Autobiography - The Galindo Group

Ram Galindo THE MAKING OF AN AMERICAN Page 152
Liberal politicians in Washington realized this phenomenon long ago and concocted
corrective legislation in the form of tax credits for developers who were willing to vie for
them. In return, the grantees of this federal largesse, funded at the expense of those of
us who don’t seek special favors, must agree to disregard income qualifications for a
portion of their residents for a limited period of time. On its face, it appears to be a
working answer to the problem I described above. In reality, every time a favorite player
must be selected, no matter how carefully the criteria for selection is written, a human
must assume the power to select him. As Ludwig von Mises says referring to the
abilities of government to act as a substitute for the market place, “A government can no
more determine prices than a goose can lay hen’s eggs.”
As experience shows over and over again, this is a recipe for certain malfunction. First
the recipients become addicted to this extraneous development subsidy and try their
dead level best to keep the field inclined in their favor. Second, the grantors get tempted
to benefit illegally from the sudden power this system puts in their hands. At some point
collusion, whether direct or through the lobbying power of influential public figures
seeking their share of the public pie, often former politicians from both political parties,
who passed the rules themselves, comes into play. Such experience overcame a friend
of mine, Florita Griffin, a Ph.D. graduate from Texas A&M and a most effective city
planner when I met her working for the city of Bryan. Once appointed to a position
where she could select the beneficiaries of this program, she succumbed to the built-in
temptations of that job. Right or wrong, she was found guilty and sent to prison. This is
another example of how new social engineering programs invented to correct problems
created by previous social engineering laws eventually subverts human nature and
produces unintended results that can be worse than the evil they attempted to correct.
For that reason, I opted not to participate in any such government program.
I recently received a new lesson confirming a known result of bad public policy. With a
view to seeking more geographical diversification for the Gardens Properties, on
January 28, 2002, I held a meeting in which I gathered all investors that were part of our
operation and also a few prospective ones. The purpose was to identify sources of
capital for a new stage in our business plan growth. The counterpart benefit for the
attendants was to learn about opportunities where their savings could be invested. My
market search was directed to the Houston area, where for the first time I proposed
consideration of acquiring an existing apartment complex. In the search for an attractive
investment I bumped into problems related to the effect of property taxes. Added to
other government interference by special subsidies as described above, the emerging
picture demolished any interest on my investors’ part. High property taxes are
destructive for the real estate industry.
My observation relates to the devaluation of real estate investments by ad valorem
taxes. A sensible and commonly accepted way to value an investment is by calculating
the present value of the cash flow that it produces. Once total yearly gross revenues
and operating expenses are known, the remaining cash is available to pay lenders and
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