What I Learned Today

By law, the state of California maintains a website listing “the 500 largest delinquent sales and use tax accounts over $100,000.” I came across this while doing some investigative research on California’s peculiar use tax. More on that in another post, perhaps.

The Top 500 Sales & Use Tax Delinquencies in California page has some fascinating content. The largest delinquent account comes in at $18,433,917. That’s right, “CALIF. TARGET ENTERPRISES INC.” owes the state of California more than 18 million dollars! (That’s not Target the retailer, but someone else.)

Naturally, we might wish that the state could collect on these accounts and possibly help reduce its deficit (which is about $13 billion, so CALIF. TARGET ENTERPRISES INC would only be able to contribute a drop in the bucket. Still.). And surely the state has some more proactive means for doing this than simply posting a passive website. However:

“Since the inception of this program, the Board of Equalization has received a total of $5.3 million from 40 qualifying taxpayers that came forward to take care of their debts: 27 through installment payment agreements and 13 by making payment in full.”

So hey, maybe public shame works. For some.

In the grocery store yesterday, I was weighing options in the cereal isle. I really wanted to get some Raisin Bran Crunch or Kashi cereal, but both were something like $4 per box. That seems like a lot for a box of cereal. Some of the cheap stuff is down to $2.50. Shouldn’t I get that instead?

Holy Hell, I thought. IF I WANT THE $4 BOX OF CEREAL, I CAN BUY THE $4 BOX OF CEREAL!

It seems that early frugality is a hard habit to kick. (It’s not clear that I *want* to kick it, which is part of the complexity.) When I was growing up, my family was, let’s say, financially challenged. We had food stamps, and we knew which days you could show up at the food bank and get free blocks of cheese. Things were always tight, but I never felt the pinch of true poverty. I guess I noticed things got a little awkward when I happily showed up to middle school wearing hand-me-downs from *a girl in my class* (her mother worked with my mother and took pity on us). At any rate, it seemed totally normal to me to always do things yourself rather than paying someone else to do them, and to always seek out the best possible deal, no matter how much time it took.

I still tally my grocery bill in my head when unloading my cart onto the belt. That’s a carryover from college, when I had exactly $20 to cover each week’s food and could not overspend. I’m scrupulous about paying for my portion of meals or outings because I’d be mortified to infringe on someone else’s budget or resources — what if it was money they couldn’t spare?

I’ve worked to whittle away at some of these habits, mainly in the domain of trading time for money. Time really IS worth more to me, so now I pay housecleaners and a gardener to take care of things that now afford me a little more free time. I’m fortunate enough to be paid well enough that having enough money is simply a non-concern. As a result, money has shrunk in significance to the point where raises at work provide zero motivation for me. (But wait, don’t raises inspire higher performance? NO! See this totally awesome RSAnimate on Motivation for just one argument about why not.) That makes it all the more ludicrous when I’m making grocery decisions based on a 20-cent difference in pasta brands.

But yeah. This time I went home with the cereal, at full price. Next thing you know, I’ll be hiring someone to do my shopping for me. Well, probably not… but that’d be another hour a week for violin practice or disc golf or studying cryptography or another billion things. Maybe it’s not such a crazy idea after all!

On sabbatical from my job, and no longer a student, I’m for the first time in a position where I need to find my own health insurance. I started seeking out options to provide at least catastrophic coverage in case anything should happen during this period. Happily, it turns out that there are some providers that offer exactly what I need: short-term coverage for otherwise healthy people while between jobs (or for students who’ve just graduated, etc.).

Previously I knew about PPOs and HMOs, but short-term insurance is a third kind: indemnity. This means that you’re not restricted to any particular network, but can instead go wherever you want. You simply specify the deductible you’re willing to absorb, and how many days you want coverage for (usually up to 180), and pay the specified amount. After the deductible is met, these plans generally cover either 50% (or 80% for a higher rate) of additional expenses. The nice thing is that you can get your policy activated almost immediately, since there is no underwriting or health exam involved. Essentially, insurance is reduced to its bare essentials: protection against a major event. Pre-existing conditions are *not* covered.

The two main options I identified for coverage in Oregon are Regence and PacificSource. The rates were almost identical (about $1.75/day for a $1000 deductible). Regence was a little better about providing details on what was and was not covered up front, so they got my business.

I’m pleased to have learned that there is a niche type of insurance that provides just what I needed. If I’d had to sign up for a “regular” individual policy, the rates would have been a lot higher, and I was told it would take weeks to get it set up. The coverage probably would be a little more extensive (e.g., copays for prescriptions and doctor visits rather than having to use up your deductible first), but for a short-term solution, I think this is just right.

When your money starts piling up in a savings account with a 0.5% interest rate, you know you need to take action. On a friend’s recommendation, I checked out Lending Club, an organization that facilitates loans between individuals (more information from wikipedia’s article on Lending Club). Rather than paying 29% interest to a credit card company, for example, a borrower can post a request for a $10,000 loan to pay off the credit card at a 15% (or other) rate, and a suite of investors can choose to fund that loan in small increments. Collectively, they provide a loan to the borrower — and they also collectively absorb the risk associated with the loan.

It’s quite an interesting concept. You can review each individual loan in which you might want to invest, which details all of the relevant information about the borrower, including their credit score, a loan risk rating, the interest rate (assigned by Lending Club), the amount of debt they currently have, their credit history, etc. You can then decide how much money to allocate to the low-risk (but lower return) loans versus the high-risk (but potentially higher return) ones. I opted for a conservative mix of mostly lower risk loans, to try it out.

I opened an account with $1000, which is now spread across 40 notes ($25 each). My instinct would have been to make larger investments in fewer loans, but this seems to be the default strategy recommended by the site, so I’ll see how it goes. Browsing the loan options was almost as interesting in a social sense as in a financial one. Each person has their own story and personality associated with their loan request. The vast majority of the loans I saw were for debt (usually credit card) consolidation purposes. (Some people have frighteningly large revolving credit balances, like $50,000!!!???!) Other common loan types were home improvements, wedding expenses, and medical expenses. Some were to pay off an existing Lending Club loan that had a higher interest rate — which seems a smart bootstrapping process; after making some payments, your credit rating may improve and thereby qualify you for a lower rate. I think it definitely makes sense to take advantage of such an opportunity, as a borrower.

For me, as an investor, the cost so far has been my $1000 plus the 30 minutes it took to browse and select 40 loans. The site does offer an automated portfolio builder (given a specified risk level) which provided a starting point, but I was unwilling to blindly accept its choices without at least reviewing them. I replaced some with others that seemed more attractive (or meritorious). The site offers the ability for investors to post questions to the borrowers, which are publicly visible; these conversations were often more useful than the initial description of the loan on the borrower’s part.

After selecting my 40 loans, I was given the following summary:

• Average interest rate: 10.88%
• Expected default: 1.51%
• Service charge: 0.6%
• Projected return: 8.76%

I’ll keep an eye on it to see just how good that projection is!

One other aspect of the account creation process I found interesting was that to open an account you have to certify the following:

I currently reside in one of the following states: CA, CO, CT, DE, FL, GA, HI, ID, IL, KY, LA, ME, MN, MO, MS, MT, NH, NV, NY, RI, SC, SD, UT, VA, WA, WI, WV, or WY;
I have an annual gross income of at least $70,000 ($85,000 if residing in CA) and a net worth (exclusive of home, home furnishings and automobile) of at least $70,000 ($85,000 if residing in CA); or a net worth of at least $250,000(determined with the same exclusions) ($200,000 if residing in CA), OR, if I live in Kentucky, that I am an “Accredited Investor” as determined pursuant to Rule 501(a) of Regulation D under the Securities Act of 1933, AND,
I will not purchase notes in an amount in excess of 10% of my net worth, determined exclusive of my home, home furnishings and automobile and if I live in California and do not satisfy any of the above tests, I will not invest more than $2,500 in Notes.

This makes me wonder what happens if you violate this certification. What if my AGI dropped below $85,000? What if I invested more than 10% of my net worth? What if I moved to Oregon? Would they cancel my account? Reject my money? And where did this kind of “certify that you’re a sensible person” requirement come from? There’s a story there, I’m sure.

As a homeowner, I’m used to getting all sorts of shady offers in the mail for new mortgages with astoundingly bad terms. But now that home values are declining, the free market has spawned a new kind of scam, at least in California. In our fair state, home values are reassessed only when they are sold (hoo boy, Prop 13!). In the meantime, the County Assessor assumes that your home value increases by about 2% each year and increases your property taxes accordingly. Historically, this has been a win for homeowners, whose property value was outpacing 2% by leaps and bounds, and a increasingly problematic loss for any local tax-supported services (such as school funding).

Anyway, these new offers take the form of a letter warning you that your home is probably worth less than the county thinks it is, and giving you the opportunity to pay a third party company to file a “tax reassessment” form to have the property properly revalued (and get a lower property tax bill). What makes this such a miserable scam is that anyone can file this form themselves, for free. Here are online instructions, with the online form. Not only that, but the County Assessor is pre-emptively re-assessing 500,000 homes this year (sold between 2003 and 2008) to see if they should be adjusted — you don’t even have to file the form! The County Assessor’s office is clearly exasperated with this scam, too, and has posted a scam warning on the subject.

Recently, I received one of these offers that really took the cake. Not only did the letter from “Property Tax Adjustment Services” try to entice me to pay for a free service, but it actually came formatted as a bill — complete with a “due date” and a “late charge” if payment was not received by the deadline! As I stared at the “bill”, it seemed strangely familiar… so familiar that I went and dug up my actual property tax bill. They are formatted virtually identically. See image at right (click to enlarge). The “reassessment bill” is on top, and my property tax bill is on the bottom (actual numbers removed). Obviously they’re hoping that I as a busy homeowner might glance at this and think it comes from the County Assessor’s office and is a required payment.

This scam letter actually does mention the fact that you can file the form yourself (but not that it’s free to do so). It also warns that “Property Tax Adjustment Services” is an expert business who will ensure that it gets done right. Yeah. The form requires all of three pieces of information: your home’s address and the addresses of two comparable recent sales. This information is available easily from the County Assessor’s website, which even has a browsable map interface so you can see all recent sales near your home.

Disgusting, is what it is. Or simple capitalism in action? Caveat emptor!