Star-Telegram.com: Mitchell Schnurman

On energy, we need to strike a balance between free markets and government regulation

Sat, 16 Aug 2008 00:00 CDT

MITCHELL SCHNURMAN

This should be a grand time for ethanol, with sales climbing and high gasoline prices making every alternative fuel more attractive.

But the ethanol push is looking like a noble idea gone bad. Growth of the liquid biofuel pushed up corn prices and feed costs for cattle and poultry, badly damaging the livestock industry in Texas and elsewhere.

"It’s doing more harm than good," said Gov. Rick Perry, who petitioned regulators to cut the federal mandates for ethanol production but was denied.

The ethanol experience shows what can happen when government tries to pick winners and losers, only to create unintended consequences.

That doesn’t mean we should rule out incentives and mandates. That’s an impractical, self-destructive notion, considering how government successfully spurred railroads, highways, airports, the Internet and much of our industrial base.

The trick lies in striking a fair balance — encouraging new development and innovation without biasing the system toward one player.

As an ethanol counterpoint, consider Texas’ success with wind power. The state has become the country’s leader in wind-power generation and a symbol of what government and market forces can do by working together.

Incentives for ethanol and wind power are similar, with both having a price subsidy and a mandate on production. But Texas set such a low threshold for renewable energy that the generators hit it easily, and they’re already close to meeting the state goals for 2015.

Power companies have built 5,605 megawatts of wind power in Texas, more than double the next largest state; 3,162 megawatts are under construction, more than one-third of the new capacity being developed nationwide.

Texas has some natural advantages, including wide-open spaces and steady wind. It has its own power grid, too, so companies face fewer regulations and can get their wind farms up and running faster.

Of course, Texas also has a competitive electric market. Consumers aren’t thrilled with the experiment because rates have climbed sharply. But the state seems to have the right mix on wind.

A task force recently released a lengthy report on Texas energy and offered dozens of recommendations. No. 1 was to keep the status quo on incentives and competition because of the rapid investment in wind energy.

Boone Pickens has put wind power at the center of a personal crusade on energy, promoting his plan nationwide. And state regulators recently approved $4.9 billion in new transmission lines that can serve wind farms in West Texas, to be paid for by ratepayers. Other generators can use the lines, but they open the door for more renewables.

Grain-based ethanol has a few strikes against it. It takes a lot of energy to produce, and because corn is pushed from one sector to another — from feed to fuel — it hurts the livestock business.

Maybe the next generation of ethanol, made with grasses, can develop into a valuable fuel without the negative impact.

The federal ethanol policy calls for a 51-cent subsidy on each gallon, plus some high production numbers. In 2005, 4 billion gallons of ethanol were produced. This year, the industry must generate at least 9 billion gallons (including a small contribution from biodiesel). Next year, the mandate rises to 11 billion.

Perry said the EPA’s rejection of his request to lower the mandate "not only goes against common sense but every American’s grocery bill."

Ethanol industry is backed by a strong lobby and power political friends in Washington. That’s not unusual, but it’s troublesome, undermining a marketplace that rewards smart people for innovating, James Eaves of Laval University in Quebec said.

"When the government steps in and says we’re going to replace gasoline with X or Y, it cuts out all those smart people and instead replaces them with a lobby that’s only purpose is to keep the subsidies flowing," Eaves said in an e-mail interview.

The purest way to push alternative fuels without biasing the system is a stiff gasoline tax, Eaves said. The proceeds could go to the public as a rebate or a tax cut to avoid harming consumers.

Schnurman: D.R. Horton funded down payments for 29% of its sales last quarter

Tue, 12 Aug 2008 22:33 CDT

You already know that subprime lenders aren’t around anymore, dangling a home loan with no down payment. So guess who’s picking up the slack?

D.R. Horton, the nation’s largest home builder, provided the down payment for 29 percent of its home sales in its latest quarter, ended in June. Lennar Corp. covered it for a third of its recent buyers. And Centex did so in 4 out of every 10 sales.

In 2000, back when most home buyers still had to save for a down payment, these incentives accounted for less than 2 percent of FHA loans. By early 2008, when subprime loans had become history, builders and home sellers made the down payment on more than 37 percent of FHA loans — a remarkable share of the market.

That gravy train is coming to an end, and it’s long overdue, after watching easy money and lax lending savage the housing industry. The Federal Housing Administration has opposed "seller-funded down-payment assistance plans" for a decade, and this summer’s housing bill bans them from FHA loans after Oct. 1.

The rationale for the new rule is simple: Big incentives may spur sales and get some marginal borrowers into a house, but they’re often a bad deal for buyers and the FHA.

They lead to higher selling prices — a reflection of the added incentive, not a rising market. And assisted buyers are almost three times more likely to end up in foreclosure than people who save their own down payment.

"We simply cannot sustain this business," a senior housing official told a House committee in April.

For Horton, this is another painful blow. The company covers down payments more often than most builders, and uses more of the aid in its South Central region, which includes Texas, and in the Southwest and Southeast.

Horton started in Fort Worth 40 years ago and sells more than twice as many houses in this part of the country.

The company’s chief executive, Don Tomnitz, says he can’t understand why the White House and Congress agreed to the new ban while housing and home building are in dire shape.

"If I knew the answer to that question, I’d probably be a vice presidential candidate," Tomnitz said in a conference call last week, after an analyst asked why the program was eliminated.

"I am absolutely shocked by it," Tomnitz continued. "And I am upset by it, and I don’t want to go any further than that, because my [management ] team is going to get me."

But Tomnitz couldn’t stop: "To take 10 percent, 20 percent, 30 percent of the buyers out of the home-building buying decision at [this] point in the economy . . . is absolutely ludicrous."

It’s easy to feel the company’s pain. For 30 years, Horton racked up record sales and profits, as it expanded nationwide and helped feed America’s appetite for new homes. Then the bottom fell out, and Horton reported net losses of $2.5 billion in the past 21 months.

Last week, the builder reported that sales dropped 36 percent for the three months ended in June. That follows a 40 percent drop for the same quarter last year.

Cancellation rates are huge, too, with almost 4 of every 10 buyers walking away from contracts in the quarter. Tomnitz says he isn’t bothered, because he wants sales agents to push the envelope.

"If the buyer is warm and has a pulse, we need to be writing them and trying to qualify them to put them in a home," he said. "I applaud our salespeople, because then I sleep well at night realizing that they have left no buyer unturned."

Isn’t that the mind-set that got us in this mess in the first place?

David O’Brien, executive director of Housing Opportunities of Fort Worth, says that many builders are so eager to move their property that they downplay the costs of taxes, insurance and upkeep.

Incentives may sell the house, O’Brien says, "but if [buyers] can’t handle it, who really benefits?"

Schnurman: If it makes sense to close a terminal at D/FW Airport, just do it

Sat, 09 Aug 2008 00:37 CDT

MITCHELL SCHNURMAN

For a while last week, Dallas/Forth Worth Airport toyed with the notion of getting smaller.

This seems a sensible idea, given the retrenchment in the airline industry and the shrinking at American Airlines, its dominant tenant. Plus, there’s the high vacancy rate at the airport — 40 of 155 gates are not being used today, and that’s before American cuts more flights and jobs this fall.

So why not consider shutting an entire terminal or at least a large portion of one?

The savings in operations would help close the shortfall in next year’s budget, which is why D/FW included the option on a list of possible budget actions last week. But after the item made front-page news in the Star-Telegram, the airport heard from vendors, concessionaires and employees, and officials quickly backpedaled.

Jeff Fegan, D/FW’s chief executive, started Thursday’s airport board meeting with this assurance: "All of D/FW’s five terminals are open and will be open for some time to come," he said.

Fegan blamed a headline writer for the confusion, even though the report was spot-on. Then Fort Worth Mayor Mike Moncrief joked that he ought to issue a formal statement, which made everyone chuckle.

The terminals’ status became a running joke, with others issuing their own comforting words, as if the proposal were absurd on its face.

Could they wilt any faster?

Rather than run away from the idea at the first sign of public heat, the airport board should muster up some political courage and demand that this be explored carefully. The airline business will be in the tank for a while, so the long-term payoff from mothballing a terminal might be justified, even with the cost of relocating some carriers and retail outlets.

If an analysis concludes that the strategy is too expensive or disruptive, at least we’ll know the airport moved beyond the denial stage.

For at least three years, D/FW has had too much excess space sucking up operating dollars while it has waited on a white knight to arrive. Delta announced that it would close its local hub in September 2004, ultimately abandoning two dozen gates. Not long after, D/FW opened an international terminal that added 28 gates to the inventory.

At the time, airport officials weren’t worried about the vacancies, saying other airlines were in the wings to "backfill" the holes. Officials talked about the possibility of a single discount carrier leasing 20 gates. Even today, they insist that excess capacity could become an advantage when the industry turns around.

Someday, maybe, but almost every airline is pulling back, and if high fuel prices are the new reality, serious expansion won’t be in the cards for many, many years. D/FW projects that in 2009, passengers and flight operations will fall because of American’s reductions. If the airport’s numbers are right, there will be 22 percent fewer takeoffs and landings and 8 percent less passenger traffic than before Delta left.

Meanwhile, the airport faces $296 million in debt service next year, accounting for a whopping 47 percent of its budget. That’s the price for the international terminal and people mover, financed with almost $3 billion in borrowing.

It’s fair to ask, in hindsight, whether D/FW needed such a lavish addition. But it’s academic at this point and more useful to focus on what’s next.

RadioShack and Pier 1 Imports both spent heavily on new headquarters early in the decade, only to see their retail sales tumble soon afterward. They ended up selling their buildings and leasing space from the new owners.

The Star-Telegram, facing its own financial squeeze, is trying to sell its annex building and parking lot adjacent to its downtown headquarters.

And American has been cutting everything in sight for years, recently selling its mutual-fund business.

But government and public agencies almost always grow, as if it were in their DNA. At D/FW, annual operating budgets have ballooned this decade despite the turmoil in the airline business. The airport’s spending on wages and benefits alone is up 41 percent since 2002. By comparison, American has cut the same category during the same time by almost 22 percent.

For next year, D/FW approved a budget of $640 million, unchanged from fiscal 2008. Board members lavished praise on the airport staff for keeping the budget flat (albeit with the help of $10 million from the capital fund).

Schnurman: Big business isn't ready to bail out on dereg

Wed, 06 Aug 2008 00:52 CDT

MITCHELL SCHNURMAN

Most Texans feel pinched by their electric bills these days, but not many can relate to Alcoa’s squeeze.

A few months ago, the giant aluminum company had to turn to the spot market for electricity at its smelter in Rockdale, about 60 miles northeast of Austin. With its usual electric supply drying up, the company paid four times more than its standard rate to keep the plant operating.

The unexpected expense cost Alcoa $22 million and was highlighted in its quarterly results. Alcoa responded by laying off 250 people at the plant and halving output.

"We have no choice but to idle production that is reliant on uncompetitive power," Alcoa’s president of primary metals said at the time.

For Texas to be "uncompetitive" in something so crucial to operating a business is a shocker. State leaders constantly brag about Texas’ being the top place to do business, and media outlets frequently confirm that standing.

So Alcoa’s action poses a threat, at least to Texas’ experiment with electric deregulation. It indicates that soaring prices are clipping businesses as well as residents, and it could give some employers second thoughts about expanding in the state.

For the past two to three years, homeowners and renters have been stung the worst by higher electric costs. Most companies seemed to be ahead of the curve, buying power in large blocks that afforded significant discounts.

Things have changed this spring and summer, in part because natural gas prices climbed. Then the increase was compounded by congestion in transmission lines and rumors of market manipulation, and wholesale prices spiked to unheard-of levels.

Alcoa was caught short at exactly the wrong time and decided it couldn’t risk more hits in the state. Industry leaders say they’re not aware of other companies that have cut capacity for the same reason. But they acknowledge that electric prices — a longtime drawing card for Texas — have become a competitive disadvantage.

What’s surprising is that they don’t blame deregulation, which ended most rules in the power market six years ago.

"While we’ve had some startup problems and need some things to be handled in a different way, we firmly believe that a deregulated market is the way to go," says Tony Bennett, chairman of the Texas Association of Manufacturers and vice president of government affairs at Temple-Inland.

He says that a number of association members have had a sharp spike in electric rates this summer, echoing the problems at Alcoa. But he declined to name the companies, and he said Texas’ other attributes — including low costs for labor, land and taxes — continue to be a draw.

Several states in the South offer electricity at roughly half the price of Texas’, he says, and his members monitor the rates closely. Over the long term, Bennett expects the cost gap to narrow, figuring that prices will rise in other states as they build new (and more expensive) power plants. And he’s optimistic that prices in Texas will fall as more generation comes online.

Bill Hammond, president of the Texas Association of Business, says his group remains committed to dereg. He says the answer to higher prices is to add power sources, including clean coal, wind and nuclear.

"To say that deregulation is causing our prices to go up is just Orwellian," Hammond says.

One group of large electric users has criticized deregulation in other parts of the country but not in Texas. The Electricity Consumers Resource Council (Elcon) says changes in the Midwest and Northeast have punished big industrial customers, which make up its membership.

The group cited three plants in Delaware and New Jersey that had been shuttered because companies couldn’t afford the spike in power rates.

But members were generally pleased with results in Texas, at least until recently, says John Anderson, Elcon’s president.

"It appeared to be working, until all those price spikes," Anderson says. "Now, Texas has caught the attention of the industrials. The question is whether this is a short-term problem that will correct."

That’s the optimistic promise of a free marketplace — that players, consumers and businesses will respond in innovative ways. Texas has already attracted scores of new power plants since deregulation. Unfortunately, most operate on natural gas, the price of which rose sharply in the spring before falling back in recent weeks.

Can Trinity River Vision succeed where TCC failed?

Sat, 02 Aug 2008 00:18 CDT

MITCHELL SCHNURMAN

If Tarrant County College couldn’t afford to bridge the Trinity, how will others manage to reroute the river and reshape Fort Worth in the process?

That’s the goal of the Trinity River Vision, in the works for most of the decade. So far, the giant project has produced endless planning and a lot of hype about its potential impact. But last week, officials held a groundbreaking of sorts for Trinity Uptown, the high-profile portion of the development that’s planned for downtown.

Before an early-morning crowd, an excavator tore down the decaying Sims Motel to make room for the future bypass channel and the edge of a new bridge on Henderson Street.

Local boosters desperately wanted to see some visible action, after so much talk about doubling the size of downtown and crisscrossing the area with new waterways, trails and parks.

But starting Uptown is no guarantee of completion, as everyone learned a month ago. TCC abruptly changed course on its ambitious downtown campus and bought the RadioShack headquarters instead, leaving civic plans for the riverfront in disarray.

The college district couldn’t control the spiraling construction costs on a design that aimed to span the river and build atop the flood levees. It also woefully underestimated the difficulty of satisfying the Army Corps of Engineers’ safety concerns.

The river project also faces risks, and they could be crushing, too. The big difference, in my view, is a leadership team assembled to handle the complex construction and pricing pressures, with a political and financial coalition binding everyone together.

TCC’s deal was led by its chancellor, inspired by his architect. The TRV has a lot more experienced people, governments and agencies, with a lot of skin in the game already.

The TRV folks also start from a much stronger position. The Tarrant Regional Water District, a key local player, is in the business of doing big water projects, while TCC specializes in education, not complex urban building.

The TRV also has a close relationship with the corps. It works with the agency regularly, and the river project is aimed at resolving key flooding issues for the corps. Thus, the agency is a partner in the project, pledging both support and federal money.

In contrast, the TCC campus posed a potential threat to flood control, a risk that became more ominous after Hurricane Katrina. In effect, the corps had to serve as an adversary of the college, while it’s an advocate for the TRV.

Still, the Uptown project is much more complex and expensive than the TCC campus, and the funding is less certain. If you could turn back the clock five years and handicap the two projects, TCC’s campus looked like a safer bet.

The college had the construction money in hand, along with all the necessary land, and only one boss — its board of trustees.

The TRV still needs hundreds of millions in federal dollars, plus a like number in matching funds from a combination of local sources. It has to acquire more land — some probably through eminent domain. And escalating costs are a certainty on a project that spans a decade.

The scope of the river project has already ballooned, with the addition of Gateway Park and the restoration of the Riverside Oxbow Ecosystem. Land values are soaring, too, thanks in part to Uptown itself.

The TRV authority has bought 8 acres so far and is negotiating on 27 more. Together, that’s about half the land it has to pick up, before adding the Gateway and Riverside expansion into the equation.

Construction prices are generally rising, too.

In a few months, an engineering study will update the costs of the Uptown project, and the current estimate of $576 million will climb significantly. The higher numbers will make headlines, and critics will warn about a government boondoggle.

But proponents will counter that the project’s tax district will generate more revenue than first projected, too. That’s because more land will be part of the district, after TCC’s exit. And the land in the project area is more valuable, with development also being denser.

If necessary, the water district can boost its contribution, and the tax-district formula can be tweaked.

Schnurman: Are frequent-flier miles worth the hassle?

Tue, 29 Jul 2008 22:37 CDT

MITCHELL SCHNURMAN

I’m ready to look a gift horse in the mouth.

I just cashed in my frequent-flier miles for a family vacation, and free airline tickets don’t seem so free anymore.

My return flight, booked 10 months ago on Continental, was a red-eye from Seattle that arrived at Dallas/Fort Worth Airport at 5:35 a.m. Monday. Two of my sons, on an American Airlines flight booked in March, departed at 6:10 a.m. and faced an 11 1/2 -hour layover at LAX.

My 19-year-old called it the worst travel day of his life. My 12-year-old, beside me on the overnight, slept off the jet lag until we woke him at 5 p.m.

It seems loutish to complain, given that I saved $1,500 in all, and the tough economy is forcing many people to give up distant holidays altogether. But there’s a price to pay for such travel — in wear and tear on the body, in aggravation, in mind share, in opportunity costs.

And bad as it was for me this year, it’s probably going to get worse, as airlines cut flights and credit-card companies give away more free miles to attract customers. All these people with all these miles, but can they get a ticket to where they want to go?

Many consumers are frustrated enough to trade their mileage-award credit cards for others with cash rebates, hotel points or contributions to retirement accounts.

Tim Winship, editor-at-large for Smartertravel.com and author of a book on frequent-flier programs, resolved this year to gradually disengage from the system. He says he’s almost at the tipping point.

"Note to Citibank," he wrote this month on the Web site. "Time’s running out on my loyalty to American’s mileage program and to your credit card."

Frequent fliers have complained about the availability of travel awards for years, but airlines insist that the numbers have remained steady. American Airlines, for instance, had 2.6 million fliers cash in miles last year, about 7.5 percent of all passengers — a percentage that has remained constant since at least 2000.

But experiences vary widely. If you’re flexible and not flying during peak periods, you’re likely to get a free ticket to almost any destination, according to a study by IdeaWorks, a Wisconsin consulting company.

A family of four, looking to travel between June and August, has a much different result. On American, fewer than half could get the tickets they wanted during the summer, the study found.

If you’re willing to give up twice the miles — usually 50,000 for a domestic flight — tickets can be had under almost any circumstances. But that effectively doubles the price of an award, and it’s not what customers bargained for.

It’s more like a sophisticated bait-and-switch game, in my view, and one we generally accept, because it seems like a freebie.

Except that most passengers are paying for the benefit in one way or another. At minimum, they’re rewarding the airlines with their loyalty, choosing one company’s flights — and sometimes paying slightly more — to simply rack up the miles. And they usually combine the airline program with a credit card that typically charges $75 a year and generates merchant fees for the issuer.

The cards are so lucrative that banks pay huge sums for the affiliation. American gets an estimated $1 billion a year from selling frequent-flier miles, primarily to Citibank but also to hotel, car-rental companies and others, according to estimates from Jay Sorenson, president of IdeaWorks.

Then Citi offers 20,000 miles instantly to people who sign up for an AAdvantage credit card.

Sorenson had no trouble getting award tickets to Las Vegas for his family this year, and he suggests that fliers build up their mileage in company accounts, if they travel frequently. But other credit cards offer more bang for the buck, in the form of higher rebates, with fewer restrictions.

He uses a Starwood hotel card that gives a 3 percent rebate toward rooms and allows him to cash in benefits after charging as little as $3,000.

Winship says he more often chooses a credit card that puts a cash rebate into his retirement account. He uses his American miles to upgrade to better seats, rather than trying to get a decent free ticket.

Schnurman: North Texas housing market is still troubled

Sun, 20 Jul 2008 00:00 CDT

MITCHELL SCHNURMAN

We averted one crisis last week, after the government pledged to keep the mortgage money flowing at Fannie Mae and Freddie Mac. But that doesn’t reverse the plight of the housing sector, which continues to tumble even in North Texas.

Our housing trends look a lot like our local economy: We’re much worse off in the important measures — home sales, starts and foreclosures — yet we’re still doing better than much of the country at large.

In North Texas, new-home sales dropped 27 percent in the 12 months ended in June, says research firm Metrostudy. Nationwide, new-home sales fell 40 percent from May 2007 to May 2008.

Year-over-year home prices fell 15 percent in April for a group of 20 large metro areas, according to the S&P/Case-Shiller index. In the same period, Dallas prices declined 3.4 percent.

Whether you see these metrics as a glass half-full or a glass half-empty, they’re not expected to improve anytime soon. Inventories of new and existing homes are higher than usual, and North Texas has more than 90,000 vacant, developed lots ready for building — a 42-month backlog.

The Fannie-Freddie bailout was essential for buyers, but there are other reasons people aren’t buying homes.

Loans are available, which is paramount. But the push for tighter lending, under way for almost a year, will continue to build. Borrowers face higher costs unless their credit is top-notch, and many lenders demand bigger down payments, sometimes more than 10 percent.

Last week, FHA loans added a credit-score provision for the first time. It will tie loan rates and costs to a borrower’s credit history.

These are necessary adjustments in mortgage lending, but they squeeze everybody at a difficult time, when the market is falling. And Texas has some particular vulnerability.

Credit scores and income are lower than average in the state, and subprime lending was a key factor in the local housing buildup. David Brown of Metrostudy says that subprime loans accounted for about a quarter of mortgages in North Texas in 2006.

That funding source has dried up now, locking out plenty of prospective buyers. The entry-level market has been hit the hardest: Sales of new homes under $200,000 dropped 43 percent in the second quarter, Brown said, compared with a 7 percent drop for homes priced between $500,000 and $700,000.

"I tell people that they have to get back to the basics," says Judith Smith, who’s been in the mortgage business since 1969 and has run her own shop since 1992. "They have to save a down payment, they have to be responsible, and they must have a track record to get a home."

That was always the case, until five or six years ago, when easy credit became the rule. Now we see how subprime loans — and soaring defaults — can threaten the financial industry, home building and even the global economy.

Ron Formby, a builder who says this era is not nearly as bad for Dallas-Fort Worth as the late 1980s, doesn’t blame tougher lending standards for the drop in sales.

"I deal with first-time buyers and first-time move-ups, so credit has always been an issue," says the president of Antares Homes in Arlington.

He expects his sales will rise this year and says that his buyers are turning to FHA loans, as they did in decades past. It was only during the roaring 2000s that new financing schemes became a popular choice for his customers, including subprime loans with no down payments.

While the credit squeeze hurts, many say the biggest factor in the housing downturn is buyer psychology. In California and Florida, that translates into fears that prices will keep falling, and the buyer will soon be underwater, owing more than the home is worth. In Texas, there’s probably more concern about job security and rising costs for gasoline, food and electricity. Together, they make it a riskier time to buy.

Don’t dismiss psychology as a soft factor. In a June survey of 2,000 Realtors nationwide, almost a quarter reported that prospective buyers postponed their decisions, preferring to wait for prices to fall further.

Only 6 percent cited problems with getting a mortgage.

An unnamed agent from Fort Worth added this comment to her response: "Had the best year in over 25 years in 2007, and my husband also had a terrific year as a builder. Oil is helping the local economy." Go Barnett Shale! But for most consumers and home builders, confidence is near record lows. And the local sales numbers are down by double digits.

Schnurman: Chesapeake facts may not be ones we need

Wed, 16 Jul 2008 00:10 CDT

By MITCHELL SCHNURMAN

Chesapeake Energy uses a simple tag line for its PR campaign on the Barnett Shale: "We all win."

It should add: "And we’ll never let you forget it."

Last week, Chesapeake hired a leading anchorman, Tracy Rowlett, to launch a broadcast-news show on the Web. Rowlett brings credibility and attention to a niche program that wouldn’t get much notice otherwise.

Shale.TV starts in September, and Rowlett and Chesapeake say it will be real journalism by real journalists. But its mission alone — devoting three hours a day to reporting on the Barnett Shale — is about as self-serving as it gets.

Capitalism is driven by self-interest, even in journalism, but is Chesapeake’s goal to enlighten the public or keep the gas flowing?

It may hope to accomplish both, but no one should doubt Job No. 1 in North Texas. Chesapeake is making billions by pumping natural gas, not producing news shows.

Rowlett says the Barnett Shale is the biggest story since the Stockyards a century ago. The natural gas play is boosting the local economy in a significant way and is an important piece of the energy puzzle. I’ll even buy Chesapeake’s argument that drilling is worth the "short-term inconveniences" of noise, construction and truck traffic (although that’s easy for me to say because no pipelines are being buried in my yard).

But is the shale a bigger economic force than Dallas/Fort Worth Airport and American Airlines or Love Field and Southwest? How about Lockheed Martin, Bell Helicopter and Vought?

Those economic sectors — transportation and manufacturing — account for tens of thousands more jobs than oil and gas in North Texas. And retail and wholesale trade, which includes companies like J.C. Penney, GameStop and RadioShack, are much bigger players, too, accounting for 20 times more jobs than oil and gas.

So why not launch a broadcast-news operation about local aviation or local retailing? Answer: Because that’s not news, at least not the way that consumers think of news.

Maybe there’s important information that would interest workers in the industry and the people selling to them, which is the kind of reporting done by the trade press.

Maybe there’s an opportunity to spin a story and score points with consumers and lawmakers, as companies often do with e-mails and direct mailers.

Maybe there’s a chance to give the public more insight and depth than the usual news sources, which is the kind of information offered on corporate Web sites, often to great effect.

Vanguard, for example, has Webcasts of its money managers talking about Wall Street turmoil. The reports may be helpful and accurate, but they’re usually not news.

Rowlett told reporters not to judge his program until it airs, which seems fair. But consider another Chesapeake "news" product, Citizens of the Shale.

Aubrey McClendon, Chesapeake chairman and chief executive, introduces the video, calling it "a half-hour investigative news report."

"There were no scripts, and you’ll see no actors," he says. "The goal was to provide accurate information and fair, fact-based journalism."

The report includes the voices of several opponents, which is unusual for a corporate piece. But fans of urban drilling dominate the airtime and leave little doubt about the conclusion: We all win.

Chesapeake’s Web site has a compilation of "Stories from the Shale." A dozen people give glowing reports on drilling, often citing the study that the Barnett Shale will create 100,000 jobs and $10 billion in annual revenue by 2015.

Maybe the multiplier effect will get us to that point eventually. In the past seven years, about 7,400 jobs were added in the oil and gas business in the Metroplex, according to the Texas Workforce Commission. Employment in the sector was 19,138 at the end of 2007.

Mitchell Schnurman: Good, bad news for students

Sun, 13 Jul 2008 02:02 CDT

MITCHELL SCHNURMAN

The credit crunch was supposed to put the big squeeze on college loans, and for some students, a real threat still exists. But for many, the federal money is flowing just fine, with more dollars available than a year ago and at better terms.

That is a comforting development as many students scramble to get their finances in place for the start of school next month. It’s surprising, too, given that dozens of lenders have dropped out of the student-loan business and that Standard & Poor’s last week warned of potential turmoil in the sector.

But this is a good news-bad news story, and it makes college funding even more confusing than usual. On federally backed loans, students can now borrow an additional $2,000 per year, up to $5,500 for freshmen, rising to $7,500 for juniors and seniors.

That’s a significant upgrade, courtesy of Congress and the president. They expanded loan limits and added other provisions, including a federal lender of last resort, to protect the business from the deteriorating financial industry.

Some students must find new lenders this summer, as Frost Bank, Comerica and many others have left the business. But financial-aid officers say it’s largely a technical transition, requiring a bit more paperwork to get the federally backed loan. And the fact that students can borrow more — up to $31,000 for dependent students over their college careers — makes it much more helpful.

But for some students, especially at pricey private schools, that won’t be enough. If they must borrow more for college bills and their parents can’t or won’t close the gap with their own federal loans, they’ll have to turn to private lenders.

That’s where disruptions are most likely, with loans being more expensive and harder to get.

"We don’t know how the private loans are going to shake out yet," says Karen Krause, financial-aid director at the University of Texas at Arlington. "Fortunately, we don’t have a lot of students who depend on them."

Hitting home

Nationwide, an estimated 8 percent of students take out private loans, the Project on Student Debt says. But they account for roughly a quarter of the dollars loaned to students, reflecting their greater role at higher-priced colleges.

"If credit terms become stricter," the S&P report says, "we may see that students who are not able to secure loans drop out for a semester or get a third job," reducing their likelihood of graduation.

With a record number of students planning to go to college, the rating agency says more borrowers will turn to private sources as costs keep rising faster than incomes.

That’s been the history, but here’s another possibility: More students and parents will work harder to limit their debt, an approach that’s been warranted for a long time.

"In the next year, we’ll see a turning point in the way that American families make choices about where students go to school," said Kevin Walker, CEO of simpletuition.com, a Web site that connects students with lenders. "Easy credit made families comfortable with expensive choices. Now they’ll have to approach it in a different way."

Robert Shireman, executive director of the Project on Student Debt, says families are looking more closely at costs and balking at private loans.

"They’re much more cautious about whether the product is worth the price," Shireman said. "We’re making progress."

Narrowing options

Walker and Shireman expect more students to opt for public schools, rather than private — although some privates will offer lower prices because they can tap large endowments for financial aid or want to attract a particular student.

Choosing a college is difficult, in part because every student wants to find "the right fit." That makes it an emotional call, as well as financial, and intangibles are tough to measure on a campus visit.

Most students also don’t pay a school’s published rates, which makes even the financial assessment murky. To learn a school’s net costs, students must usually apply, get admitted, apply for financial aid and scholarships and, only months later, discover what their aid package will be.

In the world of executive pay, North Texas is getting a bargain

Tue, 08 Jul 2008 22:07 CDT

MITCHELL SCHNURMAN

Tarrant County College took some heat recently after trustees gave Chancellor Leonardo de la Garza a 10 percent raise and lifted his annual pay to $325,000.

The dust-up prompted the Star-Telegram to report the salaries for a dozen top executives in local governments, school districts and other agencies.

What’s most surprising isn’t how much these leaders are paid. It’s how little, given the demands of their jobs and the difficulty in landing them.

James Spaniolo, president of the University of Texas at Arlington, topped the list at $389,000. Jeff Fegan, chief executive of Dallas/Fort Worth Airport, was next at $344,792. Lowest of the group in Sunday’s paper was Tarrant County Judge Glen Whitley at $135,189.

Most people would love to have this kind of income, but for many senior executives, it hardly qualifies as a starting point. Last year, the average compensation for the CEO of a Fortune 500 company was nearly $8.4 million, according to The Associated Press.

Bob Simpson, who heads XTO Energy in Fort Worth, got $35 million in bonuses alone in 2007. His total pay was $56.6 million, $3 million less than the year before.

Simpson’s annual pay is exceptional by any measure, and so is XTO’s profit record. Julian Day of RadioShack was paid $2.5 million last year, despite a sagging stock price and far-from-finished turnaround. (Hold those tears; Day’s 2006 pay package was valued at almost $19 million, but that was before RadioShack’s stock went south.)

You get the point: Even in North Texas, top executives in the private sector are paid 10, 30, even 100 times more than their counterparts at public agencies.

It’s an amazing gap that shows once again that CEOs live in an altogether different world, where salaries are almost obscene. Or maybe it’s a case of nonprofit and government execs simply being underpaid, even with six-figure salaries.

Their responsibilities and skill sets are similar to what’s required of CEOs in the business world. In both camps, they oversee large, complex organizations with thousands of employees, hundreds of millions in revenue and an assortment of demanding stakeholders.

Through the years, each leader also outperformed — and possibly out-politicked — dozens of rivals, as they climbed and clawed their way to the top rung.

(And if CEOs complain about being in the public eye, consider the city manager who must constantly attend public hearings and get an earful from residents.)

So what explains the enormous pay gap? Not surprisingly, it’s all about money.

"The No. 1 difference is that a private sector CEO is rewarded for return on investment," says Craig Rowley, a compensation consultant at the Hay Group who has done work for Dallas and Tarrant County governments. "Yes, they need to show integrity, good governance and consistency, but at the end of the day, the owners are interested in one thing: How much did the shareholder value go up?"

The higher the return, the greater the premium paid to the executive. And the numbers are in public view, easy to assess.

In the public sector, Rowley says, the job is to deliver services and support for the agency, such as providing educational opportunities or responding to residents.

Executives are expected to do that work well, and there’s no multimillion-dollar bonus connected with it. But when XTO makes almost $2 billion in profit, shareholders don’t mind sharing more bounty with the executive who drives the performance.

Beyond the profit motive, other factors have widened the gap considerably.

For one, publicly traded companies have grown larger and more complex, making the CEO’s job tougher. In 1965, a Fortune 100 company had $1.5 billion in revenue and was likely to be in a single line of business in the United States, Rowley says. Last year, a typical Fortune 100 company had $44 billion in revenue, plus significant operations and customers around the world.

A long bull run on Wall Street, from the mid-1980s to 2000, made the value of equity pay soar, and more companies and executives turned to stock options as the primary compensation tool. As the stakes grew, so did turnover among CEOs, along with pressure on directors to demand top performance.