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Greater Houston Partnership

Thinking outside the box on the city’s finances

We’ve seen the ideas generated by the Long Term Financial Management Task Force, which I thought lacked a certain amount of breadth to its perspective. Here’s a taste of what else might be out there to think about.

Good Jobs Great Houston, of which the Houston Organization of Public Employees is a member, held a news conference outside Wednesday’s City Council meeting to get their own ideas out. They claim that some of the ideas they had submitted to the Task Force did not make it onto the draft list. Among the union’s ideas distributed Wednesday:

  • Raise the city’s tax rate;
  • Establish a higher property tax bracket on homes with a value exceeding $500,000;
  • Establish a 1 percent income tax on city residents who make more than $30,000 a year;
  • A “blight tax” on foreclosed homes that banks would pay on vacant properties they let deteriorate;
  • End the practice of double dipping — remaining on the city payroll while collecting a pension;
  • Put a cap of $100,000 a year on annual pensions for new hires;
  • Review all outsourced services to see if they can be done more efficiently in house.

There are a lot more, but the Good Job Great Houston and HOPE officials said they want the conversation to include more than what’s already on the Task Force’s 229-item draft list.

As with the LTFMTF, some of these ideas are more practical than others, and some cannot be done without legislative input, possibly even a Constitutional amendment. I’ve been an advocate of rolling back the miniscule property tax rate cuts that were implemented during the Bill White years – the savings for an individual household is minor, but the cumulative revenue for the city adds up. You do have to be aware of the limitations imposed by the revenue cap, however – even if you wanted to, you can only raise the tax rate so much before that would kick in.

I really like the idea of the “blight tax”, as I want to see more thought given to generating growth here inside city limits. The city has been admirably aggressive under Mayor Parker to condemn and demolish derelict properties – Patricia Kilday Hart wrote about a new tool in their chest for that – but it’s only half of the equation. You still have to get someone to build or rehab or otherwise do something useful with the property afterward, and as far as I can tell we’re still short on ideas there.

And if we’re going to go after blight, let’s aim for the biggest target out there – abandoned buildings downtown. There are properties downtown that have been derelict for decades, and that’s some of the most valuable real estate in the city. Some of these buildings are within a couple of blocks of the Main Street light rail line, and would make excellent mixed use/transit oriented projects, if only they could or would be used for something. Do we not have the tools to make something happen, or have we just not put enough effort into it? I don’t know, but I wish we’d put more thought into it. The same is true for other empty or blighted lots along the existing rail line, and the ones that are now being built. There’s been quite a bit of development in the Main Street corridor, but there’s room for much more. If the secret to making Inner Loop housing less expensive is to generate more of it, then these are the places to start. What are the obstacles, and what can we do to overcome them? This needs to be part of the long term financial conversation.

Area job growth in 2012

We’ve seen a prediction for job growth in Texas for this year, now here’s some soothsaying about job growth in the Houston area for the year.

Jobs and job growth for the region (Source: Greater Houston Parnership)

The Greater Houston Partnership predicts the Houston area will add 84,600 jobs this year. Some economic observers are speculating the estimate may be conservative – especially since the most recent data from the Texas Workforce Commission shows that Houston-area employers created 87,900 from November 2010 to November 2011.

We asked experts in finance, real estate, recruiting and economic development to assess the area economic picture. Here is what they said:

Q: Where is Houston’s economy headed in 2012?

A: “I think it’s headed up,” said James Weston, associate professor of finance at Rice University. “Everything I see points to a return to moderate economic growth.”

He ticked off the factors: Energy prices are stable; housing prices were essentially flat in Houston last year even as they fell nationwide; and Houston is adding jobs at a faster clip than the nation as a whole.

The likelihood of a double-dip recession – which was a worry not that long ago – has faded, he added.

Regina Morales, director of economic development for the city of Sugar Land, characterized 2011 as the year of recovery, when the region regained the jobs it lost during the recession.

“Now we’re poised for expansion in 2012,” said Morales, who predicted that energy, technology, health care, education and food service will drive the growth.

The real estate community looks at job growth, and those 87,900 new jobs last year are a good sign, said Bruce McClenny, president of Apartment Data Services, which gathers information on pricing, occupancy and rents on apartments.

Job growth is tied directly to the demand for multifamily housing, especially from people who are moving to Houston from other states and new college graduates.

That sets the stage for the same kind of growth in 2012, McClenny said.

Here the distinction between the city of Houston and the greater Houston area is made more clearly than in the earlier story about real estate projections. Note that the region has about a quarter of the state’s population but nearly half of its projected job growth for the year. Either one of those projections is out of whack or the state isn’t in such great shape overall. The story also notes the likelihood of flat property tax revenues and a continued shrinking of the government sector. Some different policy decisions, mostly but not entirely at the state level, could have led to a better outcome, but it’s way too late for any of that now. Maybe we’ll get lucky with sales tax revenues and not have as big a problem this year. We can hope, anyway.

On targeting public pension plans

I have three things to say about this.

Texas could be gearing up for its own Wisconsin-style grudge match over public employee benefits.

A group of high-powered Houston business leaders is starting a statewide campaign to overhaul retirement for future teachers, firefighters, police officers, judges and other state and local government workers.

“I think the state needs to get the hell out of this (pension) business completely,” said lawyer Bill King, who is forming Texans for Public Pension Reform with others from the Greater Houston Partnership, an über-chamber of commerce with business members representing $1.5 trillion in assets.

Taxpayers bear too much risk on behalf of public employees by providing them a guaranteed retirement that most private sector workers don’t get, King said.

But advocates of the public pension system say there are ways to eliminate or reduce risk without doing away with the program.

“They don’t have to destroy a system that works,” said Keith Brainard, research director of the National Association of State Retirement Administrators.

He said government pensions provide retirement security for millions of Texans in a cost-effective manner for taxpayers. Research by the Center for Retirement Research at Boston College shows that professionally managed pension funds produce better investment returns than 401(k)s and cost less to administer.

King said the campaign is in its infancy, and its specific goals are still being developed. It’s not clear how the campaign will get involved in next year’s elections or the 2013 legislative session, but King said he is confident the campaign will soon make pensions an issue for lawmakers.

King said he would support a constitutional amendment eliminating public pensions in the state and moving all government employees to retirement accounts akin to 401(k)s. Legislators would have to approve such an amendment on the ballot when they convene in 2013.


King, the son of a union pipefitter, said he was disappointed with the anti-worker tenor of the Wisconsin battle over collective bargaining rights. This campaign, he added, is not intended to bully public employees.

Well, that’s nice to hear, and I don’t have any particular reason to doubt King’s sincerity on this, but let’s be honest: It’s highly likely that if this campaign gains any traction, it will pick up support from people who will be happy to demonize and bully public employees. To think that won’t happen is naive. It’s also the case that no matter how good King believes his own intentions are, once the employees whose pensions are threatened by this become engaged, they’re likely to play rough, too. It will be easy to blame them for any shift in rhetoric that King’s campaign will feel the need to make down the line.

Both the Employee Retirement System of Texas and the Teacher Retirement System of Texas have more than 80 cents for every dollar needed to pay their long-term obligations, a level considered to be a benchmark of a strong fund. The state funds also have tight restrictions on contributions and benefits.

There are about 1,800 public retirement systems in Texas, the vast majority of which are small cities and counties that pool their resources for investment purposes. The big cities, however, have mostly set up shop on their own and have separate plans for police, firefighters and other municipal workers.

Given the large number of plans in Texas, Brainard said, the state “has been striking in the relative absence of abuse and pension problems.”

Where there have been problems, Brainard said, they have been in the big-city pensions. Those plans have fewer constraints on increasing benefits than do the state systems.

The sentiment that pensions are unsustainable gained traction across the country after the 2008 financial market collapse sank the value of funds everywhere. State and local governments failed to cover $660 billion of their $2.94 trillion in pension liabilities last year, according to the Pew Center on the States.

There’s nothing in this story to indicate how big a problem King is talking about. We know Houston has some pension issues, and the story gets into that, but its problems mostly stem from a change to pension benefits that was made a few years ago. If the state or other cities have similar issues, you wouldn’t know it from this story. How much money are we talking about, and how much of it is attributable to the economic downturn? If you’re going to claim there’s a crisis, then show me some numbers.

By the way, on the matter of Houston’s pension problems, one of the issues the city faces is that its options for taking action to deal with it are constrained by state laws. If King and the Greater Houston Partnership have done anything to help persuade the Legislature to give Houston more tools for taking care of this, I am not aware of it and the story does not discuss it.

The problem is that states can’t save money anytime soon by doing away with pensions.

In fact, it costs more in the midterm because taxpayers must contribute more to cover the benefits accrued by retirees and current workers because new workers would no longer be chipping in to the pension, [Stephen Fehr, a researcher with the Pew Center on the States] said.

When a Texas Senate committee looked in 2008 at a similar pension conversion, the committee found no compelling reason to do so.

The state’s Pension Review Board at the time estimated the combined contribution from the state and employees to the Employees Retirement System of Texas would have to rise from around 17 percent of payroll to as much as 30 percent if the pension were closed to new people.

In 30 years, the contribution rate would climb beyond 80 percent .

Nevertheless, King argues that finally wiping clean the public pension liabilities is worth the higher costs now.

“It will require sacrifices in city services and higher taxes than would otherwise be necessary,” King wrote. “But at least the number will be finite, unlike in our current predicament.”

Again, if you believe in this environment that there would be any kind of tax increase to help cover the cost of shifting to a 401(k) plan, you are naive in the extreme. The cost would be covered by general revenue, which would either mean further cuts to things like public education, or more budgetary flimflam like what we saw this session with deliberately underfunding Medicaid. That’s not acceptable, especially for a problem whose scope is not clear, but it’s what we’ll get for as long as we have a Lege that resembles the current one. When we get these mostly Republican-created problems that are affecting us right now under control – that is to say, when we get a different Legislature, one that really is fiscally responsible – then maybe we can talk about this. Texans for Public Pension Reform, you let me know when you’re willing to help with that effort. EoW has more.

The State of the City 2011

It’s getting a little better, but we’re still not close to being in good times.

The city of Houston’s budget deficit for the coming fiscal year has been whittled to roughly $80 million from $130 million, Mayor Annise Parker said after her annual State of the City address on Friday.

Parker, speaking at a Greater Houston Partnership luncheon at the Hilton Americas Hotel downtown, warned of looming budget cuts while also touting efficiencies found and tasks completed in her 15 months in office.

The city still will face widespread layoffs, Parker said, but some programs that had been at risk will be kept, such as the Houston Police Department’s mounted patrol and K-9 divisions.

“A tight budget is a little like a corset — it holds some things in and it emphasizes other things,” Parker said, drawing chuckles. “This tight budget is going to have a good long-term impact on the city. … We’re down 500 employees since I took office, not because we couldn’t afford to pay them but because we found a better way of doing business.”

She cited the consolidations of the city’s human resources, payroll, fleet management and information technology departments and the use of Metro police rather than HPD officers to dispatch tow trucks to clear accidents.

“These are permanent changes that make sense,” she said.

You can read the full speech here. It touches on many subjects – Demolition Day (there’s one coming up in May), Rebuild Houston, Dynamo Stadium, sustainability, Hire Houston First, and on and on – but one that that wasn’t mentioned was the pension issue, other than to note that we won’t be doing more pension bonds. I guess since there are negotiations going on with the police and fire departments, this might have been too sensitive a topic. One thing that made me smile was this, from her look ahead at Houston five years from now:

We see advances in our use of technology. Just imagine taking a photo with your PDA, sending it to our public works department and receiving automatic acknowledgment and a work order number.

Indeed I can imagine that. I hope Mayor Parker will already be talking about how successful it is in her next State of the City address.

One more thing, from the story:

The $50 million decrease in the budget gap for the fiscal year that begins July 1 is due primarily to $16 million more in projected tax revenues, $13 million in savings from a new employee health care contract, $7 million in property sales and the movement of $7.6 million in utility debt service that will now be paid from utility revenues instead of the general fund, Finance Director Kelly Dowe said.

I don’t know what the formula is that’s being used to project future revenues, but it’s certainly possible that the economy will exceed expectations, with revenues doing better as well. Lord knows there’s plenty of people in Austin hoping for higher sales tax receipts than what they’re currently using for their budget. I also don’t know if the property sales include things like this or not. Point being, with a bit of luck the situation could be less dire by the time the city actually needs to finalize its budget. Here’s hoping for that.

Get your economic projection brackets ready

The Final Four will be played in Houston this year, and you know what that means.

The NCAA’s estimate for economic activity in Houston puts the total to be spent during the Final Four at $60 million, while the Greater Houston Partnership estimates that total will exceed $105 million.

And businesses from hotels and taxi services to restaurants and street vendors are preparing to welcome the surge of visitors expected to fill Reliant Stadium for three games, each packed with 76,500 fans.

“I’ve been hearing that it’s almost like the Super Bowl,” said Sophia In, who sells parking at her Shipley Do-Nuts location near Reliant Stadium.

As long as you don’t mean Super Bowl LXV, I hope. The last thing we need here is an ice storm.

“I believe that this event, in terms of the direct expenditure, is going to be better than the Super Bowl of 2004,” [Greg Ortale, chief executive officer of the Greater Houston Partnership] declared.

With the attendance per Final Four game equaling that of the Super Bowl of 2004, the thee games will bring more spending from fans who likely will stay in Houston for much of the five-day event, he said.

The Texas comptroller’s office anticipates the Final Four in Houston will generate $11.7 million in tax revenues. The NCAA Regional Final in Houston last year generated $5.7 million in tax revenue over a 30-day period.

We have some actual numbers to play with, so let’s see what they mean. Last year at this time, when Houston was set to host a regional final, we learned the following:

Houston and Reliant Stadium last hosted an NCAA regional in 2008, employing the “mid-field” court configuration and elevated seating systems that now serve as the model for all Final Fours. The attendance then was similar to Friday’s.

“We were north of 38 (million dollars),” Ortale said. “We verified it through a third party, and we think it’s a conservative estimate. We prefer to err on the side of being conservative instead of overstating.”

Let’s assume the $38 million figure was accurate, and that we got the same amount of activity last year. Using those assumptions, and the assumption that the ratio of economic activity dollars to tax revenue dollars remains constant, the Comptroller’s tax revenue projections equate to $78 million in economic activity. Which falls right between the NCAA’s number and the GHP’s, so everyone is being consistent. I still think there’s a nontrivial amount of voodoo in these calculations, but at least there’s nothing obviously ridiculous. We’ll see how it all turns out.

Privately funded high speed rail?

From Houston Tomorrow:

A possible Houston to Dallas high-speed rail line was the topic of a Monday morning breakfast meeting featuring Yoshiyuki Kasai, the chairman of Central Japan Railway, Japan’s largest rail company and maker of the famed Japanese “bullet trains.” Kasai was hosted by the Greater Houston Partnership (GHP).

The company is developing plans to build a Houston/Dallas high speed rail (largely privately financed) as the first phase of a Texas system, according to the GHP invitation. Kasai used the meeting to brief the region’s business leaders on the details and opportunities that Houston-Dallas high-speed rail service would bring to the Houston region.

This sounds exciting, but it’s hard to know what a timeline for this might be, assuming it really is on track (no pun intended). The potential cost is pretty high, and while there may be federal funds available to offset some of those costs, there are many obstacles that could delay construction. I’m delighted to hear this is happening, but it’s way too early to get too worked up. Dallas Transportation has more.

Park ambitions

Dream big.

Two of Houston’s heaviest-hitting business groups — the Greater Houston Partnership and the Quality of Life Coalition — are promoting an ambitious master plan to develop land along 10 of Harris County’s major bayous, creating an enormous system of “linear parks.”

With a potential half-billion-dollar price tag, the Houston Bayou Greenway Initiative would include almost 250 miles of new or upgraded hike-and-bike trails, not to mention canoe trails and more than 50 new parks that would do double duty as flood-retention basins or wetlands that improve the quality of the city’s groundwater.

“Two hundred and fifty miles!” exults developer Ed Wulfe, who represents both the Partnership and the Quality of Life Coalition. “That’s the distance from here to Dallas!”

The Bayou Greenway would be the biggest parks initiative in Houston’s history, says Tom Bacon, president of the Houston Parks Board, and would add desperately needed greenspace to neighborhoods widely spread across Harris County.

How much would it all cost? Roksan Okan-Vick, executive director of the Houston Parks Board, offers a rough estimate in “big round numbers:” $255 million to acquire land for the trails, build them and landscape them with native trees and plants, plus $240 million to add the 50 parks.

The Greenway would be a patchwork of projects carried out by hundreds of parties: city, county, state and federal agencies; nonprofits; municipal utility districts; Tax-Increment Reinvestment Zones; neighborhood groups; private developers; and private philanthropists.

I love the sound of this, I’m just not clear on what it means. The main question, of course, is “How will this be paid for?” For that,we go to the Houston Parks Board:

The Greater Houston Partnership will take the Bayou Greenway Initiative to our elected representatives in the coming months to secure support, and hopefully obtain funding commitments over the next two to three budget cycles. As that process moves forward, HPB will continue to work with the community, increase its partnerships with other bayou organizations, continue on-going communication with its public partners, and pursue private funding opportunities.

In other words, this is still more wish list than anything else. Not that there’s anything wrong with that – I love the vision, and I hope to see it come about. There’s still a lot that needs to fall into place for it, and no guarantees that any of it will happen. Click that last link to see a map of the proposed new trails, and to find an email address for Roksan Okan-Vick if you want to get involved.

The state of the city 2010

Mayor Parker gave her first State of the City address today before the Greater Houston Partnership. Here are a few highlights from her address, which you can read as written here.

We don’t know everything that lies ahead. The pressures are immense. The economy and budget constraints may cause fees for some vital and essential services to rise…But I pledge that I will not present a 2011 budget that requires a property tax increase.

No promises for beyond that, you’ll note. Cutting can only get you so far, and at some point can be actively counterproductive. There are certain things we want, need, and expect from our city government – remember, over 60% of the budget goes to the police and fire departments – and they need to be paid for.

We are moving forward with building the next five lines of light rail, one of the largest public works projects undertaken in Houston in many years. While in Washington, I was able to sit side by side with Transportation Secretary Ray Lahood and commit personally to him that we are not going to drop a stitch in our effort to complete this project – that we are expecting to receive the $900 million committed in the president’s budget. The jobs created by this project will support Houston families and keep Houston moving.

I’m really glad to see Mayor Parker reaffirm this commitment to finishing this phase of the light rail system. There are obvious challenges to getting it done, but as long as there’s a commitment I believe we’ll find a way.

I have named a working group to draft changes to our Historic Preservation Ordinance that will add real protections to this vulnerable asset.

You hear that, Weingarten? I look forward to seeing more details on that.

I am working to form an IT SWAT team to review city technology services. Some of our local business leaders have already volunteered. But I also want to tap the expertise available at our universities. Our young people are far more advanced at technology than you or I. Why not use this knowledge and ease of operation to improve our IT services.

Peter Brown had a good vision for that, and as we know other cities are already innovating away on this front. We should steal from emulate them as much as possible.

Anyway, those are the things that caught my eye. Read it all and see what you think.

Extending Medicaid

Texas likes to bill itself as a business-friendly state. But there’s one thing that a lot of businesses want that the Republican leadership has been unwilling to entertain, and that’s to make Medicaid renewals an annual event instead of every six months.

Arlington hospital executive Joel Ballew, speaking for the Healthcare Legislative Task Force of the Dallas Regional Chamber, said Texas needs to boost state funding of the Medicaid and Children’s Health Insurance Program to draw down the maximum amount of federal matching funds possible. The Dallas chamber and its counterparts in the state’s eight biggest urban areas said annual renewals for the 1.9 children on Medicaid would put more youngsters on the rolls, by reducing gaps in coverage caused by excessive red tape and the state eligibility system’s problems.

“How would y’all like to sign up for your health insurance twice a year?” Bruce LaBoon of the Greater Houston Partnership said at a news conference. “I doubt if you’d like it very much. And the paperwork of course for Medicaid is significant. The [processing] delays are significant. … In order to retain your eligibility in a children’s Medicaid program in this state, you pretty much have to start signing up as soon as your coverage is approved for the last time. It’s a continuous process of applying and applying and applying again.”

Hold that thought about the processing delays for a minute, I’ll get back to it.

In the past, some lawmakers have opposed what’s known as “12 months’ continuous eligibility” because they want families’ income checked more often than once a year. That way, they argued, those over the income ceilings wouldn’t get free care.

However, speakers at the news conference said semiannual renewals have gummed up an overtaxed eligibility-determination system. They said Texas takes as long as three months to process Medicaid applications and renewals. Even Louisiana does a better job, they said. Early in the decade, Texas made some progress in simplifying enrollment but it has backslid with a botched privatization of signups for social services, said advocates and five House Democrats who spoke at the press conference.

Makes your heart swell with pride to know that Louisiana does a better job than we do, doesn’t it? The “botched privatization effort” of course refers to the Accenture debacle, but the effect is aggravated by the TIERS implementation, whose expansion has been postponed once again because it couldn’t keep up with the demands on it, and also by the fact that demand for social services has increased sharply due to the lousy economy. Lengthening the eligibility period would go a long way towards alleviating many of these problems.

Ballew, director of government affairs and advocacy for Texas Health Resources, the amalgam of Dallas’ Presbyterian Healthcare Resources and Fort Worth’s Harris Methodist Health System, said “if current trends continue, access to health care will decline and costs to business will increase.”

The Dallas chamber wants the Legislature “to implement policies to enroll every eligible child in Medicaid or CHIP,” he said. That way, not only would Texas draw down all federal funds it’s entitled to, he said, but parents could be more productive workers because their youngsters would have regular checkups and receive preventive care.

Doing this would require that the state spend more money, which is a big part of the Republican reluctance to embrace this. But the added cost would bring an even larger return.

The largest chambers of commerce in Texas are pushing for 12-month Medicaid coverage, which is standard in the private sector. The Greater Houston Partnership also has thrown its “strong support” for 12-month coverage in an effort to reduce the number of uninsured children in Texas. A $500 million match by the state would generate an extra $800 million in federal funds and reduce the number of uninsured children by one-third.

“It is absolutely good social policy. It is absolutely good business policy as well,” said Bruce LaBoon, past chairman of the Greater Houston Partnership.

Texas gets back $1.47 from the federal government for every $1 it invests in the children’s Medicaid program.

“It is absolutely essential that we allow parents and children to sign up once a year, like we all do,” LaBoon said.

Yeah, we’ve had this same discussion with things like CHIP and more recently unemployment insurance. For whatever the reason, the “we get back a lot more than we spend” argument just doesn’t move too many members of the Lege (assuming they know what Medicaid is, of course), not to mention Rick Perry and David Dewhurst. At this point in the session, with so much to do and so little time to do it, I can’t say I have much hope for a different outcome this time around. Vaqueros and Wonkeros has more.

Search openly

Is there really a debate about whether or not we should conduct a search for a new HISD Superintendent in an open manner? Because I think the choice is clear.

The Greater Houston Partnership, which represents the business community, is lobbying the school board to introduce a few leading contenders to the public — something the board hasn’t done in a search in nearly two decades.

“There are challenges to transparency, but the payout is huge,” said Jeff Moseley, president and chief executive of the business partnership.

[HISD President] Marshall said he supports naming multiple finalists — perhaps three — but not all his colleagues have been as quick to embrace the idea. Some worry fewer people will apply for the job if word of their job search will get back to their current school boards.

“I just think we need to stop using that as an excuse if we really and truly believe in transparency,” Marshall said. “Good superintendents can sit down with their boards and say, ‘Here’s an opportunity.’ I don’t think they add value to their candidacy by insisting on secrecy.”

Trustee Manuel Rodriguez Jr., on the other hand, prefers naming only one finalist.

“If the Greater Houston Partnership wants to know the candidates, they ought to run for school board,” he said. “By releasing the names of candidates, we put those candidates in jeopardy of losing their own jobs.”

Sorry, but I am unimpressed by Trustee Rodriguez’s argument here. Hell, college and pro coaches get vetted for other jobs all the time, usually with the knowledge and blessing of their current employer. Smaller programs generally consider it to be a positive when the bigger ones interview their coaches, because it’s a sign that they’re doing something right, and because being a place that provides opportunities for advancement is in itself a lure for good employees. I just don’t see the downside here.

And if that wasn’t enough, this would more than clinch it for me:

During the 2004 search that resulted in [Superintendent Abe] Saavedra’s hiring, board members conducted late-night interviews that ended with the candidates being hurried out of the administration building and into waiting cars. Extra HISD police officers were brought in to help keep track of reporters trying to catch a glimpse of the contenders.

In Florida, one of the most open states when it comes to superintendent searches, the names of all applicants are public record, and the community is allowed to attend meetings where school boards interview candidates.

Which one of these processes sounds healthier and more likely to produce a positive result? Seriously, this is an easy call.