Published January 1, 2001 | January 2001 issue
I read, with interest, your article in the October 2000 issue of fedgazette concerning payday loans. The State Bank of Eagle Butte has operated a commercial bank on the Cheyenne River Indian Reservation for 40 years. A great number of our customers have incomes below the median family income level and a great number are below the poverty level. As some in your article stated, these persons cannot weather even minor financial difficulties.
Without spending a lot of time defending the pros and cons of the situation outlined in the article, I can comment on a few issues raised in the article. From my standpoint, it appears very true that most customers do not care about the cost of credit. When you are in danger of having your utilities cut off or putting food on the table, obtaining the credit is the important issue, not what it costs. In today's economy, trying to raise a family on even $40,000 in income is a struggle. I do not have any firm evidence, but my experience indicates that most lower-middle- and low-income borrowers are not seeking small-dollar loans for discretionary purchasesthey are mainly for basic needs such as heat, food, clothing, etc.
While it is true that the "fringe banking" businesses provide services not readily obtainable through traditional banking channels, I question the need for the outrageous fees charged. I think we have our share of collection problems. We also have the additional problems of dealing with a tribal justice system, which many times is somewhat difficult to navigate.
The bank makes a lot of low-dollar loans, $25 and up. We charge a minimum finance fee to help cover our paperwork expenses and interest rates comparable to the national credit card rates. Our delinquency rates are probably higher than most banks would accept. Our loan losses are also probably higher. Overall, repayment is not as bad as one might expect; although, we might work a little harder to get repayment. The bottom line is that this particular segment of our portfolio is profitable without resorting to "legalized loan-sharking."
My concern is that I fail to see the net benefit to the customer if one has added one more burden to deal with for persons who already suffer from inadequate incomes to provide even a small financial cushion to deal with even relatively minor, unexpected expenses.
We can't help everyone, but I don't believe the "fringe banking" providers do either. I am not one that believes in much government regulation, but when something is so wrong and so unconscionable as the rates charged on these services, some regulation must be put in. In South Dakota, which has no usury rate, I don't believe the Legislature ever envisioned this type of abuse. I was somewhat amused at the comments by Mr. Busse of Advantage Loans in Rapid City. While I did not quite understand how he arrived at the repayment amounts he used, by my calculations, given the information presented, he still generated at least $725 in interest on an initial loan of $500.
My observations and thoughts are my own and do not necessarily reflect the position of the State Bank of Eagle Butte.
Martin G. Hersrud
State Bank of Eagle Butte (S.D.)
Thanks for the interesting article in the October 2000 fedgazette regarding regional airports. I happen to have both feet in this one!
As a tourism specialist in a tourism community, I maintain an ongoing interest in the role regional airports play in serving outstate areas for the delivery of visitors to local communities. In fact, we at the University of Minnesota's Tourism Center are currently completing a study on barriers to increasing international visitation to Minnesota and the role airports play in that regard.
I also happen to be a commissioner of the Grand Rapids/Itasca County regional airport. We've been fortunate to see enough growth in enplanements to put us over the 10,000 level, thereby giving us access to federal dollars for airport improvements. We have a new terminal, new ILS landing system (thanks to Rep. Oberstar, of course) and a significant pent-up demand for hangar space from our private pilots.
I will be very interested to see the January issue where you explore, among other things, the role of government subsidies. We have access to excellent federal and state (MNDOT) grant programs offering capital improvement project assistance in a 90/10 (fed/local) split or, in the case of Minnesota, 60/40 (MNDOT/local) cost-sharing arrangement. These are very attractive incentives to move ahead and either (1) take care of the ever-increasing requirements being placed on airports by the FAA or (2) anticipate and make site improvements driven by the competitive marketplace. As an example of the latter, we are in need of a 1,000-foot runway extension to accommodate the regional jets that are expected to eventually replace the smaller Saab 340 prop-jets currently being flown into Grand Rapids by Mesaba/Northwest Airlink.
As a commission, the dilemma we are increasingly seeing, however, is the rising operations and maintenance costs associated with these needed "assisted" system upgrades. The grant program monies generally can only be used for capital expenditures. O&M increases must come from increased revenue streams or local support (county and city). Mesaba, as you implied in your report, has cut back service here by one flight a day, so revenues aren't jumping ahead to keep up with higher budget needs associated with the capital improvements. Further, local support is always a hard sell. It is usually a lack-of-awareness issue in elected leaders understanding the economic role a regional airport plays and stepping up to the plate financially.
Enough said. I look forward to your upcoming coverage. If I can be of any assistance, let me know.
Associate Director, Tourism Center
Extension Educator & Associate Professor
University of Minnesota Extension Service
Grand Rapids, Minn.
I read your editorial opinion concerning tax abatements in the July 2000 edition of fedgazette and felt a need to respond.
As the former president/CEO of the nation's largest statewide association of economic developers here in Texas and now in a small town practicing what I used to preach, I can tell you that tax abatements are sometimes a necessary tool in attracting good companies to Bastrop, Texas.
First, we need to call industrial tax abatements what they really aretax phase-ins. An industry must eventually pay its full share of taxes. In Texas, taxes can't be abated more than 10 years. Usually they are phased-in much sooner. This is an excellent economic development tool when used properly.
True tax abatements are items such as: homestead exemptions, agriculture exemptions and property tax freezes for persons over 65 years of age. Those are real tax abatements. They go on forever. I'm certainly not for eliminating those "tax abatements" and I would hope others would agree.
Remember, farmers and ranchers are business owners. If they had to pay the full assessed value of their land, it would put them out of business. For instance, agriculture-exempt land in our area is on the tax rolls for $15 to $70 per acre! None of this land could be purchased today for less than $1,000 per acre. However, if we do away with "tax abatements" for companies, wouldn't it be correct to eliminate this exemption also?
Recently a large electric power company asked for a 50 percent tax abatement for the first couple of years on their new gas-fired power plant they have planned for our area. They won't be employing many people, so the impact to schools will be minimal and our schools do not abate taxes anyway. This is a win-win situation for the county. They get an additional $500 million added value to the tax rolls and the company gets a small tax break until they can start selling their electricity.
In reality, property taxes are a poor way of taxing our citizens, but it is the best system that is available currently in Texas. We don't have personal or corporate income taxes, and sales taxes can't provide enough revenue stream to support government. Besides, sales taxes are a regressive tax that hurts poorer people much more proportionately.
Thanks for the opportunity to "vent." I wish the nation had a better system for economic development incentives, but doing away with tax abatements is not the answer at this time. We also need to completely restructure the federal income tax system, but that probably won't happen either.
Joe D. Newman
Bastrop Economic Development. Corp.
I suppose it is a bit unusual for a professor of engineering to be a frequent reader of the fedgazette, but I find the paper to be both very useful and quite stimulating. I would like to add a couple of additional considerations to Art Rolnick's comments on development subsidies that appeared in the July issue. I agree with Dr. Rolnick's conclusions, in part because of his own arguments but also because of two point that were not directly mentioned:
A big problem with development subsidies is that they frequently go to the wrong companiesoften to companies short of money in part due to their own ineptitude. Northwest Airlines is a case in point. It has been nearly 10 years since the leveraged buyout and the company still has a tangible net deficit of nearly $1.3 billion. What probably should have happened is that Minnesota should have let the company succumb to the natural consequences of inept, irresponsible management and then work out a more cooperative program with some qualified strategic partner. As it turned out, Minnesota provided a mechanism to salvage the investment of short-term opportunistic and not very capable investors while the citizens of the state were rewarded with some of the highest ticket prices in the nation.
Rural communities will be at no disadvantage if developmental subsidies are constrained. Our family just returned from a visit to 11 Eastern states from New Hampshire through Virginia. We visited New York, Boston, Baltimore, New Haven, Philadelphia and Providence. There is no natural tendency for industry to relocate to any of these places. Manufacturing employment is declining at roughly 20 percent per decade in most of them. At the same time, what manufacturing employment gains that we have are primarily in rural, or semi-rural, communities. I do wonder what will happen to large core cities as their industrial employment wanes even further, but I do not worry about rural communities being at a disadvantage if developmental subsidies are curtailed.
Thank you for your time. The fedgazette is a great paper.
Frederick M. Zimmerman
Professor of Engineering
University of St. Thomas
St. Paul, Minn.