Finance and Economic

California is hurtling into the budgetary abyss — and it’s not alone.

Across the nation, state tax collections in the first three quarters of 2009 posted their steepest decline in at least 46 years, according to a report this month from the public policy research arm of the State University of New York.

At least 30 states raised taxes in their most recently completed fiscal year — which ended in most cases in mid-2009. Even more cut services. All told, states raised $117 billion to fill last year’s budget gaps, the Pew Center on the States estimates.

Yet despite all those new taxes and deep cutbacks, pressure on state finances continues to build. Economists warn that without a new round of federal stimulus spending, states could face another round of layoffs that could kneecap an already shaky economic recovery.

"We could see a real ripple effect if the states don’t take a balanced approach" by balancing cutbacks with tax raises and other new revenue, said Jon Shure, deputy director of the state fiscal project at the Center on Budget and Policy Priorities in Washington.

State and local governments have cut 132,000 jobs since August 2008, the center says. Fiscal problems appear most acute in California, whose general obligation bonds were downgraded this week after Gov. Arnold Schwarzenegger declared a fiscal emergency.

The state has already said it will increase tuition by a third in the University of California system, among other cash-raising moves. At one point, it was projected to spend nearly 50% more than it stands to garner in revenue in this fiscal year, by one count. California has asked for federal help and warned it could run out of cash in March.

And California’s not the only state facing an almost unfathomable shortfall. Like California, Arizona and Illinois face budget gaps above 40% of projected general fund spending, according to Pew data.

Arizona put its state office buildings on sale this week in a bid to raise $700 million. The University of Illinois furloughed some workers this week after the state failed to come up with $436 million in expected funds. Budget officers in those two states describe their outlooks for fiscal 2010 as "dire," according to a National Conference of State Legislatures report.

Alaska, Nevada, New Jersey and New York face gaps of at least 30% of their planned general fund spending by the end of this fiscal year. A dozen more states face a fiscal 2010 budget gap of between 20% and 29%.

"California is playing out on the biggest stage, but there are states around the nation facing problems of equal or greater magnitude," said Corina Eckl, who runs the fiscal affairs program at the National Conference of State Legislatures in Denver. "We are seeing some frightening situations."

Big shortfalls scare legislators because states by law must balance their budgets every year. After revenue and spending rose steadily in the middle of this decade, bolstered by a housing bubble that boosted employment and fed a stream of property transfer fees, state funding went into freefall when the recession started at the end of 2007.

Given the depth of the recession, few states are expecting an uptick in employment or consumer spending that would translate into bigger tax collections anytime soon. Nine states are forecasting they won’t return to their peak revenue years of 2007 or 2008 until at least 2014.

Adding to the pressure, job losses spur demand for the services states devote the lion’s share of their budgets to: education and Medicaid, which provides healthcare for low-income people.

"The needs grow as states’ ability to meet those needs declines," said economist Andrew Reschovsky, a professor at the University of Wisconsin in Madison.

So far, the worst cuts have been avoided with the help of billions of dollars of federal stimulus money — including $135 billion for education and Medicaid.

But the flow of those funds will start to slow down in the second half of 2010 and will stop altogether at year-end, unless Congress appropriates more money for state assistance.

States have used $53.6 billion in Medicaid funding through Jan. 8, according to government data. If Congress doesn’t extend the Medicaid funding beyond the end of the year, "states are looking at a stimulus cliff," said Robert B. Ward, deputy director of the Rockefeller Institute of Government at the State University of New York at Albany.

The only way to make up those shortfalls is through more new taxes, cutbacks and borrowings.

Local and state governments have had little problem borrowing in the bond market, where analysts expect issuance of $400 billion or more this year. California has had to pay higher-than-average interest rates to sell its debt, but there seems to be little fear of a default, given the state’s giant economy and its relatively small $64 billion worth of general obligation bonds outstanding.

But borrowing is no help in fixing so-called structural deficits, in which spending exceeds revenue over a prolonged stretch. And so far there has been little sign legislators are willing to make the obligatory tough choices, particularly issuing more or higher taxes.

Many of the so-called fixes for current state deficits are mere Band-Aids that push the problem forward rather than address it, observers said.

"It’s surprising that political leaders don’t seem to be taking seriously the magnitude of the problems," said Reschovsky. "You would hope it wouldn’t come to this, but it might take schools closing and programs being eliminated to create a sense of urgency." 

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A Toronto group could be closing in on a purchase of the Phoenix Coyotes hockey team.

The National Hockey League could finalize a deal for Ice Edge Holdings to buy the Coyotes in the coming days, according to sources familiar with the situation.

Officials familiar with the negotiations between the NHL and various ownership groups said that other groups are still talking to the NHL but Ice Edge was the farthest along in the talks. They also said Ice Edge was talking to the NHL regarding some unconventional financing to help get the deal done.

Details of what the entails were not disclosed. Ice Edge has been meeting with NHL officials as well as the city of Glendale. The Phoenix suburb owns Jobing.com Arena where the Coyotes play.

The team is in Chapter 11 bankruptcy and is owned by the NHL. The league bought the team for $140 million in October after a U.S. Bankruptcy Court judge turned down a $243 million offer by Research in Motion CEO Jim Balsillie to buy the team from the then owner Jerry Moyes and move them to Hamilton, Ontario.

Ice Edge had put in a $148 million bid for the Coyotes this summer during bankruptcy proceedings but pulled back that offer. The investment group restarted talks with the NHL after the league acquired the financially struggling team no fax payday loans.

Ice Edge had talked about keeping the team in Arizona but playing some Coyotes home games outside of the Phoenix market in Canadian cities without NHL teams. The ownership group won’t start formal arena lease negotiations with Glendale until after a deal with the NHL is struck.

The Coyotes have done well on the ice this year but struggle with attendance and finances. The team is averaging 9,774 announced fans per game, according to ESPN. That’s the lowest average in the NHL and among the major pro sports leagues in the U.S.

In November, Forbes magazine pegged the Coyotes as being worth $138 million, the lowest value in the NHL.

Neither Ice Edge or the NHL responded to requests for comment. Coyotes spokesman Rob Crean referred questions to the NHL. Glendale spokeswoman Jennifer Stein declined comment.

The Coyotes have lost $300 million since moving to the Phoenix market from Winnipeg in 2002. They’ve not made the NHL playoffs since 2002 and lost many of its ticket buyers after Moyes put the team into Chapter 11 in May.

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The solicitations have been flooding people’s mailboxes lately: Pay a bit more on your electricity bill for 100 percent clean wind power. Or, the fliers say, buy "green power certificates" to offset your global warming emissions.

Close to a million electricity customers have signed up for such payments voluntarily, and the amount of electricity sold in this way has nearly tripled since 2005. But the participants are in a distinct minority, with a sign-up rate of only about 2 percent in programs run by utilities.

The government has looked at the question of whether these programs really cause more renewable energy projects to get built, and says it is difficult to draw an overall conclusion. Its experts say they believe that some green power programs work better than others.

At least one major program has come under fire from regulators. Last year, a Florida Power and Light green power program was terminated by the state’s Public Service Commission after an audit found that promised solar power facilities were far behind schedule. The program had more than 38,000 customers, and was once the sixth-largest in the country. The audit also found that the vast majority of homeowners’ payments went into marketing and administration.

About a quarter of the country’s utilities offer green power programs, and the way they are structured varies. In practice, no big utility delivers 100 percent renewable power to any customer, because electricity from all sources — coal plants, wind farms, solar panels — is mingled in the same wires. The utilities are essentially collecting extra money that they promise to use to support the development of renewable energy, a pitch that some customers find persuasive.

"It’s about what’s good for the planet," said Mark Renfrow, a Dallas homeowner who this summer began paying an extra $26 or so a month to his electric company, Direct Energy, for 100 percent wind power.

But some advocates for electricity consumers argue that the payments make little difference. Matthew Freedman, a staff lawyer with the Utility Reform Network, a ratepayer advocacy group in California, said, "There is very little evidence to suggest that customer subscriptions have resulted in any new additions of renewable power."

Early this year, the city government of Durango, Colo., stopped buying renewable power from its utility, saving $45,000 a year. The clean electricity had cost 40 percent extra — and the city manager, Ron LeBlanc, was irked that part of the payment went into putting solar panels on a school in a different city.

"Paying more and then investing in a community 16 miles away was offensive to a lot of us," he said.

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New orders for long-lasting U.S. manufactured goods fell unexpectedly in October, according to government data on Wednesday that reinforced views of a gradual economic recovery from recession.

The Commerce Department said durable goods orders dropped 0.6 percent after rising by an upwardly revised 2.0 percent in September. New orders in September were previously reported to have increased 1.4 percent.

Analysts polled by Reuters forecast orders rising 0 cash advance loan no fax.5 percent in October. Durable goods orders are a leading indicator of manufacturing activity, which in turn provides a good measure for overall business health.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)

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The U.S. trade deficit widened in September by an unexpectedly large 18.2 percent, the largest increase in more than 10 years, as oil prices rose for the seventh straight month and imports from China bounded higher.

Adding urgency to talks President Barack Obama will have with Chinese leaders in coming days, the monthly trade gap grew to $36.5 billion, from a slightly revised estimate of $30.8 billion in August, the Commerce Department said on Friday.

The monthly trade gap grew to $36.5 billion, from a slightly revised estimate of $30.8 billion in August, the Commerce Department said on Friday.

Wall Street analysts had expected the shortfall to grow modestly in September to around $31.65 billion.

Both U.S. exports and imports had their best month since December 2008. But in a sign of renewed U.S. economic growth, imports grew 5.8 percent in September, the biggest monthly gain since March 1993, while exports rose 2.9 percent.

Some analysts had expected more of an export boost because the drop in the value of the dollar against other major currencies makes American goods more competitive overseas.

But “the overall upturn in U.S. demand is trumping the fall of the dollar,” said Craig Peckham, an equity trading strategist with Jefferies and Company in New York payday loan companies.

TRADE FLOWS PICKING UP

Imports of industrial supplies and materials showed the biggest gain in September, suggesting that U.S. manufacturers are ramping up for production.

International trade flows are picking up as massive stimulus from governments and central banks lift the global economy out of its deepest swoon since the 1930s.

The EU statistics office Eurostate said the euro-zone economy grew 0.4 percent in the third quarter from the second quarter, snapping the region’s recession. For details, see

The U.S. government said last month the U.S. economy grew at an annual rate 3.5 percent in the third quarter after four contractionary quarters.

The average price for imported oil leapt to $68.17 per barrel and imports from the Organization of Petroleum Export Countries increased to $11.9 billion in September, both the highest since November 2008.

A separate report showed U.S. import prices rose for the third straight month in October, pushed up by a jump in the cost of fuel imports and the depreciating dollar. 

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China on Tuesday restated its long-standing policy to maintain the basic stability of the yuan at a reasonable and balanced level, after President Barack Obama said he would discuss the currency when he visits Beijing.

Asked about Obama’s comments, Foreign Ministry spokesman Qin Gang said China would keep improving the currency’s exchange rate mechanism with a view to gradually making the yuan more flexible.

Qin added that China hoped the United States, as the most important economy in the world, would pursue a stable fiscal policy to keep the dollar’s exchange rate steady and ensure its own growth and that of other nations.

“I want to make it clear that the United States is the number-one economic entity in the world,” he told a regular news conference.

“We hope that … the United States can overcome the difficulties brought by the international financial crisis and at the same time maintain the medium-term and long-term sustainability of its fiscal policy,” Qin said.

Obama told Reuters in an interview in Washington that he would raise the issue of the yuan, which many economists and U.S. manufacturers consider to be undervalued, when he comes to China next week.

But Obama also said the two countries share a common interest in helping to rebalance the global economy in order to deliver sustainable growth, a view echoed by Qin payday advance.

“If you ask me how relations between the two countries are right now, my first answer is: the economies of China and the United States are mutually related, integrated, dependent on each other and getting closer to each other day by day.”

But there are tensions between the two.

U.S. manufacturers complain that Beijing artificially holds the value of the yuan down to make its exports cheaper and American goods more expensive for Chinese consumers.

Economists say this has led to imbalances in the world economy by contributing to big trade deficits in the United States and trade surpluses in China.

Leaders of the Group of 20 developed and emerging economies have pledged to aim for policies to ease these imbalances.

But China has also been angered by recent controls slapped on some of its imports, and Qin issued a new warning against barriers to commerce.

“We urge the U.S. side to make positive efforts with China to resolve frictions and questions in trade, including acknowledging China’s status as a full market economy and halting some protectionist measures,” Qin said.

(Reporting by Emma Graham-Harrison and Yu Le; Editing by Alan Wheatley and Ken Wills)

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The U.S. economy may have turned a corner after the deepest recession in some 70 years, but Federal Reserve policymakers appear to be in no rush to raise interest rates.

The Fed is widely expected to keep its benchmark interest rate where it has been since December — near zero — when it meets this week.

With underlying inflation pressures actually decreasing and most Fed officials expecting the recovery to be slow, there is little incentive for the Fed to change its easy money policy.

“Anybody who expects major changes to the Fed’s statement is likely to be disappointed,” said Stephen Stanley, U.S. economist at RBS.

Fed officials, who meet on Tuesday and Wednesday, could discuss how they will prepare markets for an eventual policy shift, but analysts say it is too soon for the Fed to even hint toward an exit by tweaking its pledge to keep rates extraordinarily low for an “extended period.”

Even as the U.S. economy appears to be still in need of Fed support, the repercussions of emergency monetary policies are being felt around the world.

Brazil has acted to stem the flood of speculative capital to its economy by adopting a 2 percent tax on foreign investment. Other nations have begun to intervene to keep their currencies from rising too sharply against the falling dollar.

Among top Fed officials a debate has broken out about how soon the central bank will need to act to nip inflation in the bud, although none are advocating a move now.

Financial markets will comb through the central bank’s policy statement, which will be released at around 2:15 p easy online payday loans.m. EST (1915 GMT) on Wednesday, for any clues on when the easy money period will start drawing to a close.

Most analysts at top U.S. banks expect the Fed’s policy-setting Federal Open Market Committee to keep interest rates on hold until mid-2010 or later, though interest-rate futures markets are pricing in an increase earlier in 2010.

The most significant outcomes of the Fed’s last two policy meetings concerned the central bank’s purchases of U.S. government and mortgage-related debt. The Fed stopped buying longer-term Treasury debt last week, while the mortgage-related asset purchase program has been extended into early 2010 to provide for an orderly wind down.

“Things are going to start to get interesting in 2010, but for the moment they’ve got all their ducks in a row,” Stanley said.

GROWTH HAS ARRIVED, BUT JOBS HAVE NOT

The Fed will note that the economy grew in the third quarter, snapping a deep four-quarter plunge and likely ending the U.S. recession. The officials are also likely to repeat there is still enough slack in the economy for inflation not to be an immediate worry.

Last week, data showed U.S. GDP rebounded at a solid 3.5 percent annual pace in the third quarter. A separate report showed inflation, outside of food and energy costs, bumping along at a eight-year low. 

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The Obama administration’s new proposal for tackling financial risk in the U.S. economy, unveiled just two days ago, came under attack on Thursday from Congress and regulators, with questions raised about its funding and scope.

U.S. Treasury Secretary Timothy Geithner scrambled in a congressional hearing to defend the plan against critics who said it would give too much power to regulators and enshrine government bailouts for troubled financial firms in law.

Released by the Treasury Department and Democratic Representative Barney Frank on Tuesday, the plan is an bold attempt to make sure the Bush administration’s confused handling of last year’s financial crisis doesn’t happen again.

That episode saw some firms, such as AIG and Citigroup, get multibillion-dollar bailouts. Others, such as Lehman Brothers, were allowed to go into bankruptcy, while still others were forced into government-engineered mergers.

The 253-page Obama plan tries to strike a balance between bailouts and bankruptcy, while insisting that large financial firms, not taxpayers, foot the bill for future interventions.

“Without the ability for the government to step in and manage the failure of a large firm and contain the risk of the fire spreading, we will be consigned to repeat the experience of last fall. It’s a really stark, simple thing,” Geithner said at a hearing of the House of Representatives Financial Services Committee, chaired by Frank and packed with bank lobbyists.

Amid concerns that a few elite financial giants have become “too big to fail,” the administration’s plan would empower regulators to police, restructure, and even shut down large firms that threaten stability payday advance. It resembles the Federal Deposit Insurance Corp’s power to seize and dismantle troubled banks.

Bankruptcy would be remain the dominant tool for handling non-bank financial firm failures, Geithner said.

“But as the collapse of Lehman Brothers showed, the bankruptcy code is not an effective tool for resolving the failure of a global financial services firm in times of severe economic stress,” he said.

The plan is meant to mesh with many other financial regulatory reform proposals being pursued by the administration and congressional Democrats.

HALTING PROGRESS

Ranging from regulation of over-the-counter derivatives and setting up a financial consumer watchdog agency, to curbing bankers’ pay and cracking down on credit rating agencies and hedge funds, the reform push has been making halting progress.

Final action is still months away. Frank’s committee has approved some proposals, but votes by the full House await and the Senate has barely begun handling the matter.

“Congress will be split” over the new systemic risk plan, said financial services policy analyst Brian Gardner at investment firm Keefe Bruyette & Woods.

“Opposition cuts across party lines. We also expect significant opposition to increasing the Fed’s role as a banking regulator in the Senate and we think this bill’s prospects are far from certain,” Gardner said. 

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Australian exports of commodities will benefit from China’s commitment to maintain policies that support economic growth, Australian Treasurer Wayne Swan said.

China’s economy expanded 8.9 percent in the third quarter from a year earlier, the fastest pace in a year, as stimulus spending and record lending growth helped the nation lead the world out of recession. China’s cabinet said Oct. 21 that it will continue with monetary and fiscal stimulus measures even after the economy’s expansion exceeded officials’ expectations.

China’s commitment to stimulate growth “will provide further support to Chinese demand for commodity and capital- goods imports, with implications for exports here in Australia,” Swan said in an e-mailed note. “As a resource-rich nation on Asia’s doorstep, Australia is uniquely placed to capitalize on this Asian century.”

Australia’s proximity to Asia is helping it rebound faster than most other developed economies. Trade figures show the nation’s largest export customers this year are China, Japan, South Korea, India and the U.S. Six years ago, the U.S. was ranked second.

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Europe’s manufacturing and services industries expanded at the fastest pace in 22 months in October as evidence mounted that the global economy is pulling out of the recession.

A composite index of both industries in the euro-area economy rose to 53 from 51.1 in September, London-based Markit Economics said today. Economists forecast a gain to 51.6, according to the median of 13 estimates in a Bloomberg News survey. A reading above 50 indicates expansion.

European companies are stepping up output to meet reviving orders after governments around the world spent $2 trillion in stimulus measures to fight the worst recession in at least six decades. The International Monetary Fund said on Oct. 1 the global economy will expand at a faster pace than previously expected in 2010. Still, the euro’s ascent against the dollar may curb a European recovery.

“The second half of the year will be relatively strong,” said Juergen Michels, chief euro-area economist at Citigroup in London. “Looking ahead, there are a lot of reasons for momentum to weaken partly because of a stonger euro.”

The world economy will shrink 1.1 percent this year, less than the 1.4 percent projected in July, the Washington-based IMF forecast. In 2010, the economy may expand 3.1 percent instead of a previously projected 2.5 percent, the fund said. In the euro region, the economy probably returned to growth in the third quarter, the European Commission forecast last month.

Global Recovery

Adding to signs of global recovery, confidence in the world economy rose for a third straight month in October, a Bloomberg survey of users on six continents showed earlier this month. In the U.S., the world’s largest economy, industrial output increased more than expected in September and China’s manufacturing expanded at the fastest pace in 17 months.

Wolfsburg, Germany-based Volkswagen AG, the biggest overseas carmaker in China, sold 150,000 cars last month, a monthly record, as sales for the first nine months surged 37 percent. Volkswagen is investing 4 billion euros ($6 billion) to expand capacity in China through 2011.

“China is the steam engine of the world economy,” Volkswagen sales chief Detlef Wittig said in a Sept. 25 interview in Frankfurt. “The lust for mobility there seems almost bottomless. We’re very well positioned there and will keep investing to secure our share of the market.”

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