pulling certain acres from production and returning them to a more natural state.

While that might sound like a can’t-lose business model, farmers across the country and Ninth District have been pulling acreage out of CRP at a fast pace since the recession. From 2000 to 2006, the program saw little fluctuation in enrolled acres. But starting in 2007, district states saw a steady outflow of enrolled acres (see Chart 1). Montana and North Dakota each lost almost 1 million CRP acres over this period (about 29 percent of enrollment), while Wisconsin saw the biggest percentage drop (39 percent), but has easily the smallest enrollment among district states.

The decline in district states reflects—and is a big contributor toward—a broader decline in acreage nationally because the district has nearly 30 percent of all CRP acres. So what’s behind the decline? Simple cost-benefit analysis. Over the past few years, prices for corn, wheat and soybeans have been at sustained highs.

CRP rental rates are determined through a bidding process, whereby interested farmers submit a price at which they will remove acreage from production for 10 years, and the USDA picks which contracts it will purchase. Contract prices have been rising, but they haven’t kept up with crop prices—which, not coincidentally, started rising in 2007. So the fall in CRP acreage simply means farmers believe these acres will be more profitable in production than conservation.

In aggregate, CRP payments might seem big; farmers in each district state have received hundreds of millions of CRP dollars since 2007. But as Chart 2 shows, these payments are tiny relative to overall farm income, and they are likely to decline further if more land exits the program, as many expect. The fact that acres are enrolled under 10-year contracts has probably prevented a faster decline. Those contracts can provide some idea of where the program is heading, which will be the subject of a future Roundup post.

Homeownership is so … 2006

The struggling housing market—still facing ubiquitous “for sale” signs and dour reports on home prices and foreclosures—is now facing yet another, more fundamental challenge. Whether or not by choice, a growing percentage of households are becoming renters.

At the state level, not all district states are seeing quite the same shift, however. Renter households ticked notably higher in Minnesota and Wisconsin from 2006 to 2010, but in Montana and North Dakota, not so much, and South Dakota was in the middle, according to the American Community Survey, conducted by the U.S. Census Bureau (see Chart 1).

But that covers up a lot of variation among the Ninth District’s larger cities, both in the proportion of renter households and in the change seen in recent years. Data for 19 cities in the district show that most (15) saw renter households increase their market share from 2006 to 2010, but four saw a decrease. The city-level renter ratio differed widely, from a decrease of 5 percentage points in Bismarck, N.D., to an increase of almost 10 percentage points in Kalispell, Mont. More than half of the cities (10) saw the share of renters increase by at least two percentage points.

Of the four cities where renters lost household share, three were in Montana. The other was Bismarck (see Chart 2). It’s hard to say exactly what’s behind these outliers. Regional housing markets are not always synchronized with each other or with national housing markets. Bismarck has been booming of late, thanks to the oil boom in the western part of the state, and is reportedly a preferred location for professional firms servicing the oil patch. These well-paid workers may prefer ownership over renting.

Great Falls and Missoula (Mont.) saw a dearth of new rental units during this period, which might have kept a lid on would-be renters. During this five-year period, for example, Great Falls permitted only about 150 new multifamily units, compared with 700 units of single-family housing. Missoula permitted fewer than 600 multifamily units compared with almost 1,600 single-family units.

These figures for renter-occupied housing, now roughly 18 months old, have likely risen further, as rental vacancy rates have been shrinking across much of the Ninth District, a topic that will be featured in depth in the July fedgazette.

In the state-economy race, it’s North Dakota, and everyone else

Everyone loves a good race, except when it’s a runaway, a laugher. In the case of gross domestic product at the state level, nobody’s much enjoying the race, save for North Dakota.

In recent data published by the Bureau of Economic Analysis, North Dakota had easily the highest gross state product in the country, at 7.6 percent, almost 3 percentage points higher than next-place Oregon. Among Ninth District states, Michigan’s economy appears to be finding some footing, thanks to a resurgent auto industry, ranking sixth in the country last year at 2.3 percent (see Chart 1). No other district state managed to outperform the national average of 1.5 percent.*

Maybe more impressive has been the Peace Garden state’s economic stamina. Since 2008, the state has seen its economy grow by 19.7 percent. Only one other state (Louisiana, at 11.9 percent) saw a growth rate even half as fast as North Dakota’s over this period.

There was also some shuffling among district states in their economic performance over this longer period. For example, Minnesota and Wisconsin economies both outperformed the national average since 2008, while Michigan went from the top quintile last year to bottom quintile for this longer period (see Chart 2).

*One methodological note: U.S. GDP values listed here may differ from the National Income and Product Account (NIPA) values because of revisions to both NIPA values and GDP-by-state accounts, which exclude federal military and civilian activity located overseas, which cannot be attributed to particular states.

 

District housing values: A man’s home is his … certificate of deposit?

If you’re not tired yet of reading about how much value your home has lost, here’s a new way to think about it—at least for long-time owners.

The Federal Housing Finance Agency—the regulator for Fannie Mae and Freddie Mac—tracks housing values on a quarterly basis using average price changes in repeat sales or refinancings of the same single-family properties whose mortgages have been purchased or securitized by Fannie or Freddie since 1975.

The most recent FHFA data show that statewide housing values in the first quarter of 2012 inched up in the Dakotas and Montana compared with a year earlier, and were flat in Minnesota and Wisconsin (see Chart 1; note that index values are not adjusted for inflation).

Of course, any statewide index comes with many caveats, the most notable of which is the old real estate saying about location, location, location—certain places have seen more dramatic price swings leading into and out of the recession. Minnesota’s four metro regions have experienced different home appreciation rates over the past two decades, but they follow the same directional path (see Chart 2, at bottom).

But on par, despite significant declines since the recession, housing values over the course of the past two decades are still quite positive, having at least doubled in every district state since 1991, with Montana’s average home value nearly tripling. In terms of annual price appreciation, 20 years is a long maturity. Over this period, compound annual home appreciation runs about 3.5 percent in Minnesota and Wisconsin, 4.4 percent in the Dakotas and 5.5 percent in Montana.

The Dakotas continue to illustrate the tortoise-and-the-hare lesson in real life; having lagged home values in neighboring states, their steady performance and lack of any notable price depreciation has allowed them to catch up and surpass many states, including Minnesota and Wisconsin.

The state(s) of entrepreneurship

Everybody loves a ranking, except when you’re on the unflattering end. That’s particularly the case when it comes to business and entrepreneurial types of rankings, because economic activity and jobs are so desperately desired.

So it is that some states are clapping or wringing their hands over a recently released annual index of entrepreneurial activity by the Kauffman Foundation, the largest foundation in the world dedicated to entrepreneurial research. The index captures new business owners in their first month of significant business activity and then tabulates a score based on a state’s adult population (per 100,000 people). Kauffman uses consecutive-month reports from the Current Population Survey from the U.S. Census Bureau. It flags people who report working for themselves for at least 15 hours per week during the past month (and not doing so the month before that).

District states didn’t fare particularly well in the rankings. Montana was the only state to exceed the national average, and South Dakota came within a whisker (see chart). But North Dakota, Minnesota and Wisconsin lagged well behind.

Such rankings hold some interesting insights into entrepreneurial activity. But they are not particularly good barometers of a state economy or the economic well-being of its residents. For example, among the top six in entrepreneurial activity, half of the states were in the bottom half of per capita income, compared with only two of the six states with the lowest index ranking. Average income gains in 2011 also favored low-ranking states over high-ranking ones. On average, those in the bottom of the index also had lower unemployment than high-entrepreneurial states (see chart). That shouldn’t necessarily be a surprise: States with high unemployment tend to have more self-employed people by necessity as they hustle for any income they can find.

On the other hand, the performance of district states implies an old adage: in all things, moderation. District states rank toward the middle of the index pack, and even toward the lower third for Minnesota and Wisconsin. But their unemployment rates are all considerably below the national average, and per capita income was higher than the national average for three of the five states (Wisconsin and Montana are ranked 25th and 35th, respectively, among states). More to the point in annual rankings, every district state ranked in the top half in per capita income gains in 2011.

One final tidbit: North Dakota saw its 2011 index score drop from a year earlier and is considerably below the national average, yet it has by far the best unemployment rate in the country and had the highest gains in per capita income last year (6.7 percent). That doesn’t mean North Dakota’s entrepreneurial activity is necessarily in a good spot, but it does mean that one can’t read too much into any economic index.

Some Ninth District regions seeing strong population growth

Nothing screams economic activity like population growth because, as the saying goes, people go where the action is. And if that’s the case, North Dakota is getting a little hoarse because it’s getting more crowded.

The U.S. Census Bureau recently published 2011 population estimates for states and their largest population centers. Among the Ninth District’s 15 metropolitan areas, Sioux Falls, S.D., and Bismarck, N.D., led the population pack with a 1.4 percent increase last year. In fact, every district metro saw at least slight growth, save for Grand Forks, which dropped one-half a percentage point (see Table 1).

The Census is also gathering and publishing more data on smaller, so-called micropolitan regions, of which there are 41 scattered across the Ninth District. There was wide variation in population growth among these regions (see Table 2), and total growth for micro regions was slower than for district metros (0.6 percent versus 0.9 percent, respectively). Roughly one-quarter (10) of micro regions saw population declines. But six micro regions saw stronger growth than the top metro areas. Half of them are in western North Dakota, where Minot and Dickinson grew by 3 percent or more, and Williston grew an astounding 8 percent last year.

Migration and demographics play important roles in population change, as people move into and out of communities, while the existing population experiences both births and deaths. Unfortunately, new population statistics don’t tell us how many of each occurred in various communities. Communities in Ninth District states harbor fairly similar demographics in terms of age and fertility rates that would make local population change from births and deaths reasonably consistent and predictable in a given year.

Migration is likely the biggest factor in population performance, particularly among outliers. In western North Dakota, it’s clear people are migrating to the oil patch for jobs—a topic covered in depth in the April fedgazette online later this month.