Important News - Dec. 15

• 1) A couple of reasons for the dollar’s strength today

S&P downgrades Mexican debt

“Ratings agency Standard & Poor’s downgraded Mexico’s sovereign debt to BBB status Monday on concerns about the country’s fiscal outlook, sparked by the global economic crisis.”

European stocks, euro slip on Austria bank worries

“European stocks and fell Tuesday and the euro slid to a two and a half month low against the dollar on worries about the Greek government’s debts and the financial health of Austria’s banks.”

“As if Greece’s problems weren’t enough, investors are also beginning to fret about the exposure of Austria’s banks to Eastern Europe, where the recession has been particularly acute.

On Monday, Austria nationalized Hypo Alpe Adria, a unit of German public-sector bank BayernLB — the move was designed to prevent the bank from sliding into a bankruptcy fueled in part by bad loans, much of them in Eastern Europe.”

• 2) Airline Loss Forecast for 2010 Widens on Fuel, Fares, IATA Says

“Airline losses in 2010 will total $5.6 billion, 47 percent wider than an earlier forecast, as oil prices rise while carriers compete for passengers with lower fares, the International Air Transport Association said. ”

• 3) FHFA eyes more aid for Fannie, Freddie-Bloomberg

“Dec 15 (Reuters) - The U.S. Federal Housing Finance Agency, may ask the U.S Treasury before the end of the year for an increase in the $400 billion lifeline provided to Fannie Mae (FNM.N) and Freddie Mac (FRE.N), Bloomberg said, citing people familiar with the talks.”

• 4) California debt costs to surpass $10 bln-Treasurer

“WASHINGTON, Dec 14 (Reuters) - California, the largest borrower among U.S. states, may see its debt interest costs nearly double to over $10 billion in 2020, the state treasurer reported on Monday.”

• 5) China outstrips US as center for IPOs

“China has outstripped the U.S. in the amount of money raised from stock listings, underscoring the region’s stronger economy and a resurgence in investment.

Companies have raised nearly $52 billion from initial public offerings on exchanges in Hong Kong and mainland China so far this year, according to financial research firm Dealogic. That’s about twice as much as the some $26.5 billion in American IPOs. ”

• 6) Americans may live longer and cost more: study

“The researchers say that by 2050 Americans may live as much as eight years longer than government forecasts and that spending by Medicare and Social Security could rise by $3.2 trillion to $8.3 trillion above current projections.

Advances in medical care will accelerate, stretching out lifespans, the MacArthur Research Network on an Aging Society wrote in the report, published in The Milbank Quarterly.”

• 7) California May Look Abroad to Sell Bonds as Sales Get ‘Harder’

“Dec. 15 (Bloomberg) — California, the most-populous U.S. state, may begin seeking to sell its bonds to overseas investors after the sale of $36 billion of debt this year has made it more difficult to raise money, Treasurer Bill Lockyer said.

California’s bond sales this year paid for projects from roads to stem cell research, and included $8.8 billion of short-term securities due next year that closed temporary gaps in the state’s tax collections. The sales came as its credit rating, now the lowest among U.S. states, was cut because of budget deficits resulting from the recession.

“We are running out of tricks,” Lockyer told a committee of the state Assembly at a hearing in Sacramento. “Shortly we are going to have to go international to sell California bonds. I don’t know how expensive that is going to be.” ”

• 8)  Public debt risk rising, tumultuous yr ahead-Moody’s

“* 2010 will be tumultuous for sovereign debt

* US, UK top ratings losing altitude, global head says

* Response needed or loss of altitude will be “inexorable”

* Must draft a credible plan or face rating threat

By Walden Siew

NEW YORK, Dec 14 (Reuters) - Sovereign debt risk is rising globally, particularly in the United States and United Kingdom, which must outline plans to manage public debt or face ratings deterioration as soon as 2011, Moody’s global head of sovereign ratings said on Monday.

“2010 is probably going to be a tumultuous year for sovereign risk,” Pierre Cailleteau, Moody’s global head of sovereign ratings, said in a phone interview from London. “Long-term interest rates will rise globally, which will reveal the real costs of the financial and economic crisis.”"

• 9) Charter amendment would revamp S.F. pensions

“San Francisco voters may soon have the opportunity to decide major changes to the city’s pension and retiree health care systems - both of which have seen their costs skyrocket as the city grapples with consecutive years of major budget deficits.”

“Ten years ago, the city paid $383.7 million to health insurance for active and retired workers, retirement contributions and Social Security. This year’s tab is $890 million, a 132 percent increase. In fiscal year 2013-14, the projected amount is $1.4 billion.

Driving the rise is the overall increase in health care costs and the poor performance in investments during the economic downturn.

“It’s alarming growth, and this just underscores the magnitude of the problem,” Newsom told The Chronicle’s editorial board Monday. “We have to do something dramatic.”"

• 10) Detroit artists use city’s blight as their canvas

“Houses with dreary urban facades covered in polka dots. A traveling dollhouse made from the remnants of abandoned homes. A dilapidated residence covered in ice.

Artists across the Detroit area are using the city’s blight as their canvas, transforming abandoned homes into high-concept projects to draw attention to the homelessness, poverty and urban decay plaguing Detroit. They hope the ongoing experiment will shed some creatively inspired light on what Detroit was, is and could be again.”

• 11) Bill would let N.J. towns put off pension payments

“For the second consecutive year, New Jersey towns could skip half of their required pension payments under a bill proposed by Sen. Sandra Cunningham, a Hudson County Democrat.

The deferred contributions would have to be paid back to the state’s beleaguered pension system over 15 years. The plan would provide short-term savings, but increase the fund’s long-range deficit and add to future municipal-budget costs.

The idea would be to give towns and counties some immediate budget relief, alleviating the pressure on them to cut services or hike taxes as state and local governments cope with depressed revenues and falling levels of aid. Gov. Corzine recently held back $20.6 million in aid to towns as state revenues fell below projections, adding to the strain on municipal finances.”

“The state’s seven pension funds had a $34.4 billion deficit as of June 30, 2008, the last date evaluated by actuaries. That’s more than the annual state budget.

The shortfall has undoubtedly grown since then, because towns were allowed to defer half of their required pension payments in the previous budget, and Corzine provided only a small fraction - less than 10 percent - of what the state owed in the current spending plan.

“If you continue not to make the payments, [the pension system is] going to go bankrupt,” said Senate Majority Leader Stephen Sweeney, a Gloucester County Democrat. The state’s substantial pension deficit “only gets larger each year when you don’t make the payment, and someone somewhere has to say ’stop,’ ” he said.”

• 12) Toledo budget outlook gets worse

“The two University of Toledo professors who correctly predicted a nosedive in income tax collections for the city have once again lowered their estimates for 2009 municipal revenues and are warning officials to brace for an even bleaker 2010.

Professors David Black and Oleg Smirnov, who were hired by Toledo City Council to forecast income tax collections, now say the city will end 2009 with $140 million to $138.4 million - which would deepen the deficit the city will carry over to 2010.”

“The report also holds no hope that Toledo’s economy will rebound next year.”

• 13) 140 firefighters, officers in Tucson face layoffs

“City Manager Mike Letcher told every Tucson department head this week to cut 15 percent of their budgets to help fill a $32 million budget deficit for this fiscal year, which ends June 30. The city also faces a more than $45 million budget deficit next fiscal year, which begins July 1.”

• 14) Gordon to request bailout for Phoenix

“Phoenix Mayor Phil Gordon is in Washington, D.C., today, pressing Obama administration officials and members of Congress to loan his AAA-bond-rated city hundreds of millions of dollars to build sewers, bridges, educational facilities and other capital projects.

Phoenix, Arizona’s largest city, closed a record $270 million general-fund budget deficit earlier this year, but the current-year shortfall has widened again by another $105 million because of falling tax revenue. Funding for capital projects also has plunged as well.”

• 15) Everyone Needs To Sacrifice To Cut Connecticut’s Budget Deficit (5,000 jobs?)

“The Democrats say Gov. Rell’s plan to plug the current $337 million state budget shortfall by slicing services and aid to municipalities would mean the loss of 5,000 jobs. They’ll take no action today when the legislature meets in a special session called by Rell.”

“But Gov. Rell is right about this much: Everyone must be a part of solving this mess.

“Everybody has to sacrifice in this. I don’t mean just towns and cities — I mean every single agency,” Rell told me Monday afternoon, reminding me that state revenues will likely not improve until 2011. By 2012, the budget deficit is projected to be $3 billion.

“We all have to say we can’t afford this and we must figure out what we can afford and start to prioritize.”

Structural change is already here. We are losing jobs that pay solid middle class salaries and replacing them with service job incomes. Since 1969, we’ve lost 300,000 manufacturing jobs — 15,000 this year alone.

How different will things be once Connecticut emerges from the Great Recession? While manufacturing jobs pay an average of $70,000 per year, the average customer service representative’s job a predicted fast-growing occupation — pays about half that.”

• 16) Houston Victor Plans a Tight Ship (notice the unfunded pension number)

“While the nation’s fourth-largest city has outperformed others in the now two-year-old recession, even Houston is showing signs of financial wear and tear. With sales tax and other revenue falling, the city has virtually depleted its reserves. Parker projects a budget deficit of $146 million in the fiscal year ending June 30.

With growing pension obligations, the city has been issuing about $20 million of bonds annually to cover the costs. Under Texas law, cities can issue bonds without taxpayer approval to cover pension costs, but Houston still had more than $1.8 billion of unfunded pension liabilities at the end of October.”

• 17) County fairs on Peninsula face state budget cuts; losses would be ‘devastating,’ (Washington)

“If the proposed cut of fair funds becomes a reality, it could be fatal for the Jefferson County Fair, said Sue McIntyre, county fair board treasurer and office manager at the fairgrounds in Port Townsend.”

• 18) Budget cuts: State to trim spending today (SC)

“New revenue estimates say South Carolina will take in less than was expected when lawmakers passed the state’s $5.3 billion spending plan in June. The cut, expected to take an equal percentage from all state agencies, will be at least $120 million. What the cuts mean for state government:”

• 19) 12 actions to avoid municipal bankruptcy (San Diego)

“SAN DIEGO — If city leaders are unwilling or unable to fix San Diego’s ongoing budget deficit, then voters will have to do it for them by adopting ballot measures to force the city to fire workers or drastically cut services, according to a report being released today by a citizen task force.

The report, which recommends 12 actions to avoid municipal bankruptcy, is critical of “budgetary gimmicks” proposed by Mayor Jerry Sanders and given final approval yesterday by the City Council to close a $179 million budget deficit. More than 50 percent of that gap was filled by using one-time solutions, such as skipping reserve payments and delaying projects.”

“The report identifies pension benefits as the driver of the city’s financial woes — a sharp departure from the mayor’s view that the economic recession is largely to blame for the deficit. It depicts San Diego as a city living beyond its means for years by deferring expenses and underfunding obligations such as employee pensions and retiree health care. It blames union heads, past city leaders and pension officials for approving unsustainable benefits without identifying a way to pay for them.”

• 20) US Needs Plan To Control Debt Or Face Market Meltdown

The government must craft a plan next year to get its ballooning debt under control or face possible panic in financial markets, a bipartisan panel of budget experts said in a report by the Peterson-Pew Commission on Budget Reform.