KeNo's Housing and Economic Portal: Sunday December 19 Housing and Economic stories

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Walker looks at showdown with state employee unions - (www.jsonline.com) Governor-elect Scott Walker raised the possibility of essentially abolishing state employee unions on Tuesday as one option to control rising employee benefits costs and eliminate the state's budget deficit. Walker, a Republican, said he's looking at a range of options that would weaken unions, including eliminating their ability to negotiate with the state. "Anything from the decertify all the way through modifications of the current laws in place," Walker said at a luncheon sponsored by the Milwaukee Press Club at the Newsroom Pub. "The bottom line is that we are going to look at every legal means we have to try to put that balance more on the side of taxpayers and the people who care about services." Walker's comments were an escalation of an aggressive posture he's taken with state unions as he prepares to take office on Jan. 3. Walker said the state's red ink and his pledge to focus on economic recovery require cuts in workers' health and pension benefits. "You are not going to hear me degrade state and local employees in the public sector," Walker said. "But we can no longer live in a society where the public employees are the haves and taxpayers who foot the bills are the have-nots." As a short-term measure, Walker wants to require workers to make a 5% contribution to their pensions. State union workers have traditionally not contributed to their plans. He also wants to increase employees' share of health costs to 12% - up from 4% to 6%, depending on the bargaining unit. Those changes would save $154 million from January to June 30 alone.

Tax-cut plan digs deeper deficit hole - (www.latimes.com) The tax-cut deal President Obama struck with congressional Republicans reflects an enduring political reality: Forced to choose, Washington's leaders kick long-term problems down the road. The agreement would add a staggering $700 billion to the federal budget deficit in the next two years alone, and the prospects for tax cuts and their negative consequences for the deficit could continue for years. Just last week, a bipartisan commission said that severe federal spending cutbacks were needed to avert a potentially dangerous surge in the deficit. The Senate will launch the tax-cut debate and could begin voting this week, Majority Leader Harry Reid (D-Nev.) said Wednesday. Democrats remain uneasy about the deal and want an opportunity to amend it — a prospect that remains uncertain because changes could kill the agreement hammered out at the White House.

Firms, Funds Feel Squeeze of Low Rates - (online.wsj.com) Historically low interest rates are starting to take a toll throughout the financial industry, presenting a potential downside to the Federal Reserve's aggressive efforts to reignite growth in the sluggish economy. Rock-bottom rates are squeezing profit margins at banks that rely on the gap between what they charge borrowers and pay depositors. They also are hurting returns at pension funds already under mounting pressure to meet obligations to retirees, while making certain kinds of insurance more expensive as firms try to recoup earnings that are likely to shrink if the ultralow rates linger. Two years of generally falling interest rates, along with the Fed's plan to buy as much as $900 billion of U.S. Treasurys through mid-2011 to keep bond rates low, have delivered a much-needed lift to borrowers such as companies, consumers, cities and states. Still, "it is clear that there are costs," says Michael Cloherty, head of U.S. interest-rate strategy at RBC Capital Markets. "The question is whether the good done by low interest rates is enough to justify forcing people and institutions to incur these costs."

Build America Bond Yields Climb to 11-Month High - (www.bloomberg.com) Build America Bond yields rose to the highest in 11 months as the federal program subsidizing state and local government borrowing costs is set to expire at year- end unless lawmakers extend it. The average yield on the taxable securities climbed to 6.35 percent yesterday, the most since Jan. 7, as investors demanded a larger premium to buy the debt, according to a Wells Fargo index. Signs that the global economic recovery is gathering pace also pushed down Build America Bond prices, which move inversely to yields, along with U.S. Treasuries and other fixed-income markets. “It’s uncertainty, the fact that people don’t know the future of the program,” said Christopher Mier, a municipal strategist at Chicago-based Loop Capital Markets LLC, in an interview at Bloomberg headquarters in New York today. Some investors are saying they “may not participate in a market that won’t exist in two weeks,” he said. The San Francisco Public Utilities Commission today postponed a $524 million debt sale, including $350 million in Build Americas, after the surge in borrowing costs.

California Deficit May Reach $28 Billion, Brown Says - (www.bloomberg.com) California’s budget gap may widen to $28.1 billion over 18 months, according to Governor-elect Jerry Brown, who takes charge of the most-populous U.S. state next month. A cash shortage may force the use of IOUs by July, Controller John Chiang said. The deficit estimate takes into account a $2.7 billion drop in projected estate-tax receipts, and compares with the most recent forecast of a $25 billion gap for the period, Brown said today at a public meeting of state officials. The cash accounts may be short by $2.3 billion within eight months, Chiang said at the meeting in Sacramento. “I don’t want to say it, but this could mean IOUs and more tax-refund deferrals,” Chiang said.