KeNo's Housing and Economic Portal: Monday June 22 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Amid budget woes, some question Dublin-San Ramon water district bonuses - (www.insidebayarea.com) Proposals for cutbacks and higher rates have some upset with the Dublin San Ramon Services District for considering layoffs and price increases but keeping employee bonuses. The district's "Pay for Performance" program has given out over $2.2 million in bonuses over the past 10 years to the chagrin of some employees and board President Dan Scannell, who has been a critic of the program for the past five years. The district could vote on possible rate hikes and employee layoffs at its June 23 meeting, six months after approving the latest round of bonuses. For the last fiscal year, the district awarded $369,574 in bonuses to 37 employees, including a combined $102,263 to its five senior managers. The bonuses come on the heels of a $1.2 to $1.3 million budget deficit the district is facing for the 2009-2010 fiscal year. To make up for the shortfall, partly blamed on a slowdown in development and associated connection fees, the district is set to vote on increasing water consumption rates, which have yet to be decided, and the flat service charge for the size of meters customers have. Under three different options being considered by the board, the meter rate alone could rise between $17 and $20 for most customers. The district serves 16,235 metered customers, of those, 14,498 have a 5/8" meter connection and pay a current rate of $16 every other month. The district is also considering laying off between two to three full-time positions. "Six months after approving pay bonuses, you now come and asked for a rate hike?" said Scannell. "Something just doesn't look right." n October, the board of directors approved "Pay for Performance" bonuses by a 4-1 vote for senior management that ranged between 10 to 12.5 percent of their base salary. Scannell was the dissenting vote. Based on the district's salary schedule, the five senior managers earn from $147,372 to $260,964 per year depending on where they fall on the pay scale. The annual bonuses approved for senior managers ranged from $14,737 to $32,620.50 each. The program awards employees based on three different evaluation areas, individual, department and district. DSRSD officials defend the program saying the money does not come from operating expenses, but instead is a surplus for coming in under budget for that particular year. Bert Michalczyk, the district general manager since 2001, said the program encourages employees to do well, which translates into coming in under budget and passing on lower rates to customers. In 1997, the average customer paid $45.52 every two months — which does not include any fees for water from the Zone 7 Water District or power charges. Since 1997, the rates have stayed below the $45.52, including a low of $26.76 in 2001, and averaged $33.10 during the current fiscal year.

California 50 Days From Financial Meltdown - (www.controller.ca.gov) State Controller John Chiang today released his monthly report detailing California’s cash balance, receipts and disbursements in May and through the first 11 months of the fiscal year. In May, revenue was $827 million below the latest projections found in the Governor’s May Budget Revision. "Without immediate solutions from the Governor and Legislature, we are less than 50 days away from a meltdown of State government. This presents a terrible threat to California’s economy and to the State’s delivery of basic public services,” said Chiang. “A truly balanced budget is the only responsible way out of the worst cash crisis since the Great depression.” Personal income taxes were $475 million below (-23.0%) estimates in the May Revision. Corporate taxes were down $84.4 million (-25.8%), and sales taxes fell by $109 million (-3.3%). The Controller has met with Governor Schwarzenegger and Legislators in the past week to brief them on the State’s immediate cash problem. He also sent a letter to State leaders this morning with new cash projections – updated to reflect May actuals and final May Revision numbers from the Department of Finance – that continue to show the State exhausting all available cash by late July. The State is now projected to run $2.78 billion into the red on July 31. The State started the fiscal year with a $1.45 billion cash deficit, which grew to $19.8 billion on May 31, 2009. That deficit is being covered by a combination of Revenue Anticipation Notes (RANs) and internal borrowing from special funds. Borrowing from special funds is expected to provide enough cash to fund State operations through the end of the fiscal year on June 30. May 2009’s financial statement and the summary analysis can be found on the Controller’s Web site at www.sco.ca.gov.

Median home prices drop below 1989 levels in some parts of Southland - (www.latimes.com) Properties in several areas are selling for less than they did 20 years ago, and that's not including inflation. Some first-time buyers are nabbing houses for less than what their parents paid. In parts of Southern California, the housing crash has upended a basic tenet of the American dream: that home values always increase over the long term. Properties in several areas are selling for less than they did 20 years ago, and that's not even counting the effects of inflation. The reversal is a bonanza for some first-time buyers. They're nabbing houses for less than what their parents paid in the late 1980s, jumping into a real estate market that has become a kind of economic time machine. To return to the past, take a stroll down Mulberry Avenue in Lancaster. John A. Beatrice, 55, bought his spacious two-story Spanish-style house there brand-new for $120,000 in 1989. It was a price he could comfortably afford, and he planned on staying through retirement, so he wasn't worried about price swings. "I always knew real estate goes like this," said the aerospace engineer, moving his hand in an undulating motion like bell curves on a graph. But he never imagined his neighborhood would drop off the charts. In April, a slightly larger home two doors away sold for $66,500. That's just over half the $130,000 it went for new in 1992. In 2005, that house sold for $330,000. Beatrice's 29-year-old daughter is now shopping for Lancaster houses priced lower than when she was a kid. Home prices across most of Southern California have not fallen nearly as far. The median price in the six-county area was $247,000 in April, about what it was in 2002. But in 14 Southland ZIP Codes, mainly desert communities in the Antelope Valley and Inland Empire, median prices have fallen below levels recorded in April 1989, according to MDA DataQuick, a San Diego real estate information service.

Tax on Health Benefits Weighed but would exempt unions and only apply to benefits more than what congress gets - (www.washingtonpost.com) These politicians proving they are corrupt as hell and bought by unions as they continue to kiss up to their union base. A Senate plan to overhaul the nation's health system is likely to include a new tax on some employer-provided health benefits that exceed the value of the basic plan offered to federal employees, currently about $13,000 a year for a family of four, the chairman of the Senate Finance Committee said yesterday. Sen. Max Baucus (D-Mont.) said he is drafting the health reform measure, which he expects to unveil next week. He told reporters that taxing employer-provided benefits is "perhaps the best way to raise money for an overhaul of the health-care system" and offered details about the form that tax is likely to take. Baucus said his proposal is likely to cap benefits at "a level higher than the actual benefit that members of Congress receive today." An employer-provided plan worth less than that level would remain tax-free, he said, while any benefit exceeding the cap would be taxed as ordinary income. Such a tax, if adopted, would be phased in over "several years," Baucus said. And it would be likely to "grandfather" in health benefits set as part of a collective-bargaining agreement, he said, allowing union plans to remain tax-free until new contracts can be negotiated. Baucus declined to say how much money the proposal would generate. The nonpartisan Joint Committee on Taxation estimates that taxing employer benefits above the value of the Federal Employees Health Benefit Plan, adjusted for inflation, would generate nearly $420 billion over the next 10 years -- a sizable chunk of the $1 trillion or more likely to be needed to expand coverage for the uninsured.

MetLife Says Commercial Mortgage Defaults Will Rise - (www.bloomberg.com) MetLife Inc. Chief Investment Officer Steven Kandarian said commercial mortgage defaults will rise in the next two to three years after the economic slump subsides. “The worst is to come,” Kandarian said in an interview today with Bloomberg Television in New York, where the biggest U.S. life insurer is based. “Typically there’s a lag between when the economy softens and when the defaults actually occur.” The default rate on commercial mortgages held by U.S. banks may rise to 4.1 percent, the highest in 17 years, by yearend as debt for refinancing remains scarce and the recession drags down rents, research firm Real Estate Econometrics LLC. said yesterday in a report. Kandarian, whose portfoliocontains about $36 billion in loans on commercial property, said he expects delinquencies for MetLife will be “relatively small.” “Like all firms that hold these kinds of mortgages, we’ll have some issues,” Kandarian said. The insurer, which is also a federally regulated bank, underwrote loans “very carefully” to minimize the risk of losing principal and expects to fund more mortgages as competitors retreat from the market, he said. Kandarian is seeking higher returns from MetLife’s $300 billion portfolio after a 23 percent slide in first-quarter investment income helped push the company into its first loss since 2001. He’s drawing down the insurer’s cash holdings to buy corporate debt and said in May he was considering adding securities backed by commercial mortgages that were selling below face value. PPIP: MetLife’s portfolio won U.S. endorsement in May when the Federal Reserve’s stress test revealed the company was adequately capitalized to withstand a prolonged recession. The insurer is considering whether to buy depressed assets tied to the housing market through Treasury’s Public-Private Investment Program for troubled assets.

Obama's Pay Czar and Other Mindless Meddling - (Mish at globaleconomicanalysis.blogspot.com) Will the Obama administration's meddling in the affairs of business ever end? That's what I am asking as I read Treasury to name pay czar on Wednesday. The Obama administration on Wednesday will name a 'pay czar' with power to reject compensation plans at companies receiving "exceptional" government aid, an administration official said on Wednesday. The administration will also call for "say-on-pay" legislation that would give the Securities and Exchange Commission authority to require public companies to hold nonbinding shareholder votes each year on executive pay, the official said. The pay czar, or "special master," will review compensation structures for the top 100 salaried employees of firms receiving exceptional assistance, the official said. Obama Tells American Businesses to Drop Dead: Kevin Hassett at Bloomberg writes Obama Tells American Businesses to Drop Dead. I’ve finally figured out the Obama economic strategy. President Barack Obama and his team have been having so much fun wielding dictatorial power while rescuing “failed” firms, that they have developed a scheme to gain the same power over every business. The plan is to enact policies that are so anticompetitive that every firm needs a bailout. Once that happens, their new pay czar Kenneth Feinberg can set the wage for everybody and Rahm Emanuel can stack the boards of all of our companies with his political cronies. Microsoft Chief Executive Officer Steve Ballmer came to Washington to announce what Microsoft would do if Obama’s multinational tax policy is enacted. “It makes U.S. jobs more expensive,” Ballmer said, “We’re better off taking lots of people and moving them out of the U.S.” If Microsoft, perhaps our most competitive company, has to abandon the U.S. in order to continue to thrive, who exactly is going to stay? Hassett is talking about Obama’s proposal to end the deferral of multinational taxation. I have a simple suggestion. Instead of taxing American businesses to death in the United States, why don't we eliminate corporate income taxes in the US altogether? That way, businesses would not have an incentive to hide profits, waste money inventing schemes to defer profits, and most importantly businesses would not leave the US to do it. Indeed, having the lowest taxes instead of the highest would encourage business to locate in the US. Wouldn't that be a good thing? Interestingly, I already wrote about the "Drop Dead" idea in relation to healthcare and Kennedy's plan to partially pay for it by raising taxes on businesses. Let's review Kennedy's Healthcare Bill Will Increase Expenses, Decrease Employment and Encourage Outsourcing.

Happy Hour: The New Day Job - (www.cnbc.com) As the unemployment rate ticks ever higher, there’s a new trend emerging: happy hours in the middle of the day. And, they’re increasingly being offered four or five days a week. So, why wait until Friday? Let’s go and get our happy on right now! In Manhattan’s theater district, the Mean Fiddler takes its turns at being nice to the unemployed, offering drink specials from noon to 7pm, including $3.50 domestics, $4.50 imported beer of the month and $5 cocktails including Cosmos, Margaritas and Mojitos. And, if you’re superstitious — or, y’know, just in case — here’s a good one for you: The Kitano hotel in New York offers a variety of appetizers, wine and beer from 2:30 to 5pm for $8 each because the number 8 is considered lucky and a sign of prosperity in the Japanese culture. (See correction below.) Among those taking advantage of the specials at New York bars is Jenn Tesch, an East Village resident who was laid off from her job in sales at a medium-sized marketing firm at the end of April. "It's kind of like this underground community," Tesch said of the legions of unemployed roaming New York streets during the daytime and the businesses she's discovered that she might not have otherwise, just because they're offering daytime specials and she's suddenly budget-conscious. “[B]usinesses are recognizing that they’re having a rough time, and also saying ‘hey, we know some of you are having a rough time, too — let’s bond and get through this together,” Tesch said. Tesch said she's never seen happy hours this early before and now finds herself mentally roaming her rolodex, wondering: "Who do I know that can meet me that early?!"