Joe Wilson's finances - a case of shoddy journalism

What would you think if you saw this headline?

Report finds congressman in debt

Does it sound to you like he is in over his head? I'm betting a fair number of people would, and that's just the beginning of the problems I see with a story today on Rep. Joe Wilson, R-S.C.. - he of the "You lie" remark fame - and his finances. It was published in the Greenville News (pay wall) and reprinted in my local paper, The State (where I can't find it online except in the subscription required e-edition).

(In disclosure let me say I know Wilson in passing from Boy Scouts. I've never voted for the man and generally don't agree with his positions. But that doesn't mean he should be the target of slipshod journalism.)

Here are the relevant parts (the bulk of the story is reprinted here for educational uses since it cannot be easily linked to):

WASHINGTON — A state Republican congressman who has accused the Obama administration of being fiscally irresponsible owed between $165,000 and $325,000 in loans and credit-card debt last year.
    U.S. Rep. Joe Wilson of Spring-dale reported the debts on his recently released personal financial disclosure statements for 2010.
    Congressional lawmakers are required to file the statements each year. The statements report assets in broad ranges and are not required to include a lawmaker’s primary residence. Wilson’s statement shows he owed between $165,000 and $325,000 in six personal loans, one home-equity loan, and credit card debt.
    Wilson reported total liabilities between $765,000 and $1.57 million. That includes two mortgages — each worth between $250,000 and $500,000 – for properties in Washington and Sapphire, N.C., and a mortgage worth between $100,000 and $250,000 for property in Springdale.
    Wilson’s report shows “he is almost certainly under some (financial) pressure,” said Sheila Krumholz, executive director of the Center for Responsive Politics in Washington.
    “This report raises more questions than it answers,” she said.
    Lawmakers are required to disclose personal debts of at least $10,000, Krumholz said.
    Wilson did not respond to requests for more details about his finances. …
    Like other House Republicans, Wilson has criticized the Obama administration for “job-killing” economic policies, and has urged spending cuts and fiscal restraint.
    On June 22, he delivered a floor speech accusing the administration of “spending and borrowing money at a reckless rate.”
    Wilson reported assets worth between $1.2 million and $2.68 million. Most of that is real estate and a timeshare on Hilton Head Island.
    The asset and liability ranges in his report show Wilson was worth approximately $386,000 to $796,000 last year, according to Jock Friedly, founder of LegiStorm, a website that posts financial disclosure records, congressional salary data and other fiscal information.
    That range does not include the value of Wilson’s primary residence.
    Analysts say it’s unusual for members of Congress to report significant debt. ...
    Wilson appears to rank “somewhere in the middle of the pack in Congress in terms of net asset levels,” Friedly wrote in an email. …
    Their annual salaries – $174,000 for non-leadership members of Congress like Wilson – are not included on the reports.
    Wilson reported extra income of nearly $39,000 last year in pension payments from the South Carolina state retirement system, the National Guard and the U.S. military, according to his records.
    Additionally, he earned between $5,000 and $15,000 in rent from his property in Springdale, his report shows.

The story invites one to read between the lines and come to a conclusion that isn't necessarily there - that somehow he's being a bit hypocritical by taking on six-figure short term debt and up to seven figures in overall debt.

The article spends the first 12 grafs suggesting how irresponsible Wilson might be without ever telling us about his assets or cash flow, let alone doing even a rudimentary analysis. That's left to the bottom of the article and mostly for the reader to suss out.

Whether he's accused the administration of being fiscally irresponsible or the best thing since sliced bread has little to do with outstanding short-term loans and credit card debt of between $165,000 and $325,000. It has everything to do with whether he can carry that debt.

One of the first suggestions it may not be a problems is that Wilson's disclosure (available at http://www.legistorm.com/) shows one personal loan as far back as 1999, three others in 2006 and one last year. The home equity was in December 2007. That doesn't suggest panic borrowing to cover other shortfalls (which might indicate irresponsibility), but a measured flow of financing. Two of the mortgages were in December 2004 and one in December 2007.

There is no indication any are in trouble.

It's not even unusual in some cases to have current liabilities exceed cash flow if you can convert some assets to tide you over. As a college instructor, my finances, from the outside, look like a disaster every May to August. Cash flow is far less than current liabilities. But during the "regular season" I squirrel away money in investments that then are slowly converted to cash during the summer.

I've even gone entire years in the "red" while doing house remodeling, but it was hardly irresponsible, as I knew the liquid assets and eventual cash flow were there.

So, yes, as Krumholz said, Wilson might be under some pressure. But is it unreasonable pressure? Is it irresponsible?

Friedly estimates Wilson's net worth at  $386,000 to $796,000. (If you just do a raw assets-minus-liabilities analysis, Wilson could be $323,000 in the hole or $1.9 million in the black).
Using Friedly's numbers, even if Wilson had to pay off everything today, he'd still have assets left. If you looked at a business in that light, you might consider it a worthy investment.

With much of Wilson's wealth in real estate, there could be some liquidity problems, and the net at a forced sale could be less than what is listed. So maybe there is some pressure, but net worth is just one screen, and a bunt one.

Let's look at income and current liabilities.

The article lists his income at from $218,000 to $228,000 - his $174,000 congressional salary, his $39,000 in pension payments, and $5,001 to $15,000 in rental income. The writer does not explain why he lists that income but leaves out from $45,000 to $145,000 in "unearned" rental income listed from the "Moseley and Wilson" partnership that owns a number of properties.

But to be conservative, we'll take the $218,000 and then apply a 0.75 factor to allow for taxes, etc., leaving us with $163,500.

As to the debt, we can only estimate because of the ranges involved. Wilson and his spokesman did themselves no favors by not answering questions

Let's take the $325,000 as short term debt (personal loans and credit card along with the home equity loan, though that could as easily be long term). The credit card is included because we don't know if he's paying that off, so we'll assume the worst.

We'll go with the maximum $1.25 million for long term.

We have to guess on the rates and durations. For short term, let's start with a rate of 10% and an eight-year term. One loan already goes back to 1999, and several others are at the eight-year mark now. If you take the potentially onerous cost of credit card debt versus the lower cost of personal loans, a blended 10% seems reasonable.

For long term, we'll be really conservative and say 15 years at 6.5 percent.

What we get (all figures are for the year):
Short term (8 years, 10%), current portion due $59,184
Long term (15 years, 6.5%), current portion due $130,666
Total: $189,850, or a shortfall against income ($163,500) of $26,350.

That would indicate some pressure, but perhaps none at all if the partnership income were included and much less if we even took more than $5,000 of that rental income range that the article dos include.

(You can try these calculations yourself at http://www.bankrate.com/calculators/mortgages/loan-calculator.aspx)

But there are wide variations with just some small adjustments in amount, term or rate. Leaving the short- and long-term maximums, but varying the interest and duration for the short term to eight years and 5% narrows the gap to $16,546. Some others:

10 years, 10% = $18,706 gap
10 years, 5% = $8,542 gap

Just to show how sensitive this is, however, let's take the mean short-term indebtedness of $245,000 (again,  leaving the current portion of long-term debt at $130,666).

8 years, 10% = $11,782 gap
8 years, 5% = $4,390 gap
10 years, 10% = $6,022 gap
10 years, 5% = $1,646 to the good

None of these gaps is particularly onerous if the assets can be converted to cover. But if we then adjust the long-term debt by increasing the maturity to 20 years, that payment drops by more than $18,000 a year, and almost all the scenarios are in the black.(Make it a 30-year loan and the payment drops by almost $36,000 a year, moving about everything into the black.)

If we lower the long-term indebtedness to the $1.17 million mean of the range, the total per year for that portion drops to $122,292 at 15 years, $104,676 at 20 and $88,752 at 30.

The last problem in the article is any lack of a longitudinal perspective. In fact, Wilson's worst-case asset-liability gap has dropped from $978,000 in the 2008 report to $323,000 last year. His best case situation went from a $1.15 million surplus in 2008 to more than  $1.9 million in the most recent report.

I don't expect a long analysis like this in the paper. But we are entitled to something more than trying to make false associations on limited data. The reporting could have been better, but the editing was far short of the mark, especially the headline (in The State).