| In 1997 the US Congress approved the Real | | | | revenue and ability to maintain staffing and city |
| Estate Capital gains tax cut, which eliminated the | | | | services at current level and city worker |
| capital gains tax on primary home real estate held | | | | pensions. Austin has felt some of the pinch, in |
| over two years for single filers up to $250,000 | | | | the form of higher interest rates on short-term |
| and $500,000 to married couples. This made real | | | | debt. The interest rates rose from 2 percent to |
| estate the most favored investment class. Soon | | | | 8 percent costing the city $85,000 in interest and |
| there was a rise in real estate prices in an | | | | about $70 million of debt in the last week. Austin |
| unprecedented manner which continued over the | | | | Energy and Austin Water Utility count on variable |
| next ten years. Some point after 2000, in many | | | | rate bonds and short-term debt to pay for capital |
| places, it became cheaper to rent than to own, | | | | improvement projects such as construction of |
| an obvious sign of over-inflated prices. | | | | wastewater lines. Currently Austin has $207 |
| Around the same time | | | | million in commercial paper. The city has since |
| Congress was persuaded to pressure the | | | | stopped issuing new short-term debt, hoping the |
| mortgage industry to provide loans to those it | | | | investors will come back to the market. In the |
| claimed had been unjustly denied loans in the | | | | mean-time the city utilities will use cash on hand |
| past. This meant having loans with lower | | | | to pay for capital improvement projects. An |
| standards than in the past. If they agreed to | | | | economic downturn is the best time to trim the |
| lower their loan standards, unlimited funds would | | | | fat from the city budget such as former City |
| become available from Freddie Mac and Fannie | | | | Council member Toby Futrell retired at $175,000 a |
| Mae. Around 2003 several proposals came from | | | | year for life for the time she spent on the board. |
| The White House to change this system | | | | It is expected that it will cost |
| drastically but efforts to do so were rebuffed by | | | | the Texas Department of Transportation more |
| Congress. Companies who originated the | | | | than $22 million if the jump in interest were to |
| mortgages managed to sell them to Wall Street | | | | continue for a full year. The agency has issued |
| firms who were looking to obtain higher yields on | | | | more than $10 billion in long-term debt which has |
| their proprietary trading portfolios leveraging up | | | | fixed interest rates between 4 and 5 percent. It |
| and over 30:1, which became very profitable for | | | | also has $500 million in debt that has variable |
| those firms until losses exceeded 3 percent. | | | | rates and in the past two weeks has rose from 2 |
| Neither Freddie Mac nor Fannie | | | | percent to 8 percent. The weekly interest cost |
| Mae should have been created as the | | | | on the $500 million has increased form $390,000 |
| government had no legitimate role in conducting | | | | to more than $818,000. Despite these numbers |
| commerce. In addition, the pressure Congress | | | | Austin officials state that other than the rise in |
| put on the mortgage organization to make loans | | | | interest rates, there hasn't been much fallout |
| to those who, under normal standards wouldn't | | | | locally. |
| have qualified for a loan, has played a big part of | | | | Although the mortgage crisis |
| this debacle. Some may wonder how this is | | | | isn’t the only reason we are in this trouble, it |
| affecting Austin. In the next few paragraphs you | | | | is one that affects the entire nation tremendously |
| will see the affect it has on Austin. | | | | regardless of your personal status. Asset bubbles |
| Austin City Council members | | | | happen every few years and will continue to |
| have asked their staff to make a presentation | | | | happen. Prices must simply be allowed to adjust |
| about how the national economic troubles could | | | | down and eventually we can get out of this |
| affect the city. The main focus of the staff's | | | | financial crisis. |
| perspective is on future sales tax, property tax | | | | |