KeNo's Housing and Economic Portal: Friday December 17 Housing and Economic stories

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Pension-Squeezed Cities May Turn to San Diego’s ‘Radical Idea’ - (www.bloomberg.com) Cities from New York to San Jose, California, facing almost $400 billion in unfunded pension liabilities, will be watching what San Diego Mayor Jerry Sanders calls his “radical idea” to cut costs. After voters in the eighth most-populous U.S. city rejected a half-cent sales tax increase to balance the budget Nov. 2, Sanders is pushing to eliminate pension plans for new city employees, offering 401(k)-like savings accounts instead. “We’re all going to have to get realistic,” Sanders, a 60-year-old Republican, said in a telephone interview. “The private sector went through this. Government will have to relook at how we do stuff as well.” Sanders’s defined-contribution plan would apply to civilian employees in the city of 1.3 million. Police and firefighters would not be eligible, because lower benefits might hurt recruiting, he said.

Illinois’s Pension Funding May Weaken Further, Moody’s Says - (www.bloomberg.com) Illinois, which has the worst-funded pension system among U.S. states, may see it deteriorate more even if it sells bonds to close the gap, Moody’s Investors Service said. Moody’s issued its report today after the state last week sold $1.5 billion of bonds backed by payments it receives from a 1998 settlement with tobacco companies. The proceeds will go to pay $1.18 billion of bills for fiscal 2010, which ended June 30, Moody’s said. Lawmakers recessed until January without approving Governor Pat Quinn’s plan to sell $3.7 billion of bonds to fund this year’s contribution to state pension plans. About $1.7 billion of a $5.3 billion backlog of bills for fiscal 2011 is owed to pensions, Moody’s said. Contributions are below the amount needed to cover unfunded liabilities, Moody’s said. “The successful execution of this sale is credit positive, even though deficit financings typically are negative,” Moody’s said in the report by analyst Ted Hampton. “While issuing bonds for operating costs underscores Illinois’s financial weakness,” Moody’s said, selling the pension bonds “would at least limit deterioration in the funded status of the state’s pensions.”

Government can’t print money properly - (news.yahoo.com) Because of a problem with the presses, the federal government has shut down production of its flashy new $100 bills, and has quarantined more than 1 billion of them -- more than 10 percent of all existing U.S. cash -- in a vault in Fort Worth, Texas, reports CNBC. Officials with the Treasury and the Federal Reserve had touted the new bills' sophisticated security features that were 10 years in the making, including a 3-D security strip and a color-shifting image of a bell, designed to foil counterfeiters. But it turns out the bills are so high-tech that the presses can't handle the printing job. It would take an estimated 20 to 30 years to weed out the defective bills by hand, but a mechanized system is expected to get the job done in about a year. Combined, the quarantined bills add up to $110 billion -- more than 10 percent of the entire U.S. cash supply, which now stands at around $930 billion. The flawed bills, which cost around $120 million to print, will have to burned. The new bills are the first to include Treasury Secretary Tim Geithner's signature. In order to prevent a shortfall, the government has ordered production of the old design, which includes the signature of Bush administration Treasury Secretary Henry Paulson. To point out the obvious: you can't print gold and gold coins are relatively easy to check for purity.

Germany Snubs Pleas to Increase Aid Fund, Introduce Joint Bonds - (www.bloomberg.com) Germany rejected calls to increase the European Union’s 750 billion-euro ($1 trillion) aid fund or introduce joint bond sales, signaling its refusal to bear extra costs to stamp out the debt crisis. With European finance ministers gathered in Brussels today for their monthly meeting, German Chancellor Angela Merkel rebuffed pleas from Belgium and central bankers to boost the emergency fund to save countries such as Portugal and Spain from falling prey to speculation. “Right now I see no need to expand the fund,” Merkel told reporters in Berlin. She said EU treaties bar joint bond sales, which might force up Germany’s borrowing costs, the lowest in the euro area. European political discord pushed down bonds in Spain and Italy today, reversing gains made last week after purchases by the European Central Bank briefly eased concern about the spreading crisis. The ECB bought the most bonds in a week since June, according to a statement today.

NYC Budget Deficit Next Year May Widen by $2 Billion, Page Says - (www.bloomberg.com) New York City’s projected budget deficit for fiscal 2012 may widen by $2 billion, to $4.5 billion, because cuts in state aid may be greater than forecast, Budget Director Mark Page said. Mayor Michael Bloomberg’s proposal last month to cut the city workforce by 10,000 as part of plan to save $1.6 billion during the next 18 months may not be enough to close the gap, Page told the City Council’s Finance Committee today. “The reality that we’re facing is that the future could be considerably worse,” Page told the council members. “This is something we are solemnly worried about.” The most populous U.S. city has a $65 billion budget projected for fiscal 2012, which begins July 1. Bloomberg last month cited increased pension costs and loss of $850 million in federal school aid in proposing to reduce the city’s 300,000- worker payroll, including more than 6,000 firings. About 4,000 cuts will be accomplished by attrition.

SD Mayor Lied About Critical Need for Prop D Sales Tax - (www.salon.com) Was Mayor Sanders Lying About Critical Need for Prop D Sales Tax? Short answer -- HELL YES! It was just three weeks ago that San Diego Mayor Jerry Sanders was running carefully orchestrated "town hall meetings" around the city -- threatening citizens with death and destruction if we did not approve Prop D -- the city sales tax increase. Fortunately in an epic battel, the measure lost by an awesome 62%-38% marign. The frowny faced police chief and fire chief each dutifully stood before audiences and announced inevitable dramatic personnel and service cutbacks if the sales tax didn't pass. Doomsday was upon us. [See article for list of cuts Sanders said he would have to make] [Proposition D Went down in flames 62% to 38%] Today the mayor sends out a press release (included below) cheerily announcing numerous solutions to close the budget deficit -- and NO MENTION OF PUBLIC SAFETY PERSONNEL CUTS, or indeed of any of the threatened cuts. Somehow the deadly unsolvable city budget deficit of three weeks ago is quite solvable after all! There is no delicate way to say this -- given the short time frame to come up with these solutions, it is quite clear that Mayor Jerry Sanders knowingly lied to the public to frighten voters into supporting higher taxes. Not that the Sanders solutions will solve the problem. His reforms are too tepid, and don't deal with the dramatically growing deficit problem. Carl DeMaio's comprehensive plan offers much better, more fundamental reforms.