KeNo's Housing and Economic Portal: Saturday January 29 Housing and Economic stories

Friday, January 28, 2011

Saturday January 29 Housing and Economic stories

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TOP STORIES:

Only Supreme Court Intervention Can Keep This California Ski Town From Bankruptcy - (www.businessinsider.com) One California city has already defaulted on a bond payment this year. A few hours away, a second city is in the final throes of a fight against bankruptcy. Mammoth Lakes has appealed to the California Supreme Court to overturn a ruling that the ski town owes $30 million to a local developer, according to The Bond Buyer. The Superior Court ruling was upheld by an appelate court on Dec. 30. So how did the 7,500-person town run up this kind of bill? Mammoth Lakes gave a contract to a local developer in 1997 to improve the local airport and develop a adjacent $400-million hotel. This was during the Dot Com boom, when nothing in California could lose. In 2007, the town delayed the hotel project, citing changes in FAA policy. (LA Times has more details.) Mammoth Lakes bonds carry a BB rating from Standard & Poor’s, with a developing outlook.

Brown Burdens Mayors by Unloading California Deficit - (www.bloomberg.com) San Jose Mayor Chuck Reed can look out his City Hall window and see three Adobe Systems Inc. downtown towers, housing 2,000 workers, created in part with incentives CaliforniaGovernor Jerry Brown wants to eliminate. The software maker built the towers with the help of $35 million in city redevelopment money, Reed said last week in a telephone interview. He and nine other California mayors plan to meet with Brown, himself mayor of Oakland from 1999 until 2007, to persuade him not to shut the authorities that provide low- cost funds for development. The idea is part of the governor’s budget proposal. Tax-advantaged development financing provides one of the “few tools we have to keep jobs in California,” Reed said. Brown’s “vast and historic” plan to realign state and local revenue has mayors seething and county executives wary about being saddled with the costs of fixing California’s broken budget. Some local leaders say the governor’s proposal will shift $5.9 billion in costs to counties while slashing $5.8 billion of social-services spending, increasing the burden on municipalities, to help close a $17.2 billion 2012 deficit.

Citi's Feud With Meredith Whitney Continues, As Bank Tells Clients To Ignore Her Media Hype - (www.businessinsider.com) Meredith Whitney made her name by (correctly) trashing Citigroup. You can read her original report here. Well, now she's at her own shop, and attempting to make a second "career call" with her predictions of muni bond doom. We've covered it pretty extensively, and a key thing is that while many people agree with her about stresses in this market (and even more defaults), very few see the outright doom scenario that Whitney does. Add Citigroup (and analyst George Friedlander) to the list of her opposers. In a note that was put out Friday, the firm specifically calls out media-borne hype, and claims that the selloff is the result of a feedback loop.

Charlie Gasparino Rips Meredith Whitney, And Accuses Her Of Costing Taxpayer Millions - (www.businessinsider.com) Meredith Whitney continues to take it from all sides! The latest attacker is Charlie Gasparino, who accuses her of causing a muni market panic, thus costing taxpayers millions. In a HuffPo column, he demands that Whitney release her gigantic report detailing why, exactly, she expects the market to crash this year. Of course, its her proprietary research, and it's her right to keep it for her paying clients, but it is interesting since last week on CNBC she said one of the reasons for doing this research was to illuminate the issue of municipal debt. It's also interesting because during that same interview, Whitney hinted that her main point was to encourage investors to know which states would have weak economies (and not necessarily to short these bonds).

States warned of $2,500bn pensions shortfall - (www.ft.com) US public pensions face a shortfall of $2,500bn that will force state and local governments to sell assets and make deep cuts to services, according to the former chairman of New Jersey’s pension fund. The severe US economic recession has cast a spotlight on years of fiscal mismanagement, including chronic underfunding of retirement promises. “States face cost pressure, most prominently from retirement benefits and Medicaid [the health programme for the poor],” Orin Kramer told the Financial Times. “One consequence is that asset sales and privatisation will pick up. The very unfortunate consequence is that various safety nets for the most vulnerable citizens will be cut back.” Mr Kramer, an influential figure in the Democratic party and still a member of the investment council that oversees the New Jersey pension fund, has been an outspoken critic of public pension accounting, which allows for the averaging of investment gains and losses over a number of years through a process called “smoothing”. Using data from the states, the Pew Center on the States, a research group, has estimated a funding gap for pension, healthcare and other non-pension benefits, such as life assurance, of at least $1,000bn as of the end of fiscal 2008.