KeNo's Housing and Economic Portal: Wednesday December 16 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Plundering California - (www.city-journal.org) The economy is struggling, the unemployment rate is high, and many Americans are struggling to pay the bills, but one class of Americans is doing quite well: government workers. Their pay levels are soaring, they enjoy unmatched benefits, and they remain largely immune from layoffs, except for some overly publicized cutbacks around the margins. To make matters worse, government employees—thanks largely to the power of their unions—have carved out special protections that exempt them from many of the rules that other working Americans must live by. California has been on the cutting edge of this dangerous trend, which has essentially turned government employees into a special class of citizens. When I recently appeared on Glenn Beck’s TV show to discuss California’s dreadful fiscal situation, I mentioned that in Orange County, where I had been a columnist for the Orange County Register, the average pay and benefits package for firefighters was $175,000 per year. After the show, I heard from viewers who couldn’t believe the figure, but it’s true. Firefighters, like all public-safety officials in California, also receive a gold-plated retirement plan: a defined-benefit annual pension that offers 90 percent or more of the worker’s final year’s pay, guaranteed for the rest of his life (and the life of his spouse). Government employees use various scams to boost their already generous benefits, which include fully paid health care and cost-of-living adjustments. The Sacramento Bee coined the term “chief’s disease,” for example, to refer to the 82 percent (in 2002) of chief’s-level employees at the California Highway Patrol who discovered a disabling injury about one year before retiring. That provides an extra year off work, with pay, and shields 50 percent of their final retirement pay from taxes. Most of these disabilities stem from back pain, knee pain, irritable bowel syndrome, and the like—not from taking bullets from bad guys. The disability numbers soared after CHP disbanded its fraud unit. As I document in my new book, Plunder!, government employees of all stripes have manipulated the system to spike their pensions. Because California bases pensions for employees on their final year’s salary, some workers move to other jurisdictions for just that final year to increase their pay and thus the pension. Even government employees convicted of on-the-job crimes continue to collect benefits. Municipalities have adopted Defined Retirement Option Plans, or DROPs, in which the employee earns his salary and his full defined-benefit retirement pay at the same time, with the retirement pay going into an account payable upon actual retirement. And as average Americans work longer to sustain themselves, public employees can retire in their early fifties with their plush benefits. The old deal seemed fair: public employees would earn lower salaries than Americans working in the private sector, but would receive a somewhat better retirement and more days off. Now, public employees get higher average pay, far higher benefits, and many more days off and other fringe benefits. They have also obtained greatly reduced work schedules, thus limiting public services even as pay and benefits shoot ever higher. The new deal is starting to raise eyebrows, thanks to efforts by groups such as the California Foundation for Fiscal Responsibility, which publishes the $100,000 Club, a list of thousands of California government retirees with six-figure, taxpayer-guaranteed incomes. But even in these tough times, public employees continue to press city councils for retroactive pension increases, which amount to gifts of public funds for past services. Officials fear the clout that these unions, especially police and fire unions, wield on Election Day.

Another California crisis: Unemployment fund facing $7.4B deficit - (www.contracostatimes.com) Already grappling with one multibillion-dollar budget deficit, cash-strapped California now is facing a crisis in its unemployment insurance fund — source of the tens of millions paid each week to jobless residents. Amid record unemployment, the fund will likely finish the year $7.4 billion in the red, according to the latest projections from the state's Employment Development Department. Just to keep checks coming, California has had to reach into Uncle Sam's pockets for some $4.7 billion to date. The state must return what it borrows by 2011 — or face hundreds of millions in interest payments that would come at the expense of funding for schools, parks and social services. But with unemployment expected to remain high as the economy slowly turns around, officials fret they won't be able to pony up on time. And to prevent the fund's shortfall from ballooning even further in the next two years, Gov. Arnold Schwarzenegger and the Legislature face a nettlesome dilemma: Cut back on benefits, raise taxes on employers or do both. "It's not going to be able to correct itself at this point," said Loree Levy, spokeswoman for the state's employment department. In all of 2003, the fund paid out $6.1 billion, she said, but through October of this year it's already distributed more than $12 billion. Call it another casualty of California's worst downturn in decades. The grim news for the unemployment fund was laid out in the same report last week that forecast a $20.7 billion deficit in the state's operating budget. Although the state has added jobs in the latest employment report, released Friday, unemployment overall is at 12.5 percent, a modern record. Some 740,000 Californians receive regular benefits, an "unprecedented demand" officials say has eaten through reserve funds socked away in flush times. The system is funded by employers who pay taxes based on their employees' wages. An increase in the number of people seeking unemployment benefits means a reduction in the wage base that replenishes the system. Currently, the fund is gushing what amounts to $40 million a day in benefits. Record unemployment, however, is only part of the problem.

Realtors dead last on list of occupation by prestige - (www.harrisinteractive.com) Firefighters, doctors, and nurses are seen as prestigious occupations by U.S. adults, while business executives, stockbrokers and real estate agents are seen at the opposite end of the spectrum when it comes to having prestigious occupations. These are some of the results of the annual Harris Poll measuring public perceptions of 23 professions and occupations, conducted by telephone between July 5 and 11, 2006, by Harris Interactive® among a nationwide sample of 1,020 U.S. adults. Six occupations are perceived to have "very great" prestige by at least half of all adults - firefighters (63%), doctors (58%), nurses (55%), scientists (54%), teachers (52%) and military officers (51%). They are followed by police officers (43%) and priests/ministers/clergymen (40%). By way of contrast, the list includes nine occupations which are perceived by less than 20 percent of adults to have "very great" prestige, with one of these under 10 percent. The lowest ratings for "very great prestige" go to real estate brokers (6%), stockbrokers (11%), business executives (11%), actors (12%), union leaders (12%), journalists (16%) bankers (17%), accountants (17%), and entertainers (18%). This year, farmers were included on the list of occupations for the first time. Just over one-third of adults (36%) say that farming is an occupation of very great prestige, while 15 percent say it has hardly any prestige at all. There are three occupations that are perceived by one-quarter or more of adults to have "hardly any prestige at all." These include union leaders (25%), real estate brokers (32%) and actors (37%).

FDIC fund falls into red - (www.news.yahoo.com) The government-run fund that safeguardsU.S. bank deposits tumbled to a negative balance of $8.2 billion in the third quarter, as the number of problem banks surged by a third to 552. It was the first shortfall since 1992 when the Federal Deposit Insurance Corp was dealing with the failure of hundreds of small savings institutions known as thrifts. The depleted insurance fund and the sharp rise in troubled institutions underscored the current fragility of the U.S. banking system and the continued weight of bad commercial and residential real estate loans on their balance sheets. Although the FDIC still has $23.3 billion of cash resources to handlebank failures, its insurance fund balance veered into the red due to an additional $21.7 billion the agency set aside in the third quarter for future bank failures. The number of banks on the FDIC's "problem list" was the most since 1993. The FDIC will soon get an infusion of $45 billion through a plan to have the banking industry prepay three years of assessments. While those extra funds will boost the FDIC's cash on hand, accounting rules will stop the FDIC from including all the money immediately in the fund balance. "While bank and thrift earnings have improved, the effects of the recession continue to be reflected in their financial performance," FDIC Chairman Sheila Bair told reporters in a briefing. Noncurrent commercial real estate loans, which rose 19.2 percent during the quarter, increasingly are becoming a driver of the banking industry's woes. The industry as a whole managed to post a profit for the quarter of $2.8 billion due to growth in operating revenues and a rebound in securities values after a $4.3 billion loss last quarter. Bair said the earnings improvement was counterbalanced by the largest decline in loan balances on record, indicating that banks are still tight-fisted with credit.

Nearly half of Tampa Bay houseowners underwater - (www.tampabay.com) Three years of depreciation have left close to half of Tampa Bay homeowners owing more on their mortgages than their homes are worth. In a September report put out by First American CoreLogic, a real estate information company, 46 percent of residential properties in the Tampa Bay area struggled with negative equity. That's 314,183 out of 684,822 homes. In Florida, about 2 million of 4.6 million home mortgages were underwater, for a rate of 45 percent. The number of upside-down homeowners has been rising in Tampa Bay and Florida. Eleven percent more Tampa Bay properties were underwater in September than in June, when First American's last report came out. "The recent improvement in home prices this past spring and summer has slowed the increase in negative equity," said First American economist Mark Fleming. "But it will take a significant rebound in home prices, which we are not expecting, to offset the dampening effects." Nevada had the highest rate of upside-down mortgages, affecting nearly two-thirds of home owners. Arizona was next with 48 percent. Florida was third. The bulk of distressed homeowners financed their properties in 2006 or 2007, close to the housing price peak in Tampa Bay. Altogether, bay area home owners owe $104.6 billion on $116.3 billion worth of property, First American said. First American admits it exaggerated negative equity earlier this year by assuming homeowners made fuller use of home equity loans than they actually did. But even after correcting those figures, negative equity is still rising.

Housing threat looms in South Orange County - (mortgage.freedomblogging.com) Banks started the foreclosure process on hundreds of homeowners in South Orange County in the third quarter of this year, in a sign cities there could see more actual foreclosures in the months ahead. The ZIP with the highest concentration of homeowners in distress was 92694 in Ladera Ranch — lenders filed 167 notices of default (NOD) during the three months ending in September, down a tad from the second quarter but up 69% from a year ago, reports MDA DataQuick. The total of 167 NODs equates to 25 default notices per 1,000 homes, the highest such ratio in the county. By that measure, Ladera Ranch saw a greater concentration of housing stress than heavily impacted areas further north, including Santa Ana and Anaheim. Three ZIPs in Santa Ana had a ratio of 19 notices per 1,000 homes. Rounding out the top five was Rancho Santa Margarita’s 92688, another South County ZIP, with a ratio of 17 default notices per 1,000. Banks filed 228 NODs in that ZIP, up 9% from Q2 and 84% from a year earlier. Banks typically file a notice of default, which starts the foreclosure process, after a borrower misses three or more monthly payments.