Must-Know News - Jan. 09

• 1) Debt becomes a political hot potato in Illinois (Financial Times)

“The pension plan has unfunded liabilities of nearly $80bn, while the state faces a budget gap of almost $12bn, with an estimated $4.3bn shortfall in the current fiscal year.

Illinois - which was downgraded last month by Moody’s and Standard & Poor’s - now has the lowest state bond rating in the US except for California. The Pew Center on the States warned in a recent report that Illinois was in “fiscal peril”.”

• 2) Report: City pension will go broke in 17 years (Cincinnati)

“The $1.9 billion Cincinnati Retirement System will go broke within 17 years unless fundamental changes are made that could force City Hall, its employees and retirees to start paying more for reduced benefits.”

• 3) Texas sales tax collections are $1 billion behind

“AUSTIN – Four months into its new two-year budget, Texas already is nearly $1 billion behind its expected pace of sales tax collections, according to new figures released Friday.

Comptroller Susan Combs said there’s no need for panic, as tax collections should start growing again in the first or second quarter of the year.

But the decline is dramatic. A year ago, Combs forecast essentially flat sales taxes receipts in the budget year that started Sept. 1; instead, they’ve decreased by 12.9 percent in the first four months.”

• 4) Forecast shows state budget short $3 billion (South Carolina)

“COLUMBIA — While lawmakers and the governor wrestle with ways to handle a projected $560 million budget shortfall for the coming year, legislative leaders say they have no specific plans yet on what to do about the tsunami of shortfalls that is predicted for each of the following two years.

In part because federal stimulus and Medicaid match funds disappear after the next fiscal year, the Office of State Budget is projecting a $1.3 billion deficit for fiscal year 2011-12 and a $1.4 billion deficit in 2012-13. Those amounts are almost a fourth of the state’s general fund budget.

“It’s going to hurt when these funds come to an end,” Gov. Mark Sanford said of the stimulus and Medicaid match dollars. “You really can’t do a lot. … It’s as if Washington is exporting financial recklessness.””

• 5) Tisei: ‘No End In Sight’ for state fiscal crisis (MA)

“Stoneham - A fiscal watchdog group has some sobering news for the commonwealth: Not only will Massachusetts have to deal with a shortfall of several hundred million dollars this fiscal year, but it also faces a “gaping $3 billion structural deficit” in the new fiscal year that begins on July 1.

According to the Massachusetts Taxpayers Foundation (MTF), the state must still deal with a shortfall of $300-$500 million in the current fiscal 2010 budget, despite the recent round of cuts announced by the Patrick Administration in October. But that shortfall pales in comparison to a projected structural deficit of “at least $3 billion” that awaits in fiscal 2011.”

• 6) Filling a $9.5 billion hole (New Jersey)

“AS A U.S. ATTORNEY, Chris Christie took on mobsters, crooked politicians and New Jersey’s infamous culture of corruption.

That seems simple compared to the task Christie now confronts: balance a state budget that is projected to be $9.5 billion in the red. That’s equal to about a third of the current budget.”

• 7) Federal budget deficit was about $390 billion in the first quarter (CBO analysis)

“The federal budget deficit was about $390 billion in the first quarter of fiscal year 2010, CBO estimates—$56 billion

more than the shortfall in the same period in fiscal year 2009. Outlays were slightly lower than they were last year at

this time, but revenues have fallen by about 11 percent. Later this month, CBO will issue new budget projections for

2010 and the following 10 years.

NOVEMBER RESULTS

The Treasury reported a deficit of $120 billion in

November, about $5 billion more than CBO projected

on the basis of the Daily Treasury Statements. The

difference occurred primarily because of greater-thanexpected

spending for Treasury and Justice programs.”

• 8) U.S. government to release emergency heating subsidies ($1 Billion)

“WASHINGTON (Reuters) - The U.S. government is set to provide more than $1 billion over the next several weeks to help low-income families pay their energy bills, an agency spokesman said on Friday.”

• 9) Chavez Cuts Bolivar By Half in First Devaluation Since 2005

“Jan. 9 (Bloomberg) — Venezuela devalued its currency by half yesterday, the first such action since March 2005, as President Hugo Chavez seeks to pull the economy from recession amid falling oil revenue.

Chavez said the bolivar will be devalued to 4.3 per dollar from 2.15 per dollar for most imports. A second, subsidized peg of 2.60 bolivars per dollar will be used for importing food, medicine and machinery intended to boost the economy’s competitiveness.”

• 10) Iowa dipping into cash reserves to cover $1 billion deficit

“The Legislature that convenes Monday will likely be consumed with cutting state spending to cover a budget shortfall that some think could reach $1 billion. Critics warn that those cuts could force increases in property taxes that finance local schools and governments.

Gronstal said lawmakers are crafting a measure that would restrict those increases and force use of cash reserves.

“We’re dipping into our cash reserves in a fairly significant way,” said Gronstal.”

• 11) Investment losses add to W.Va.’s budget woes

“Already grappling with recession-weakened revenues, West Virginia’s state government now must find an additional $145 million to shore up its pension funds, Manchin administration officials said Friday.

The Wall Street meltdown inflicted losses totaling around 16 percent on the invested assets of these programs, Budget Director Mike McKown said. The state had been counting on a 7.5 percent return.

“You’ve got a 23.5 percent gap in earnings,” McKown told reporters and editors during The Associated Press’ annual Legislative Lookahead conference. “The major driver of the fiscal year 2011 budget will be shoring up the retirement systems.””

• 12) Budget takes center-stage in transition to new governor (Virginia’s 2 year, $3.5 billion deficit))

“We face a $3.5 billion shortfall over the next two years, this after Kaine has already trimmed $7 billion from Virginia’s last $77 billion two-year budget. Kaine’s proposal closes that shortfall (Virginia is constitutionally prohibited from having a budget deficit), and involves additional cuts to the budget including the very controversial cut of the car tax relief program, which is a payment from the state to the localities at $950 million per year to make the localities whole from the car tax cut instituted by Gov. Gilmore several years ago.

Kaine proposes to make the localities now whole by replacing the payment with money from a 1 percent increase in Virginia’s income tax.”

• 13) Gas headed toward $3 per gallon, could drag on economic recovery

“The average price of a gallon of regular gasoline hit $2.70 this week, according to the auto club AAA. That’s up 67 percent from this time last year, and it’s the highest price since October 2008 — a fact not lost on drivers.

Sayed Bilal, a cabdriver in Rockville, Md., estimated that he’s spending $200 more a month on gas than he’s used to.

“It’s affecting everyone’s budget,” he said, “especially after the holidays. In my business, I depend on people’s pocket money. If they don’t have any … .” He trailed off with a shrug.”

• 14) Democrats Say Tax Increases ‘Imminent’ (Washington)

“Legislators from the 20th District are adamant that creating new jobs is the best way to solve the $2.6 billion budget deficit facing the state when the 2010 session begins on Monday.

The question posed to state legislators for the next session is how to close the gap.

Gov. Chris Gregoire submitted a balanced budget in December, as required by law, but quickly said she couldn’t stand by her own proposal that would cut or completely eliminate some state programs, such as state-provided health care and student financial aid.

Gregoire predicts tax increases may be necessary.”

• 15) At Capitol, 2010 Looks Bleak (Georgia)

“ATLANTA (AP) Georgia lawmakers are facing a grim to-do list as they return to the Capitol Monday for the 2010 legislative session.

Tax collections are still in freefall, meaning legislators will need to get to work immediately hacking what could be another $1 billion or so from the $18.6 billion state budget.”

“Hill said the steep drop in revenues “is like falling off a cliff.”

Perdue has already ordered about $900 million in cuts to the budget for the fiscal year that began July 1, telling state agencies to tighten their belts yet again.

Unless tax collections pick up which is unlikely anytime soon those cuts will have to go even deeper.

And the budget for fiscal year 2011, which begins in July, could be even worse as some of the state’s federal stimulus dollars begin to dry up.”

• 16) Florida’s Troubled Budget: Out of Balance (Editorial)

“So says Florida House Speaker Larry Cretul, R-Ocala, who describes the state’s short-term fiscal outlook as “dismal.” It is an accurate assessment, given that the Legislature’s own economists project a revenue shortfall of between $1 billion and $2.6 billion - on top of $8 billion in state revenue already lost since 2006.”

• 17) Speed sensors on red-light cameras could raise money fast (California)

“Tucked deep into the budget that Gov. Arnold Schwarzenegger unveiled Friday is a plan to give cities and counties the green light to install speed sensors on red-light cameras to catch — and ticket — speeding cars.

Those whizzing by the radar-equipped detectors at up to 15 mph over the limit would have to pay $225 per violation. Those going faster would be fined $325.”

“That would add up to big bucks for cash-strapped California — about $337.9 million through June 2011 — to pay for state courts. Every year after that, the program would generate nearly half a billion dollars, the Finance Department says. Local governments would get a share.”

• 18) DON PESCI: Temper, temper (Opinion..Connecticut)

“In an eye-opening op-ed column, retired state House Republican press secretary Joseph Santangelo reminds us that we are fast approaching the edge of the abyss.

Connecticut’s tax supported debt is the highest in the country at $4,490 per person. Even Taxachussetts’ debt is lower.

Nutmeggers owe $58.9 billion in unfunded obligations, which includes “outstanding debt, state employee pensions, teacher pensions, and retired state employee health and life insurance benefits, according to the state Office of Fiscal Analysis. For every man, woman and child in Connecticut, that means we each owe about $16,800, with no repayment plan in sight.””

• 19) Tough session awaits Maine legislators as deficit grows

“Legislators will be saying “no” quite a bit in the session that began Wednesday, as they work to close a budget gap of $438 million to keep the state in the black through June 2011. Maine has a biennium budget, which began July 1, 2009.”

• 20) Schweitzer gives directors until Jan. 29 for cuts (Montana)

“The next day, the Legislature’s chief revenue forecaster, Terry Johnson, projected that the state surplus as of June 30, 2011, would be $16.9 million out of a two-year general-fund budget of $3.7 billion. The reason for the declining surplus is that actual tax collections during this recession are falling far behind what the 2009 Legislature forecast.

The projected $16.9 million surplus is a fraction of the $282.4 million surplus that legislators had projected for mid-2011 when they adjourned last year. It’s also deteriorated from the $44.4 million surplus that Johnson forecast in his last report in early December 2009.”

• 21) December state revenue a ‘mix of declines’ (Arkansas)

“Arkansas’ December revenue collections revealed a decline in net available general revenue of 5.7 percent from the previous year and 5.3 percent below forecast. Total net revenues topped $376.2 million for the month.

All major income categories were down in December. Individual income tax collections were 5.3 percent below expectations, while corporate income taxes settled 7.8 percent below forecast.

December gross receipts — which include sales and use taxes — totaled $159.9 million, 8.3 percent below forecast.

Year-to-date net available general revenues, which totaled $2.25 billion for the first six months of the state’s fiscal year, are down 1.7 percent from last year and 2.4 percent below forecast.”

• 22) Kan. legislators face decision on raising taxes

“Legislators open their annual, 90-day session Monday, and they’re facing a projected budget shortfall approaching $400 million. The biggest issue is whether they’re willing to raise taxes to protect schools, social services and other programs from more cuts –– and, if so, who gets to pick up the tab.”

• 23) (Louisiana) colleges submit cost-cutting plans due Friday

“Gov. Bobby Jindal ordered budget reductions to cope with a $248 million midyear deficit in the $29 billion budget for the fiscal year that ends June 30.

The eight-campus University of Louisiana System plans to lay off 42 non-faculty employees, eliminate vacant faculty jobs, cut scholarships and reduce support for sports programs as officials manage a $21 million share of the $84 million cut doled out to higher education by Jindal.”

• 24) Coalition Calls Emergency Meeting of LA’s NCs

“Councilman Parks says the City is running out of money and is likely headed for bankruptcy. Word is that another 2,000 city employees will be laid off. 2400 employees have been nudged into early retirement … costing the City uncountable years of experience and institutional memory … and another 300-plus have applied for the early retirement package. More furlough days will be required and more city phones and emails will go unanswered.”

• 25) Declining tax revenue creates $138 million shortfall in Baltimore County

“The new year has greeted County Executive Jim Smith with a county budget gap projected to be as much as $138 million.

The deficit, attributed to declining revenues, is part of budget analysis released Friday by County Auditor Mary Allen, who discussed the revenue shortfall last month during a briefing with the County Council’s Spending Affordability Committee.

Allen said recently in an interview that shortfalls in state income tax disbursements and property transfer taxes mean county revenues are on track to be $138 million less than expected in the county general fund budget approved by the council last year.

When reduced state aid is taken into account, that figure climbs to $152 million.”

• 26) First Bank Failures of 2010

“The New Year started where the old one left off: Federal and state banking regulators closed a pair of banking institutions on Friday, Jan. 8. ”

“The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $539.1 million. ”

• 27) U.S. state prison cuts spark controversy

“CHICAGO (Reuters) - Illinois Governor Pat Quinn is under attack for a plan to save his financially ailing state money by speeding up the release of prisoners who served just a fraction of their sentences.

Of the more than 1,700 inmates released for good behavior since mid-September under an accelerated early-release plan, 56 were already back in prison for parole violations or new infractions, according to Quinn. An analysis by the Chicago-Sun Times on Wednesday found 20 prisoners had previously served time for serious crimes such as murder or attempted murder.

As the recession depletes their coffers, U.S. states are looking in every corner of government for ways to save money, and some are squeezing their prison budgets.”

• 28)  Employment Chart: Goods Producing vs. Government Jobs (Poster at Seeking Alpha)

“I’d planned to put this chart up for some time now, ever since it was noticed that, back in late-2007, the total number of government jobs exceeded the total number of goods producing jobs. After the events of the last two years, the gap is now about four million.”

• 29) Bill Gross opines on investing in a world of crony capitalism (Davos)

Bond king Bill Gross has gone populist. He starts his latest monthly investment outlook with an indictment of capitalism as practiced today in the United States that is a frontal assault on the corruption we are witnessing in Washington. As more and more revelations like the Geithner AIG cover-up surface, one must wonder if America is becoming another Banana Republic.

• 30) Anarchy in the UK (and US, too)? (Nickbert)

The cost of insuring against a U.K. default in the derivatives market is only slightly lower than the price of insuring against a default by Portugal.

• 31) Lawsuit: Goldman Sachs bonuses bigger than its earnings (Ben Johnson)

A lawsuit filed against investment bank Goldman Sachs by a shareholder alleges that the company spent more money on corporate bonuses than it earned in 2008. Shareholder Ken Brown’s lawsuit is one of two suits filed against the company this week over its controversial decision to hand out billions of dollars in bonuses even after it was accused of playing a central role in the financial collapse of 2008 and receiving $10 billion in direct aid from the US government. In his lawsuit, Brown states that Goldman Sachs gave out $4.82 billion in bonuses in 2008, despite earnings of only $2.32 billion that year. The lawsuit alleges that the company spent 259 percent of its income in the first quarter of 2009 on compensation.

- Saxplayer00o1