KeNo's Housing and Economic Portal: Saturday June 12 Housing and Economic stories

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$3 million in debt, Central Falls in receivership - (www.projo.com) Declaring fiscal insolvency, city officials Wednesday persuaded a Superior Court judge to appoint a receiver to take over municipal finances, a process that could end up with new contracts imposed on the city’s unions and vendors. Receivership is the state-law version of federal bankruptcy. The court-appointed receiver has the power to approve or reject purchases and payments and, if the court approves, change contracts with unions and vendors and hire and fire municipal employees. City Solicitor John T. Gannon said the city is in the middle of all its municipal employee union contracts. Mayor Charles D. Moreau has been trying to negotiate concessions, he said, but without success. Central Falls’ slogan is “A City with a Bright Future,” but the present has been pretty grim. Its high school, where 96 percent of its 800 students live in poverty, was targeted for a state-ordered reorganization because of consistently low scores and graduation rates. The entire teaching staff was threatened with dismissal until the administration and the teachers union reached an agreement last weekend. In its petition to the court for appointment of the receiver, the city administration said it has an anticipated deficit this fiscal year of $3 million on a city budget of about $18 million and an anticipated deficit $5 million in the budget year beginning July 1. The officials said the shortfall could not be covered by austerity measures. Beside the budget shortfall, the city’s pension fund for its police and fire retirees has $4 million, way short of its accrued liabilities of $35 million. Gannon said the city pays out $2.2 million a year in pension benefits from the fund.

Padded Pensions Add to New York Fiscal Woes - (www.nytimes.com) In Yonkers, more than 100 retired police officers and firefighters are collecting pensions greater than their pay when they were working. One of the youngest, Hugo Tassone, retired at 44 with a base pay of about $74,000 a year. His pension is now $101,333 a year. It’s what the system promised, said Mr. Tassone, now 47, adding that he did nothing wrong by adding lots of overtime to his base pay shortly before retiring. “I don’t understand how the working guy that held up their end of the bargain became the problem,” he said. Despite a pension investigation by the New York attorney general, an audit concluding that some police officers in the city broke overtime rules to increase their payouts and the mayor’s statements that future pensions should be based on regular pay, not overtime, these practices persist in Yonkers. The city has even arranged for its police to put in overtime as flagmen on Consolidated Edison construction sites. Though a company is paying the bill, the city is actually reporting the work as city overtime to the New York State pension fund, padding future payouts — an arrangement at odds with the spirit of public employment, if not the law.

US state pensions becoming federal issue - (www.ft.com) Illinois used to have a plan to pay off the gaping shortfall in the pension funds that pay retired teachers, university employees, state workers, judges and politicians, Dan Long recalls. Mr Long, director of the Commission on Government Forecasting and Accountability, the nonpartisan auditing arm of the Illinois state legislature, remembers that, back in 1994, the state laid out a proposal that would have paid off most of what was then a $17bn gap by 2011. But Illinois could not stick to the plan. With financial year 2011 less than six weeks away, the pension arrears of the 1990s look quaint. Instead of a balanced system, the state faces unfunded liabilities of about $78bn, the biggest pension hole in the US, and contributions of more than $4bn for 2011, the largest single element of its $13bn budget deficit. Illinois is the poster child of unfunded pensions in the US. But state retirement systems could become a national concern, new research shows. Joshua Rauh, associate professor of finance at the Kellogg School of Management at Northwestern University said that, without reform, some state pensions might run out within the decade. By 2030, as many as 31 states may not have the money to pay pensions. And, if these funds exhaust their assets, the size of payments for the benefits they have promised will be too large to cover through taxes, putting pressure on the federal government for a bail-out that could potentially cost more than $1,000bn, he says.

Yen Calls Surge Versus Puts on Carry Trade’s ‘Massive Unwind’ - (www.bloomberg.com) Yen calls surged to a 15-month high versus puts on bets the rally in Japan’s currency against Australia’s dollar will force investors to reverse carry trades, making it more expensive to hedge against losses on the strategy. Investors who borrowed yen to purchase higher-yielding currencies in Australia, Brazil, South Africa and New Zealand lost 12 percent this month as the European debt crisis triggered declines in growth-related currencies, Bloomberg data show. The strategy, known as the carry trade, earned 40 percent last year after losing more than 30 percent in the 2008 financial crisis. “It’s the massive unwinding,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “That’s basically what happens when everybody has the same trade -- to protect against what everybody else is afraid of you have to pay a tremendous premium.”

FDIC: 'Problem' Banks at 775 - (online.wsj.com) A total of 775 banks, or one-tenth of all U.S. banks, were on the Federal Deposit Insurance Corp.'s list of "problem" institutions in the first quarter, as bad loans in the commercial real-estate market weighed on bank balance sheets. Poor loan performance in other sectors also continued to hurt banks, with the total number of loans at least three months past due climbing for the 16th consecutive quarter, FDIC officials said in a briefing on Thursday. "The banking system still has many problems to work through, and we cannot ignore the possibility of more financial market volatility," FDIC Chairman Sheila Bair said. There were 702 on the FDIC's "problem" bank list at the end of 2009 and 252 at the end of 2008. FDIC officials said they expected the number of failed banks to peak this year after climbing steadily over the past three years. Regulators have shut 72 banks so far this year, more than double the number closed by this time last year. Ms. Bair said regulators were preparing for a steady pace of additional closures through the end of the year. A total of 237 banks have failed since the beginning of 2008.

Texas doctors opting out of Medicare at alarming rate - (www.chron.com) Texas doctors are opting out of Medicare at alarming rates, frustrated by reimbursement cuts they say make participation in government-funded care of seniors unaffordable. Two years after a survey found nearly half of Texas doctors weren't taking some new Medicare patients, new data shows 100 to 200 a year are now ending all involvement with the program. Before 2007, the number of doctors opting out averaged less than a handful a year. “This new data shows the Medicare system is beginning to implode,” said Dr. Susan Bailey, president of the Texas Medical Association. “If Congress doesn't fix Medicare soon, there'll be more and more doctors dropping out and Congress' promise to provide medical care to seniors will be broken.” More than 300 doctors have dropped the program in the last two years, including 50 in the first three months of 2010, according to data compiled by the Houston Chronicle. Texas Medical Association officials, who conducted the 2008 survey, said the numbers far exceeded their assumptions. The largest number of doctors opting out comes from primary care, a field already short of practitioners nationally and especially in Texas. Psychiatrists also make up a large share of the pie, causing one Texas leader to say, “God forbid that a senior has dementia.”