The Pareto Principle

An April Fools issue of The Economist once referred to the Pareto Principle as the “Burrito Principle” (or maybe it was Burrito Efficiency — admittedly, my memory is not as sharp as it used to be). The Pareto Principle is a fancy name for something we already know, i.e. the 80–20 rule.

Inputs and outputs are often not balanced. Twenty percent of inputs (say, twenty percent of all workers on staff) may produce eighty percent of all outputs (widgets, tons of coal, lap dances, crude oil, touch-downs, revenue, cost savings). In managing mobile home parks, I call this the 95–5 rule. Ninety-five percent of inhabitants in most mobile home parks are good neighbors. They mow their lawns, make polite chit-chat with passers-by, look out for each others’ children and old people, and pay their lot rent. It’s the other five percent who cause the headaches. Of course, every mobile home park is different. In some cases, the ratio might be 90–10 or 80–20. In a really rough park, it might be 60–40. In my admittedly limited experience, the ratio tends to hover between 90–10 and 95–5. There might be outliers where it goes higher or lower, but the Pareto Principle always applies. There is always a group of tenants who make you retreat to a padded room at the end of the day, gobble your meds and drool. But they are always a small minority.

Note that the pareto principle does not apply to revenue. Everyone pays the same lot rent. That means that the people who cause ninety-five percent of your problems contribute five percent of your revenue. The five percent produce ninety five percent of the burden and five percent of the benefit. That’s a problem. [1]

In normal times, the solution to this is to eighty-six the five percent. Yes, evictions are an terrible solution. They are expensive and time-consuming for property owners. They are often horrific for tenants. Their use can be like enforcing parking regulations with a bazooka. They should be replaced by alternative remedies, like rental insurance, access to better social services for tenants, and better dispute-resolution services. But for the time being we need them because they are our only remedy in dealing with the five percent.

Because of this, park owners were worried when the moratorium on evictions was instituted.What happens when our only stick-and-carrot is taken away?

The good news is that things have been OK so far. Speaking for myself, I have been very grateful for the way almost everyone in my parks has behaved since March. Most people are still mowing their lawns and hauling away their trash. Collections are comparable to last year. Some people for whom things have been tough have begun to pay later in the month, but almost everyone is paid up by the thirty-first — even in February. From what I hear, other park owners’ experience has been similar to mine. The problem, of course, is that “ almost”. It’s the outliers who will kill you.

Two of my tenants have decided that the current moratorium on evictions is a rent jubilee. That is a very small portion of total occupied lots under management (0.017391304, to be almost exact), and a similar portion of potential revenue. But it has accounted for well over 50% of headaches since March.

Here’s some background on one of the two:

Of course, there is more. He assaulted the park manager and for a while he claimed to have a Nigerian princess wife who was going to take care of his bills. He got a big life insurance pay-out when his wife died, but none of it was used to settle his rent bill. He still collects his wife’s social security payments. He tried to sell the park-owned home that he rents to a third party. When he speaks with the manager, he tells her that he will pay everything in two days. But the two-day deadline is a moving target that shifts at the speed of real time.

Ordinarily, you evict a guy like that. However, since these are not ordinary times, we used the only remaining remedy under the state moratorium and the CDC guidance; we filed a suit for a money judgment against him in small claims court. Although we won the case slam-bam, we had some difficulty getting a written judgment. However, a crack of light did appear some weeks ago. A month after the case was decided, the court mailed me a piece of paper asking us to inform the debtor of the court’s decision. The covering letter said that the court would issue a transcript of judgment if the debtor did not decide to appeal within thirty days of our having informed him of the outcome of the case. We informed the debtor of what the court had told us, set the timer, and waited.

Now — this is not how it is supposed to happen. A transcript of judgment is important. It is the piece of paper that you file with the county clerk in order to start collection proceedings. Without it, you have bupkis. You are supposed to have access to it the minute the gavel bangs down. And to sprinkle more sand into the gang-wank, procedure in the same court was inconsistent. A week after we brought suit against the School Lunch Thief, we took the other tenant who had stopped paying to court. The judge in that case (a different judge from the one in the first case) ruled that he would give the tenant two weeks after the hearing to settle up. If they had not paid by then, he would issue a judgment. We waited two weeks. They did not pay; when the two weeks had elapsed, he issued a judgment and the court clerk gave us a transcript of judgment ready to file with the county clerk. We mailed them an information subpoena requiring them to list their assets and income within seven days under penalty of perjury yesterday. That’s how it works when it works.

The School Lunch Thief decided to appeal. When he filled out the return receipt postcard attached to the notice of appeal sent to me, he put the name and address of the park-owning legal entity, rather than his own, in the “Sender’s Name and Address” box. That meant that, the day after I received the notice of appeal, I received confirmation that I had received it the day before.

Doesn’t grant me access to a legal right, but good to know.

When I was a junior associate at a biglaw firm in the very early 2000s, a treatise named The Improper Use of Tax Treaties sat on the shelf of the firm library. It was about treaty-shopping and earnings-stripping, before the introduction of limitations on benefits clauses into U.S. tax treaties and the OECD BEPS project put a damper on that generation of tax abuse. When the associates mentioned it in group meetings, a senior tax partner played the straight man. He refused to see anything funny about the title and insisted that it had been written by a friend of his and that it was a very useful resource. But, of course, I and my junior colleagues giggled and pointed whenever we walked past it.

In the instant case, it looks like the appeal will take some time, but we will pursue the legal process as far as it takes us. SLT’s neighbors are upset with living next to him, and they depend on us to reign him in. When I tuck myself into my padded room at night, I comfort myself with the medicinal thought that the good guys will win eventually. How could they not? That’s how the rule of law works, isn’t it? In the mean-time, SLT remains in place, wadding up the social contract, folding it origami-like, dipping it in petroleum jelly, honey, salt and motor oil, rolling it between his stumpy fingers, and putting it to unspeakable uses.

[1] Note further that the five percent are a bigger problem for their neighbors than they are for park owners. I can retreat to my padded room after work. The ninety-five percent have to live next to whatever is next door.

Originally published at https://dirtlease.com on October 22, 2020.