While the increase from the first to the second quarter is notable, year-over-year sales activity is still down across the state, according to the聽second quarter housing report from the 聽at the 91探花.

As measured on a seasonally adjusted basis, the home sales are on pace to total about 86,690 for the 2014 calendar year.

“While most economic statistics are reported at seasonally adjusted annual rates, these are not forecasts of future activity,” said Stephen O’Connor, Runstad Center director. “Nevertheless, at the current pace of sales we’re looking at a 7.5 percent decline in sales activity from the second quarter in 2013.”

Statewide, the median home sales price increased 7.9 percent from the same time last year and now stands at $270,900, up nearly 9 percent from the first quarter.

While the transition from the winter to the spring selling season is almost always a contributing factor, so is the lingering lack of supply, O’Connor said. This shortfall is most pronounced within the state’s major metropolitan areas. While both Snohomish and King County posted strong year-over-year increases of 10.4 percent and 7.6 percent respectively, median sales prices were lower than a year ago in 12 of the state’s 39 counties.

Local median house prices are highly variable, ranging from a low of $129,000 in Grays Harbor County to $454,000 in King County.

Given the increase in the median sales price, it was not surprising that housing affordability for all buyers statewide fell slightly to 144.2 from 152.6 a quarter ago, O’Connor said. This metric suggests that a middle-income family could afford a home selling for 44.2 percent above the median sales price, assuming a 20 percent down payment and a 30-year mortgage at prevailing rates.

Statewide, the first-time buyer index, a measure of affordability for new homeowners, also showed a small drop of 4.3 points, ending the quarter at 81. The first time buyer index measures the availability of a household earning 70 percent of the median household income to afford a home priced at 85 percent of the median value in the county.

Like the median sales price statistic, housing affordability varies widely across the state. The least affordable county is San Juan, with an all-buyer index of 90.1. Conversely, homes in Lincoln County offer the most affordability registering a value of 142.8. For first-time buyers in metropolitan areas, Benton County was again the most affordable and King County the least affordable.

The Runstad Center produces home sales statistics in partnership with Washington Realtors. Each quarterly release coincides with information from the National Association of Realtors regarding median home prices by metropolitan area.

Sales, median home prices and affordability data for all Washington counties are available at the Runstad Center鈥檚聽.

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For more information, contact Runstad Center Director Stephen O’Connor at 206-685-9989 or steveoco@uw.edu.

To govern effectively you have to know the language. And while the language of campaigning is handshakes and hyperbole, the language of governing is money 鈥� taxes, bonds, pensions and inevitably, budgets.

The trouble is, many newly elected or appointed officials arrive knowing next to nothing about public finance, says , a public finance specialist with the 91探花’s .

“They don’t know the technical details, and more important, they often don’t know where to learn what they need to know,” said Marlowe. “Many policymakers find this overwhelming, and this is understandable.”

That’s why Marlowe, an associate professor, wrote the “” for , which published it as an insert in its July issue. The 34-page document breaks down the basics of government finance with chapters on the flow of government money, legacy costs such as pensions and investing for long-term stability.

Marlowe said the guide seeks to help policymakers better understand their role in the world of government finance 鈥� a more complicated process, he said, than simply following the law. In fact, the guide lists several cautions that may be a surprise to the newcomer to government. These include:

• A government can put a lot of money into its pension fund but still fall short of fully funding it.
• Balancing a budget does not in itself ensure financial sustainability.
• The ongoing federal deficit is a major threat to local and state fiscal health.

Candidates have always run for office on narrow, ideological platforms; that’s just politics.

But the current polarization 鈥� people working only with those of like minds 鈥� has never been worse, Marlowe said. It makes officials hesitant to admit any lack of financial expertise for fear of being vulnerable to political opponents.

Yet effective governing depends on asking the right questions, Marlowe said. Toward that end, the guide lists sets of “essential questions” in each chapter that new officials should ask and that budget directors or agency heads should be able to answer. These include details on direct and indirect costs, diversity in revenue, reserve funds, legacy costs, audits and more.

Marlowe said the document is intended for local and state officials and people recently appointed to top-level administrative positions in government agencies.

“The whole guide is predicated on the idea that there are thoughtful people out there who want to learn. They really want to know these things 鈥� they just don’t know where to start.”

Tellingly, Marlowe said when discussing the planned guide with the magazine’s advisory board, he started with the assumption that most officials had at least a basic understanding of the property tax process. He was told no, assume that someone just elected knows nothing.

“So, the guide starts at the beginning,” Marlowe said, and lays out what every elected official and senior appointed policymaker at the state and local level should know.

“Detroit reminds us that state and local finance is a high stakes, complicated business. When it’s done well, no one notices. When it’s not done well, the consequences are painfully real. That’s why good public finance governance is essential.”

The Guide to Financial Literacy was funded by , which receives support from sponsors including VISA, J.P. Morgan, Wells Fargo and others. Marlowe was paid for his contribution as an author.

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For more information, contact Marlowe at 206-221-4161 or jmarlowe@uw.edu.

• Watch a video of Marlowe discussing the financial guide, produced by the Evans School of Public Affairs:

http://www.youtube.com/watch?v=hst2ZHinFzc&feature=youtu.be

And you could further say that, together with colleagues, Richard Zerbe, longtime 91探花professor in the Evans School of Public Affairs, may have solved this logical paradox 鈥� or at least greatly clarified it.

“It gradually dawned on me, over a period of years,鈥� said Zerbe, who has the owlish look of the classic absent-minded professor and is often seen on campus sporting a black fedora. “It was never that I thought I had the key, so much as I was bothered by the existence of the problem.鈥�

Zerbe and colleagues have clarified 鈥� and possibly untangled 鈥� this logical loop with a succession of research papers, but the most important one to the question, he said, is titled “Scitovsky Reversals and Practical Benefit-Cost Analysis.鈥� That article has now been accepted and awaits publication this spring by the .

But first, a question there’s really no avoiding: What exactly is benefit-cost analysis?

It’s a way of determining if a certain course of action is worth taking, given its consequences. The online offers that “whenever people decide whether the advantages of a particular action are likely to outweigh its drawbacks, they engage in a form of benefit-cost analysis.鈥� (And just to keep things interesting, it’s sometimes called cost-benefit analysis instead.)

In public projects, the site states, benefit-cost analysis is a “sometimes controversial鈥� way of evaluating the pros and cons of considered policy changes and to express the effects of the change in dollar terms.

Zerbe explained further: “In practical policy economics a project is considered worthwhile when the gains from it exceed the losses. Gains are measured by the willingness to pay for them and losses by the willingness to accept payment to bear them.鈥� That’s the standard measure in benefit-cost analysis, he said, created in 1938 by British economists Nicholas Kalder and Sir John Hicks, which came to be known as the Kaldor-Hicks measure.

But then in 1941, along came economist Tibor Scitovsky, who found something odd. He pointed out that in some situations, the very Kaldor-Hicks measure used to justify a new action could be used just as well to justify the exact opposite 鈥� a return to the status quo.

Zerbe noted the comment of one critic who said the paradox invalidates the Kaldor-Hicks measure “because it implies that 鈥� both the policy and its reversal would be economically efficient and hence, the policy would simultaneously be economically efficient and economically inefficient.鈥�

Welcome to the Scitovsky Paradox, which sounds like a chess gambit or maybe an old “Star Trek鈥� episode.

Zerbe said such criticisms have been “prominently used to attack鈥� the use of benefit-cost analysis in evaluating government projects. He quoted one critic who said that even if the reversal does not happen, its possibility “haunts鈥� the whole world of benefit-cost analysis.

But Zerbe said he and his colleagues Andrew Schmitz and Richard Just are showing that the reversal will not occur in most cases, if the transaction involves what are called “normal鈥� goods.

“Normal鈥� goods, in economic talk, are goods that a person will buy more of, or at least not less of 鈥� with an increase in their income. It’s stuff we enjoy consuming and would buy more of if we could.

Theres an exception pertaining to situations of certain technological change, but, on the whole, if goods are normal and not inferior, Zerbe believes the long-discussed Scitovsky Reversals will not happen.

And so Zerbe and co-authors conclude that “the possibilities of reversals are so remote as to be safely ignored. Economists are free to continue to critically evaluate government projects using Kaldor-Hicks.鈥�

Or as they state somewhat more formally in the paper, “Thus, the debate over whether or not the reversal possibility furnishes a reason to abandon or question the use of benefit-cost analysis is resolved in favor of the use of benefit-cost analysis for practical purposes.鈥�

Its more practical, real-world meaning? “In considering major projects it will focus attention on ways in which resource depletion or environmental depletion might change production relationships in a way that hasnt been much considered before.鈥�

Zerbe said this dismisses the “shadow鈥� cast over the field by the possible reversals noted by Scitovsky.