Daily Digest

Daily Digest - January 20

Wednesday, January 20, 2010, 8:00 AM
  • Paterson Seeks $1 Billion More in Taxes and Fees
  • Federal Government Will Allow Purchases of Foreclosures with FHA Loans
  • Commercial Mortgage-Backed Debt Sales to Stay Below $15 Billion
  • Mississippi Governor Eyes Using Rain Day Fund
  • Forester Predicted 2008's Crash, and Sees Another Coming Soon
  • South Dakota Unemployment Fund Still Deteriorating
  • Rhode Island Unemployment Trust Fund in Dire Straits
  • Amid Budget Woes, Georgia Tax Refunds Could Be Delayed Again
  • UK Plan To Halve Budget Deficit Too Slow
  • Economy Causes Record Demand for Idaho Public Aid
  • Businesses in Kansas Face $209M Increase in Taxes to Finance Benefits for Unemployed Workers
  • Dubai's Debt Could Be as Much as $170 billion


Paterson Seeks $1 Billion More in Taxes and Fees

Scouring for new sources of tax revenue amid a fiscal crisis, the governor proposed to legalize ultimate fighting, allow the sale of wine in grocery stores, tax bottled soft drinks $1.28 per gallon, start taxing cigarette sales on Indian reservations and deploy speed-enforcement cameras in highway work zones.

Federal Government Will Allow Purchases of Foreclosures with FHA Loans

Shaun Donovan, secretary of the US Department of Housing and Urban Development (HUD), will temporarily permit buyers to use FHA-insured financing to purchase real-estate owned (REO) property to stave off vacancies.

Commercial Mortgage-Backed Debt Sales to Stay Below $15 Billion

Sales of commercial mortgage-backed securities will likely remain below $15 billion in 2010 as borrowers struggle with declining property values, according to analysts at Barclays Capital and JPMorgan Chase & Co..... A record $237 billion of the debt was sold in 2007, compared with $12 billion in 2008 and $1.4 billion last year, according to data compiled by JPMorgan.

Mississippi Governor Eyes Using Rain Day Fund

Barbour told legislators on Monday in a State of the State speech in Jackson, Mississippi, that a decline in the state's general fund revenue had steepened to 8.1 percent and revenue was on track to be down this fiscal year by $437 million. "Just a few months ago we estimated the shortfall would be $371 million, but an 8.1 percent shortfall would be $437 million, and I frankly fear it may be worse," the Republican governor said.

Forester Predicted 2008's Crash, and Sees Another Coming Soon

Forester predicted the most recent housing crash, positioning his Forester Value Fund (FVALX 11.97, +0.13, +1.10%) to ride out the expected downturn. That approach worked, as the stock fund was up 0.4% in 2008. Now Forester is preparing for another crash, forecasting a 10%-20% fall in house prices this year and arranging his portfolio accordingly.

South Dakota Unemployment Fund Still Deteriorating

South Dakota Labor Secretary Pam Roberts says unemployment benefits paid out last week were at an all-time high of $2.7 million to about 8,800 people. The state's unemployment fund has been deteriorating during the economic recession. Roberts says officials were hoping that things were starting to improve, until last week. She says a surcharge paid by employers that began last October and was expected to end by July might now continue into next year.

Rhode Island Unemployment Trust Fund in Dire Straits

Rhode Island employers saved more than $500 million in the state unemployment tax over the last decade or so. Those savings, the result of a change in state law, also left Rhode Island’s unemployment trust fund vulnerable to a downturn. The trust fund is now depleted, partly because of an increase in demand for jobless benefits amid a punishing recession and persistently high rates of unemployment. As a result, the trust fund has had to borrow more than $140 million so far from Uncle Sam to help pay benefits. And employers are on the hook for higher taxes — at a time when they can ill-afford to pay.

Amid Budget Woes, Tax Refunds Could Be Delayed Again

State Revenue Commissioner Bart Graham said Tuesday that Georgians who file paper income tax returns may again see some delays, a problem that plagued his department last summer. Graham blamed delays last year on $12 million in budget cuts. Those cuts led Graham to lay off more than 300 employees, many of them in the tax return processing unit. With the state facing another year of budget cuts, Graham's situation, at least in terms of personnel, hasn't improved.

UK Plan To Halve Budget Deficit Too Slow

The UK government plans to halve its deficit by the fiscal year ending March 2014 from an expected 12.6% of gross domestic product in the fiscal year ending March. But Brian Coulton, Fitch Ratings' Head of Europe, Middle East and Africa Sovereigns and Global Economics, told investors that that four-year timescale is too slow.... In May, fellow agency Standard & Poor's placed the U.K.'s AAA credit rating on a negative outlook and said a downgrade could follow if a credible debt reduction plan isn't in place after a general election due by June 3.

Economy Causes Record Demand for Idaho Public Aid

High unemployment caused by the recession has created unprecedented need statewide for food stamp aid and other public assistance programs, the chief of Idaho's Department of Health and Welfare said Tuesday. At the same time, Health and Welfare Director Richard Armstrong said the threat of another midyear budget cut may force the agency to lay off workers and shutter some of its offices across the state — as worker caseloads continue to swell. The agency is processing more than 9,000 new food stamp applications each month, a record level and a 55 percent increase from 2007. More than 179,6000 people or families are enrolled in the program, up 106 percent from more than 87,000 in 2007. Demand for Medicaid programs is up 13 percent from three years ago and child support cases are up 9 percent, according to agency figures.

Businesses in Kansas Face $209M Increase in Taxes to Finance Benefits for Unemployed Workers

The state is automatically adjusting its tax rates because the Unemployment Insurance Trust Fund expects to run out of money by mid-February. The Department of Labor notified 69,500 businesses in mid-December; the changes took effect with the new year, and the first quarterly payments are due in April. Some businesses are upset by the increases — and because they were notified only two weeks in advance of the changes taking effect.

Dubai's Debt Could Be as Much as $170 billion

Dubai shook world markets in November when it said it wanted to request a freeze on debt repayments by its largest and most-indebted conglomerate, Dubai World. At the time, Dubai's total debt, including that of its state firms, was reportedly 80 billion dollars, with Dubai World owing 59 billion dollars.


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Re: Daily Digest - January 20

Saxplayer, great job on the DD.  I think looking at the economic story at the state level of finances is a heck of a lot more revealing about the real status of the US's economic condition than listening to the fantasy-recovery fairy tales we're  told at the national level.


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Re: Daily Digest - January 20

"Jan. 20 (Bloomberg) -- China, which cut Treasury holdings by the most in five months in November, may reduce purchases further on concern the dollar will decline, said Liu Yuhui, an economist at the Chinese Academy of Social Sciences.

The Asian nation’s investors, the biggest foreign holders of U.S. government debt, trimmed holdings by $9.3 billion in November to $789.6 billion, a Treasury Department report showed yesterday. The decline came even as Chinese foreign-exchange reserves swelled $61 billion in the month."

"Jan. 20 (Bloomberg) -- Everyone seems to know the current path of federal fiscal policy is a deathtrap over the long term. What’s peculiar is the relative inattention to the balance sheets of state and local governments.

Hidden behind accounting fictions, the politically unspeakable reality is that public employee pension systems are under-funded by more than $2 trillion. Add more than $1 trillion in unfunded health-care benefits for retired public employees, and state governments face protracted structural deficits ranging from challenging to insurmountable. "

"In September, state economists estimated the state would be about $2.7 billion short in paying for all its expenses in 2010-2011. That would include a $900 million shortfall for its most pressing needs, such as schools and courts.

Last week, the economists revised their estimate and it is even more dire, with the new total budget gat expected to be $3 billion and the new critical-needs shortfall anticipated at $1.5 billion.

The shortfall is the result of a nearly $800 million decrease in property tax collections since the previous year, rising Medicaid costs and the need to bulk up the state's pension fund for the first time ever. The deficit would be worse except that state economists are including revenue for education from the federal stimulus act passed in 2009. "

"Expect another year of rising vacancies, declining property values and distressed sales in the local commercial real estate market.

That's the message from Colliers Turley Martin Tucker in its annual State of Real Estate report. The firm will discuss its predictions for 2010 at an event Wednesday afternoon at The Murat.

CTMT forecasts more upheaval and pain for property owners in 2010 as tenants continue to look for savings on their real estate and consumers continue to pull back. "

"The effects of the recession are passing for some industries, but not for the commercial real estate business, a panel of experts said Tuesday.

Beach Co. president John Darby called the problems for the industry “looming” as millions of commercial loans nationwide become due for property owners who owe more than what their buildings or land are worth.

He cited a Deutsche Bank report from April that predicted two-thirds of the commercial real estate loans expected to mature before 2018 won’t qualify for refinancing without a major infusion of cash. "

(A chart on the left side of the page shows the increase for each state)

"In 2009, the average business owner paid $95 per employee. This year, the tax will be $171, according to estimates by the state workforce agency. "It's another added expense to hiring somebody," Miller says. "Everything's going up, and business is going down."

Similar tax increases are hitting employers nationwide this year as states struggle to pay the 5.5 million Americans currently collecting state jobless benefits. So far, high unemployment and, in many cases, poor planning have prompted 25 states to borrow more than $25 billion from the federal government to keep benefit checks in the mail."

"Heavy losses in real estate holdings battered 2009 investment returns at California's giant public pension fund, although the portfolio overall rose in value for the year.

The California Public Employees' Retirement System earned an 11.8% return on its portfolio as global stock markets recovered from the collapse of 2008, the fund said Tuesday. The portfolio had dived 27.1% in 2008.

But the gain for 2009 was far below CalPERS' internal benchmark of 21.2%, which is based on the performance of broad indexes of investments similar to what the fund owns.

"That's massive underperformance," said Edward Siedle, an analyst with Benchmark Financial Services Inc., a boutique investment consulting firm in Ocean Ridge, Fla. "There's no justification for that."

CalPERS said its real estate holdings plunged 47.5% for the year, compared with a 15.4% drop for its benchmark index of property investment returns."

"The company that owns the Daily News in Palo Alto, San Mateo County Times, San Jose Mercury News, Contra Costa Times, Oakland Tribune and some 50 other daily newspapers, as well as 100 non-daily papers in 12 states will soon declare bankruptcy, initiating a proceeding in federal court.

The bankruptcy of holding company Affiliated Media Inc., in the form of a Chapter 11 filing, is the result of inability to pay huge debts accumulated in recent years when MediaNews Corp. acquired many of the papers it now owns."

"A new financial forecast for Clark County will likely make it all but impossible for its employee unions to avoid this unwelcome choice in the coming weeks — salary cuts or job cuts.

As they prepare to begin renegotiating labor contracts in a few weeks, Clark County commissioners learned Tuesday that next year’s budget deficit could reach $200 million — much higher than the $126 million predicted earlier.

George Stevens, the county’s chief financial officer, told commissioners that consolidated tax revenue fell $28 million, or 20 percent, in the first three months of the fiscal year compared with the same period in the previous year, and that commercial property tax revenue is expected to decline. The fiscal year began July 1.

Based on an average cost of $90,000 in salary and benefits per county employee, the looming deficit would equal roughly 2,200 jobs."

.......Thanks Pinecarr.

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Re: Daily Digest - January 20

As a small business owner, thank you for all the posts concerning the increase in state unemployment taxes.  It has been a huge increase at the worst possible time.  I appreciate the articles in the hope of educating those that are not involved in small business.  Teresa


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Value of White House Drops by More Than $15 Million

As analysts slice, dice, mince and wedge the president's first year in office, Zillow.com decided to take a look at his property's performance, and found that the value of 1600 Pennsylvania Avenue has dropped by $15.6 million, or 5.1 percent in the past year.

We're all subprime now!


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Re: Daily Digest - January 20

"Jan. 20 (Bloomberg) -- New Jersey’s tax revenue will be $1.2 billion less than projected in the current fiscal year, Governor Christopher Christie told reporters today.

Christie said his administration learned about the revenue shortage yesterday about an hour after he took the oath of office. Governor Jon Corzine’s administration refused to disclose the information in the transition period, Christie said.

“They wanted to drop this egg on me in my first day on the job,” Christie, 47, told reporters today in his first Statehouse news conference. “That’s OK. It’s my job. It’s my responsibility now. I’m the governor and I’ll deal with it in a way that won’t result in higher taxes.” "

"WASHINGTON—The Senate Labor, Health, Education and Pensions Committee on Wednesday will hold a hearing on Joshua Gotbaum, an operating partner at New York-based private equity fund Blue Wolf Capital Management L.L.C., whom President Barack Obama nominated in November to be the director of the Pension Benefit Guaranty Corp.

Mr. Gotbaum's hearing comes at a difficult financial time for the PBGC. In fiscal 2009, the agency's deficit nearly doubled to $22 billion from $11.2 billion as the PBGC was hit by huge losses from failed plans it took over.

And more big losses could be on the way. The PBGC in November reported that its potential exposure to future losses from financially weak companies was about $168 billion, up from $47 billion the prior year.

In fiscal 2009, the agency took over 144 pension plans, up from 67 in 2008."

"The U.S. Treasury Department was unsuccessful in recent negotiations with the country's largest financial institutions to procure contracts requiring participation in a second mortgage modification program to reduce the number of housing foreclosures this year, which could hit record numbers.

Leading lenders, including Bank of America and Wells Fargo, currently hold a combined $1.05 trillion in home-equity debt, a figure so enormous it threatens to again disrupt housing stability and lead to 3 million foreclosures this year, after contributing to the 2.8 million in 2009, Bloomberg reports."

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and maybe it's all starting in AUS next...?


Toll of misery as tunnel goes under
January 21, 2010

The Lane Cove Tunnel has collapsed into receivership, becoming the third major infrastructure project in the city to fail in the past two decades due to wildly optimistic traffic forecasts.

The failure of the tunnel a little more than three years after the financial collapse of the Cross City Tunnel means the State Government in now unable to turn to the private sector to fund new tollroads.

The receiver KordaMentha was appointed yesterday to take control of the 3.6- kilometre tollroad, which analysts value at between $400 million and $600 million - way below the nearly $1.6 billion the tunnel cost.

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Russia Diversifies into Canadian Dollars

"Russia’s central bank announced on Wednesday that it had started buying Canadian dollars and securities in a bid to diversify its foreign exchange reserves.

Analysts said the move could be a sign of increased diversification of emerging market central bank assets away from the dollar and into investments denominated in other commodity-linked currencies, such as the Australian dollar." (FT Article)

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Re: Value of White House Drops by More Than $15 Million
joemanc wrote:

As analysts slice, dice, mince and wedge the president's first year in office, Zillow.com decided to take a look at his property's performance, and found that the value of 1600 Pennsylvania Avenue has dropped by $15.6 million, or 5.1 percent in the past year.

We're all subprime now!


Joe, that's really funny!

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Re: Value of White House Drops by More Than $15 Million

Good stuff, Joe!


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Re: Daily Digest - January 20


Iran in billion-euro gas deal with Germany

Wed Jan 20, 7:13 am ET

TEHRAN (AFP) – Iran has signed a one-billion-euro (1.44-billion-dollar) deal with a German firm to build 100 gas turbo-compressors, an industry official said in newspapers on Wednesday.

The contract provides for the unnamed German firm to transfer the know-how to build, install and run the equipment needed to exploit and transport gas, said Iran's Gas Engineering and Development Company head, Ali Reza Gharibi.

The German company has already delivered 45 such turbo-compressors to Iran, Gharibi said, according to Iran Daily. Industry experts said he was apparently referring to Siemens.

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