KeNo's Housing and Economic Portal: Tuesday November 30 Housing and Economic stories

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Judge stops state's plan to claim $80 million - (www.njherald.com) A federal judge has put a temporary stop to New Jersey’s plan to generate up to $80 million from unused gift cards, calling cards and money orders. As part of the state budget, lawmakers passed a bill allowing the state to claim proceeds of gift cards if customers don’t use them within two years. The state would claim funds from inactive travelers’ checks and money orders after three years. The judge’s restraining order keeps the law from being enforced until a hearing can be held. The law was set to go into effect earlier this week, but several companies challenged the constitutionality of it, including the American Express Travel Related Services Co., the New Jersey Retail Merchants Association, the New Jersey Food Council and American Express Prepaid Card Management Corp. Gov. Chris Christie will have to come up with $80 million elsewhere if the law is struck down. Treasury spokesman Bill Quinn said the administration was reviewing the ruling. Quinn said no estimate was available on how much money the state would miss out on while the court has the law on hold. Assemblyman Paul Moriarty applauded the ruling, saying that the law was akin to a tax increase. “The sole reason for this law is to generate revenue for the state’s coffers at the direct expense of consumers and businesses in New Jersey,” said Moriarty, D-Turnersville. Moriarty has introduced a measure to exempt calling cards from the law “to ensure this horrendous law doesn’t adversely affect those who rely on telephone cards,” such as soldiers.

Michigan Town’s Bankruptcy Bid a Harbinger, Governor-Elect Says - (www.bloomberg.com) Michigan Governor-elect Rick Snyder said a Detroit suburb’s effort to enter bankruptcy is an “early indicator” of the depth of financial trouble faced by hundreds of communities in the state. There are “wealthy communities that are not in that different a position” from Hamtramck, said Snyder, a Republican who is a former computer-company executive. “They simply haven’t had the day of reckoning arrive yet that is liable to happen in the next two or three years, with the way property tax revenues are going,” Snyder said yesterday in an interview at the Republican Governors Association meeting in San Diego. Hamtramck, a former Polish-American enclave that adjoins Detroit, sought the approval of Michigan treasury officials last week to file for Chapter 9 bankruptcy, the Detroit Free Press reported. The city warned that a tax dispute with Detroit means that it faces a deficit of at least $3 million and will run out of money by Jan. 31, the newspaper said. Chapter 9 bankruptcywould let the city extend debt maturities, reduce principal or interest or to refinance, according to the Administrative Office of U.S. Courts. Democratic Governor Jennifer Granholm said Nov. 17 that bankruptcy is a poor option for the city and proposed state loans or a bond authorization to keep it afloat. Hamtramck officials plan to seek a meeting with Michigan’s treasurer to press the idea, the Bond Buyer reported yesterday.

Mayor Proposes Eliminating City Pensions - (www.voiceofsandiego.com) As time runs down in San Diego Mayor Jerry Sanders' tenure, his proposals to solve the city's financial crisis are becoming more drastic. This summer, he embraced a tax hike. Friday, he proposed 401(k)-style retirement accounts for most new city employees, and in turn, eliminating their pensions. Staring him and everyone else in the face is a $70 million-plus ongoing deficit, one that neither a tax increase or a pension elimination will fix. The tax hike won't work because voters said no. The pension elimination, which also needs voter approval, won't save any money for years and wouldn't go on a ballot until next year at the earliest. Sanders has two more years to solve the financial problem he was elected to fix. Friday, he recommitted to the task. "I won't pass the structural deficit on to the next mayor," Sanders said. As he tries to fulfill that pledge, Sanders' proposals include the familiar: All the reforms tied to the Proposition D tax hike. They include the major: Consolidating departments and potentially privatizing the city's airports and golf courses. And they include the minor: Ending free trash pickup for 18,000 homes on privately owned streets and using more energy-efficient bulbs in street lights.

Unions Yield on Two-Tier Wage Scales to Preserve Jobs - (www.nytimes.com) Organized labor appears to be losing an important battle in the Great Recession. Even at manufacturing companies that are profitable, union workers are reluctantly agreeing to tiered contracts that create two levels of pay. In years past, two-tiered systems were used to drive down costs in hard times, but mainly at companies already in trouble. And those arrangements, at the insistence of the unions, were designed, in most cases, to expire in a few years. Now, the managers of some marquee companies are aiming to make this concession permanent. If they are successful, their contracts could become blueprints for other companies in other cities, extending a wage system that would be a startling retreat for labor.

US banks face $100bn Basel III shortfall - (www.ft.com) The top 35 US banks will be short of between $100bn and $150bn in equity capital after the new Basel III global bank regulations are imposed, with 90 per cent of the shortfall concentrated in the biggest six banks, according to Barclays Capital. The BarCap study assumes the banks will need to hold top quality capital equal to 8 per cent of their total assets, adjusted for risk. This 8 per cent tier one capital ratio, a key measure of bank strength, provides a one point cushion against falling below the effective global minimum of 7 per cent set in September by the Basel Committee on Banking Supervision. The Basel III reforms will hit banks in two ways – by gradually tightening the definition of what counts as tier one capital; and by forcing banks to increase the risk adjustment for big swathes of their businesses. Banks can respond by increasing their capital through retained earnings or equity issuance or they can cut their risk-weighted assets through sell-offs and by cutting back on risky business lines.