KeNo's Housing and Economic Portal: Wednesday September 9 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Californians Lose $1 Billion From Unconstitutional Bond Sales - (www.bloomberg.com) With the temperature reaching 100 degrees Fahrenheit on an April afternoon, Alan Polee peers through a window into the locked-up gym at Vanguard Middle School in Compton, California. The cream-colored building is shut because of a decaying roof. At Vanguard, 15 miles south of downtown Los Angeles, children play outdoors, no matter the temperature, on rutted fields and basketball courts with broken backboards. “We shouldn’t have these conditions in this day and age,” says Polee, 46, a Los Angeles city truck driver who has sent five children to the Compton schools. “You wonder what’s going on.” The Compton Unified School District could have repaired the gym. In 2006, the district refinanced $50.8 million in taxpayer- approved bonds, in a move its bankers said would save the district money. In the process, officials took out $6.5 million in cash, which they said would be used for school construction and repairs. School board member Micah Ali says Vanguard’s gym and rundown facilities at other schools weren’t fixed. A Compton audit couldn’t track how school construction money was spent. In the meantime, total debt owed by taxpayers until 2022, instead of being reduced, has gone up by 15 percent. Throughout California, the largest and most fiscally troubled state in the U.S., about 200 school districts have done similar refinancing deals -- all of which have been condemned by Attorney General and former GovernorJerry Brown as unconstitutional. Ban on Deals: The Compton school board didn’t seek voter approval for the deal. From 2002 to 2007, California school districts collected a total of $1 billion for construction during a bond refinancing spree set off by falling interest rates. None of these deals should have been done, Brown says. The constitution bans school districts from taking on additional debt in a refinancing of taxpayer-approved bonds without a public vote. In every case, the prohibited transactions added to school district debt and increased property taxes for at least the next decade, bond records show. Banks pitched the deals to schools on the premise that refinancing would save taxpayers money and provide extra cash. The deals were dominated by UBS AG and Piper Jaffray Cos., which collected fees up to four times the U.S. average for bond sales, public records show. “This was a hell of a cute scheme,” says Lee Buffington, treasurer of San Mateo County, just south of San Francisco. “These guys had a gold mine going and thought nobody was watching.” Financing Frills: Some districts spent millions of dollars from refinancing not to upgrade classrooms but to purchase administration buildings and build sports stadiums. Those decisions overrode requests from school board members and parents to support more urgent needs -- such as fixing leaky roofs, replacing faulty electrical systems, modernizing science labs and increasing security at schools where student violence had flared. The Moreno Valley Unified School District, a 39-school system in Southern California, used 90 percent of its $6.5 million in cash to build a 3,000-seat outdoor stadium equipped with a wireless videotaping system for football games. Librada Murillo, a mother of three children in the district, says school officials didn’t ask parents for advice. She blames board members for building a stadium when schools needed new bathrooms and security systems. “We have a right to know this information,” she told the school board in 2007. “What the school board has been doing is not legal.” No-Bid Deals: Most districts arranged refinancings without competitive bidding, bond records show. The added taxpayer burdens come as communities across the country try to dig themselves out of debt quagmires brought on by the purchase of exotic financial contracts. The U.S. Justice Department for the past two years has been conducting the largest-ever criminal investigation of public finance in the nation.

Bankers watch as Sweden goes negative Riksbank experiment to boost commercial lending by charging for deposits may set precedent for the world - (www.ft.com) For a world first, the announcement came with remarkably little fanfare. But last month, the Swedish Riksbank entered uncharted territory when it became the world’s first central bank to introduce negative interest rates on bank deposits. Even at the deepest point of Japan’s financial crisis, the country’s central bank shied away from such a measure, which is designed to encourage commercial banks to boost lending. But, as they contemplate their exit strategies after the extraordinary measures of the past two years, central bankers will be monitoring the Swedish experiment closely. Mervyn King, the Bank of England governor, has hinted he may follow the Swedish example as the danger of a so-called liquidity trap, where cash remains stuck in the banking system and does not filter out to the wider economy, is an increasing concern for the UK. Hoarding is exactly what happened in Japan earlier this decade when the Bank of Japan implemented quantitative easing between 2001 and 2006. Japanese banks refused to lend, in spite of central bank stimulus, because of fears over the dire state of the economy. If this continues to happen in other economies, central bankers may be left with little choice but to follow the Swedish example. John Wraith, head of sterling rates product development at RBC Capital Markets, says: “The success of the UK’s quantitative easing experiment hinges a lot on whether the banks will use the extra moneythey are getting for lending to individuals and businesses. “If there is no sign of this over the next few months, then the Bank of England might consider a negative interest rate. In essence, it is a fine on banks that refuse to lend.” In the UK, for example, nearly £140bn has been injected into the economy through central bank purchases of government bonds and corporate assets, mainly from the commercial banks.However, since the QE project was launched on March 5, a lot of this money, which in theory should be used by the commercial banks for lending to businesses and individuals, has ended up at the Bank of England in reserves.

US resists £50m VAT claim on embassy work Washington and London in tax deadlock - (www.ft.com) The US is standing firm against UK demands to pay up to £50m in value added tax on its new embassy building in south London. The American embassy, at present based in Mayfair, insists that under international protocol it should not have to pay tax on the building project. In the past eight years, the US has escaped paying tax on 68 diplomatic properties it has built around the world. “This is very important to the US, it has been raised at the highest levels in Washington – although not quite Obama,” one Whitehall source said. But the Treasury has refused to deviate from its official guidelines that if construction services are carried out on a UK property, they fall within the “VAT place of supply of services” rule. The Americans want to move from Grosvenor Square to purpose-built premises at Vauxhall, on the south bank, by 2016. The US embassy has issued a statement confirming it is in talks over VAT with the UK government. “It is similar to discussions we have had all over the world where we have built diplomatic properties,” it said. The row comes on the heels of a separate argument over whether US diplomats should pay London’s congestion charge. The Financial Times has learnt that the UK has considered taking legal action over £32m of unpaid charges and fines – including £3.5m from US staff. The debate hinges over whether the congestion charge is a “tax” or – as Britain argues – a “charge for services”. However, Transport for London still hopes for a resolution. “We have no desire to see this end in the courts,” it said. Edward Lister, Conservative leader of Wandsworth borough council, wrote to Alistair Darling, chancellor, on July 31 to seek his intervention in the tax issue, according to Friday’s Property Week magazine. He asked Mr Darling to allow an exemption: “There is the potential for substantial future economic benefits and tax revenues being lost if the Treasury’s rigid attitude prevails,” the letter said. For now the two sides are at an impasse. One solution could be for the US to give Britain a similar rebate on building work planned in Washington, according to the Whitehall insider.

NY Tries to Tax Yoga Instructors, Grasping for Any Method to Raise Revenues – (www.nytimes.com) It seemed like a good idea at the time. Ten years ago, with yogatransforming into a ubiquitous pop culture phenomenon from a niche pursuit, yoga teachers banded together to create a voluntary online registry of schools meeting new standards for training instructors. But that list — which now includes nearly 1,000 yoga schools nationwide, many of them tiny — is being put to a use for which it was never intended. It is the key document in a crackdown that pits free-spirited yogis against lumbering state governments, which, unlike those they are trying to regulate, are not always known for their flexibility. Citing laws that govern vocational schools, like those for hairdressers and truck drivers, regulators have begun to require licenses for yoga schools that train instructors, with all the fees, inspections and paperwork that entails. While confrontations have played out differently in different states, threats of shutdowns and fines have, in some cases, been met with accusations of power grabs and religious infringement — disputes that seem far removed from the meditative world yoga calls to mind. In April, New York State sent letters to about 80 schools warning them to suspend teacher training programs immediately or risk fines of up to $50,000. But yogis around the state joined in opposition, and the state has, for now, backed down. In other states, regulators were not moved. In March, Michigan gave schools a week to be certified by the state or cease operations. Virginia’s cumbersome licensing rules include a $2,500 fee — a big hit for modest studios that are often little more than one-room storefronts. Lisa Rapp, who owns My Yoga Spirit in Norfolk, Va., said she was closing her seven-year-old business this summer. “This caused us to shut down the studio altogether,” Ms. Rapp said. “It’s too bad, because this community really needs yoga.” The conflict started in January when a Virginia official directed regulators from more than a dozen states to an online national registry of schools that teach yoga and, in the words of a Kansas official, earn a “handsome income.” Until then, only a few states had been aware of the registry and had acted to regulate yoga instruction, though courses in other disciplines like massage therapy have long been subject to oversight. The registry was created by the Yoga Alliance, a nonprofit group started in 1999 to establish teaching standards in an effort to have the industry regulate itself. In a recent newsletter, the alliance warned its members that nationwide licensing might be inevitable, “forcing this ancient tradition to conform to Western business practices.” “We made it very, very easy for them to do what they’re doing right now,” said Leslie Kaminoff, founder of the Breathing Project, a nonprofit yoga center in New York City, who had opposed the formation of the Yoga Alliance. “The industry of yoga is a big, juicy target.”

Home equity credit cuts strike nerve - (www.contracostatimes.com) The bad news comes in the cold, matter-of-fact manner you would expect from a bank telling you it had revoked your home equity line of credit. Newark homeowners Todd and Yvette Haley could not believe it when they received such a letter from Fremont Bank on June 25. The math behind the decision, they said, didn't justify the loss of their barely used $150,000 line of credit they were banking on to renovate their home. "We believe that (Fremont Bank) failed to assess the value of our house before they cut the size of our credit line," Todd said. The couple, who both teach in the Newark Unified School District, said they have excellent credit. They owe less than $300,000 on their Newark home that Zillow priced at $515,000 on Monday. The Haleys are not alone in their incredulity over losing credit for what apparently has nothing to do with their personal financial standing. From Newark, Calif., to Newark, N.J., banks are pulling back on home equity lines of credit in mass mailings targeting areas, banks say, that have seen profound home price depreciation Last week, San Francisco-based Wells Fargo was named in a class-action lawsuit claiming it illegally reduced the size of customers' home equity lines of credit. The suit, which was filed in Illinois, claims Wells Fargo failed to accurately assess the value of customers' houses before deciding to pull their credit lines, according to the Associated Press. Wells Fargo is accused of using unreliable computer models that valued home prices too low, and then did not properly notify customers about the credit-line reductions. "We want customers to call us if they believe we made our decision based on incorrect or incomplete information,'' Chris Hammond, spokesman for Wells, told me. "In some cases we do change our decision when the customer provides sufficient additional information.'' The Haleys did not take the matter lying down. After repeated phone calls to Fremont Bank, the couple said — to Fremont Bank's credit — they received some sense of resolution. The banks restored some $20,000 to their credit line. "Make them explain it to you, then explain your position," Todd Haley advises others who feel wronged by having their home equity line of credit snatched away. From an industry perspective, huge losses rooted in residential real estate over the past two years have changed the modus operandi for nearly all banks. Mass reduction in credit lines limits a bank's exposure to further drops in the economic tide.

Geithner: U.S. Fed needs shielding from politics - (www.reuters.com) U.S. Treasury Secretary Timothy Geithner said on Wednesday the Federal Reserve should further increase its transparency, but its monetary policy activities need to be shielded from political influence. Geithner, answering questions voted on and posed by the Digg.com online community, did not endorse proposed legislation that would enable the Government Accountability Office to audit the Federal Reserve. The question with the most votes from Digg, a social news website where users comment on submitted links and stories, was, "Why has the Federal Reserve bank never been audited?" "You want to keep politics out of monetary policy," Geithner said, adding the Fed already has strong congressional oversight. "The Fed is dramatically more transparent than it was, is subject to very comprehensive oversight and audits, but there are certain things about what the Fed does that again you need to make sure you preserve as independent of political influence, that is free of political influence, and that is a line that we don't want to cross," Geithner said. The third most popular question, which was posed to Geithner in a video interview administered by a Wall Street Journal editor, was whether Geithner supported Rep. Ron Paul's bill to conduct a comprehensive audit of the Fed. "Even the sponsor of that bill recognizes how important it is to us to have the Fed independent of politics," Geithner said. "And I'm sure that many people concerned about the Fed's role in the system will understand it would be problematic for the country if you let politicians come in and shape the conduct of monetary policy in the country."