The Wall Street Journal
November 19, 2009
By CONOR DOUGHERTY
WASHINGTON -- Mayors from four U.S. cities said they are facing a once-in-a-generation fiscal crisis and that federal stimulus funds have, so far, been largely unhelpful in helping them balance budgets hit by steep drops in nearly every source of municipal revenue. The comments, from mayors of Philadelphia, San Jose, Calif; Mesa, Ariz., and Bowling Green, Ky., at a panel discussion sponsored by the Brookings Institution and the National League of Cities, underscore how the recession for local government is far from over. Mesa's mayor, Scott Smith, said the steep drops in sales-tax revenue, the city's primary source of money, are "changing our reality."
"We treat this financial crisis as something we're not going to get out of," said Mr. Smith, whose city has about 500,000 citizens and is in the Phoenix metropolitan area. Even as economists declare the recession over, local revenues continue to fall. That's because the lion's share of their receipts -- sales, income and property taxes -- are connected to the job market and real-estate prices. Jobs and real-estate prices are expected to lag the broader economic recovery, reducing city revenues for months or years after the technical end of the recession.
"This is unknown for our generation," said Chris Hoene, director of the center for research and innovation at the National League of Cities. Mr. Hoene said it was likely to be 18 to 24 months before local government revenues resume growing. The mayors said deep budget gaps have forced them to make cuts to basic services including police and fire protection, that the financial crisis has turned cities and states against each other and that fiscal strains emphasize the need for money-saving changes to pension and health benefits in the heavily unionized public sector. "Change has to come and this moment of crisis is going to force it," said Michael Nutter, mayor of Philadelphia. While federal stimulus funds have helped states close budget gaps and preserved jobs for many state and school-board employees, the mayors said federal money hasn't done much to ease their day-to-day budget problems. "The stimulus is going to special things," said Chuck Reed, mayor of San Jose. Beyond budget and services cuts, the mayors discussed new ways to raise revenue at a time when incomes are stagnant and the national unemployment rate is at 10.2%. Philadelphia, for instance, has temporarily increased its sales tax while Mesa has levied a property tax for the first time.
Write to Conor Dougherty at conor.dougherty@wsj.com
Sunday, November 22, 2009
29 States show rising unemployment
California Was Among States With Record Unemployment (Update3)
By Courtney Schlisserman
November 20, 2009 (Bloomberg) -- California, Delaware, South Carolina and Florida registered record rates of unemployment in October as weakness in the labor market stretches from coast to coast and limits the economic recovery. Joblessness rose in 29 U.S. states last month compared with 22 in September, the Labor Department said today in Washington. Michigan had the highest jobless rate at 15.1 percent, followed by Nevada at 13 percent and Rhode Island at 12.9 percent. The national rate last month reached a 26-year high of 10.2 percent, weighing on consumer spending that accounts for about 70 percent of the economy. Federal Reserve Chairman Ben S. Bernanke said Nov. 17 that joblessness “likely will decline only slowly,” a reason policy makers will keep interest rates near zero to ensure growth is sustained. “We’ve had a surprisingly sharp jump in the jobless rate,” said Richard DeKaser, president of Woodley Park Research in Washington. “Businesses have truly been doing an extraordinary job of wringing out productivity from the labor force.” Stocks fell for a third day, with the Standard & Poor’s 500 Index declining 0.3 percent to 1,091.38 at 4:03 p.m. in New York. Dell Inc., the third-largest maker of personal computers, dropped 10 percent after reporting a 54 percent drop in profit.
Declines in 13 States
The unemployment rate fell in 13 states, including Massachusetts, where it declined to 8.9 percent from 9.3 percent; New Hampshire, with a drop to 6.8 percent from 7.2 percent; and West Virginia, which fell to 8.5 percent from 8.9 percent. The number of states with at least 10 percent unemployment held at 14 last month, the Labor Department’s report showed. The states reporting a record jobless rate were California at 12.5 percent, South Carolina at 12.1 percent, Florida at 11.2 percent and Delaware at 8.7 percent. The District of Columbia also set a high with an 11.9 percent rate. “Virtually every sector aside from the health-care sector is losing jobs,” said Sean Snaith, University of Central Florida economist in Orlando. “Housing has been central to Florida’s economic story throughout the entire cycle. Unfortunately, it has spread well beyond the sectors directly involved in the housing market.” President Barack Obama on Nov. 6 signed into law a plan to extend jobless benefits, expand a tax credit for first-time homebuyers and provide tax refunds to money-losing companies. The measure gives jobless people as many as 20 additional weeks of unemployment assistance. The president has also announced plans to convene a jobs summit at the White House next month.
State Payrolls
Payrolls declined last month in 21 states, today’s report showed. New York showed the biggest drop, with a loss of 15,300. Florida had 8,500 job losses, followed by Georgia with 7,500 and Virginia with 7,100. “When you apply for a job, because there are so many other people looking for jobs, you have to be the absolute perfect candidate and lucky, or be someone’s brother-in-law, to get a job,” said Mary Kough of Tellico Plains, Tennessee. “In this economy there are very few jobs for which to even apply.” Kough has been looking for work for four months, applying for as many as 25 positions. She’s been interviewed once. The 47-year-old said she has about 20 years of experience, including jobs as a customer service manager, supervisor and purchasing agent. Tennessee’s unemployment rate held at 10.5 percent in October, the Labor Department’s report showed.
Taking Comfort
“I try not to get discouraged,” Kough said. “I know that you will get a certain percentage of what you apply for, and since there are less jobs to apply for, I know it will just take a little longer. I take comfort in knowing that. I have faith.” Applied Materials Inc. is among companies still planning to cut jobs. The world’s biggest maker of chip equipment, based in Santa Clara, California, said Nov. 11 it plans to eliminate as many as 1,500 positions within 18 months. Over the last year, California showed the biggest loss of jobs, with payrolls falling by 687,700 workers, today’s report showed. Nationally, payrolls fell by 190,000 in October, the Labor Department said Nov. 6. The U.S. has lost 7.3 million jobs since the start of the recession in December 2007, the most of any downturn since the Great Depression. Other measures corroborate that while firms are firing fewer workers, it is harder for the unemployed to find work. The number of people getting extended payments jumped in the week ended Oct. 31 even as the number of Americans filing first-time claims for unemployment benefits held at a 10-month low last week, according to government data released yesterday.
To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net Last Updated:
By Courtney Schlisserman
November 20, 2009 (Bloomberg) -- California, Delaware, South Carolina and Florida registered record rates of unemployment in October as weakness in the labor market stretches from coast to coast and limits the economic recovery. Joblessness rose in 29 U.S. states last month compared with 22 in September, the Labor Department said today in Washington. Michigan had the highest jobless rate at 15.1 percent, followed by Nevada at 13 percent and Rhode Island at 12.9 percent. The national rate last month reached a 26-year high of 10.2 percent, weighing on consumer spending that accounts for about 70 percent of the economy. Federal Reserve Chairman Ben S. Bernanke said Nov. 17 that joblessness “likely will decline only slowly,” a reason policy makers will keep interest rates near zero to ensure growth is sustained. “We’ve had a surprisingly sharp jump in the jobless rate,” said Richard DeKaser, president of Woodley Park Research in Washington. “Businesses have truly been doing an extraordinary job of wringing out productivity from the labor force.” Stocks fell for a third day, with the Standard & Poor’s 500 Index declining 0.3 percent to 1,091.38 at 4:03 p.m. in New York. Dell Inc., the third-largest maker of personal computers, dropped 10 percent after reporting a 54 percent drop in profit.
Declines in 13 States
The unemployment rate fell in 13 states, including Massachusetts, where it declined to 8.9 percent from 9.3 percent; New Hampshire, with a drop to 6.8 percent from 7.2 percent; and West Virginia, which fell to 8.5 percent from 8.9 percent. The number of states with at least 10 percent unemployment held at 14 last month, the Labor Department’s report showed. The states reporting a record jobless rate were California at 12.5 percent, South Carolina at 12.1 percent, Florida at 11.2 percent and Delaware at 8.7 percent. The District of Columbia also set a high with an 11.9 percent rate. “Virtually every sector aside from the health-care sector is losing jobs,” said Sean Snaith, University of Central Florida economist in Orlando. “Housing has been central to Florida’s economic story throughout the entire cycle. Unfortunately, it has spread well beyond the sectors directly involved in the housing market.” President Barack Obama on Nov. 6 signed into law a plan to extend jobless benefits, expand a tax credit for first-time homebuyers and provide tax refunds to money-losing companies. The measure gives jobless people as many as 20 additional weeks of unemployment assistance. The president has also announced plans to convene a jobs summit at the White House next month.
State Payrolls
Payrolls declined last month in 21 states, today’s report showed. New York showed the biggest drop, with a loss of 15,300. Florida had 8,500 job losses, followed by Georgia with 7,500 and Virginia with 7,100. “When you apply for a job, because there are so many other people looking for jobs, you have to be the absolute perfect candidate and lucky, or be someone’s brother-in-law, to get a job,” said Mary Kough of Tellico Plains, Tennessee. “In this economy there are very few jobs for which to even apply.” Kough has been looking for work for four months, applying for as many as 25 positions. She’s been interviewed once. The 47-year-old said she has about 20 years of experience, including jobs as a customer service manager, supervisor and purchasing agent. Tennessee’s unemployment rate held at 10.5 percent in October, the Labor Department’s report showed.
Taking Comfort
“I try not to get discouraged,” Kough said. “I know that you will get a certain percentage of what you apply for, and since there are less jobs to apply for, I know it will just take a little longer. I take comfort in knowing that. I have faith.” Applied Materials Inc. is among companies still planning to cut jobs. The world’s biggest maker of chip equipment, based in Santa Clara, California, said Nov. 11 it plans to eliminate as many as 1,500 positions within 18 months. Over the last year, California showed the biggest loss of jobs, with payrolls falling by 687,700 workers, today’s report showed. Nationally, payrolls fell by 190,000 in October, the Labor Department said Nov. 6. The U.S. has lost 7.3 million jobs since the start of the recession in December 2007, the most of any downturn since the Great Depression. Other measures corroborate that while firms are firing fewer workers, it is harder for the unemployed to find work. The number of people getting extended payments jumped in the week ended Oct. 31 even as the number of Americans filing first-time claims for unemployment benefits held at a 10-month low last week, according to government data released yesterday.
To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net Last Updated:
Payback Time: Wave of Debt Payments Facing U.S. Government
By EDMUND L. ANDREWS
The New York Times
November 23, 2009
WASHINGTON — The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true. But that happy situation, aided by ultralow interest rates, may not last much longer. Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed. Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages. With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher. In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan. The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means. The surge in borrowing over the last year or two is widely judged to have been a necessary response to the financial crisis and the deep recession, and there is still a raging debate over how aggressively to bring down deficits over the next few years. But there is little doubt that the United States’ long-term budget crisis is becoming too big to postpone.
Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode. The competing demands could deepen political battles over the size and role of the government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.
“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”
So far, the demand for Treasury securities from investors and other governments around the world has remained strong enough to hold down the interest rates that the United States must offer to sell them. Indeed, the government paid less interest on its debt this year than in 2008, even though it added almost $2 trillion in debt. The government’s average interest rate on new borrowing last year fell below 1 percent. For short-term i.o.u.’s like one-month Treasury bills, its average rate was only sixteen-hundredths of a percent. “All of the auction results have been solid,” said Matthew Rutherford, the Treasury’s deputy assistant secretary in charge of finance operations. “Investor demand has been very broad, and it’s been increasing in the last couple of years.” The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security. The nation’s oldest baby boomers are approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government. “What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.” The current low rates on the country’s debt were caused by temporary factors that are already beginning to fade. One factor was the economic crisis itself, which caused panicked investors around the world to plow their money into the comparative safety of Treasury bills and notes. Even though the United States was the epicenter of the global crisis, investors viewed Treasury securities as the least dangerous place to park their money. On top of that, the Fed used almost every tool in its arsenal to push interest rates down even further. It cut the overnight federal funds rate, the rate at which banks lend reserves to one another, to almost zero. And to reduce longer-term rates, it bought more than $1.5 trillion worth of Treasury bonds and government-guaranteed securities linked to mortgages. Those conditions are already beginning to change. Global investors are shifting money into riskier investments like stocks and corporate bonds, and they have been pouring money into fast-growing countries like Brazil and China. The Fed, meanwhile, is already halting its efforts at tamping down long-term interest rates. Fed officials ended their $300 billion program to buy up Treasury bonds last month, and they have announced plans to stop buying mortgage-backed securities by the end of next March. Eventually, though probably not until at least mid-2010, the Fed will also start raising its benchmark interest rate back to more historically normal levels. The United States will not be the only government competing to refinance huge debt. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of their gross domestic product, and they too borrowed heavily to combat the financial crisis and economic downturn. As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates. Even a small increase in interest rates has a big impact. An increase of one percentage point in the Treasury’s average cost of borrowing would cost American taxpayers an extra $80 billion this year — about equal to the combined budgets of the Department of Energy and the Department of Education. But that could seem like a relatively modest pinch. Alan Levenson, chief economist at T. Rowe Price, estimated that the Treasury’s tab for debt service this year would have been $221 billion higher if it had faced the same interest rates as it did last year. The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead. To lock in low interest rates in the years ahead, Treasury officials are trying to replace one-month and three-month bills with 10-year and 30-year Treasury securities. That strategy will save taxpayers money in the long run. But it pushes up costs drastically in the short run, because interest rates are higher for long-term debt. Adding to the pressure, the Fed is set to begin reversing some of the policies it has been using to prop up the economy. Wall Street firms advising the Treasury recently estimated that the Fed’s purchases of Treasury bonds and mortgage-backed securities pushed down long-term interest rates by about one-half of a percentage point. Removing that support could in itself add $40 billion to the government’s annual tab for debt service. This month, the Treasury Department’s private-sector advisory committee on debt management warned of the risks ahead. “Inflation, higher interest rate and rollover risk should be the primary concerns,” declared the Treasury Borrowing Advisory Committee, a group of market experts that provide guidance to the government, on Nov. 4. “Clever debt management strategy,” the group said, “can’t completely substitute for prudent fiscal policy.”
The New York Times
November 23, 2009
WASHINGTON — The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true. But that happy situation, aided by ultralow interest rates, may not last much longer. Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed. Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages. With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher. In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan. The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means. The surge in borrowing over the last year or two is widely judged to have been a necessary response to the financial crisis and the deep recession, and there is still a raging debate over how aggressively to bring down deficits over the next few years. But there is little doubt that the United States’ long-term budget crisis is becoming too big to postpone.
Americans now have to climb out of two deep holes: as debt-loaded consumers, whose personal wealth sank along with housing and stock prices; and as taxpayers, whose government debt has almost doubled in the last two years alone, just as costs tied to benefits for retiring baby boomers are set to explode. The competing demands could deepen political battles over the size and role of the government, the trade-offs between taxes and spending, the choices between helping older generations versus younger ones, and the bottom-line questions about who should ultimately shoulder the burden.
“The government is on teaser rates,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates lower deficits. “We’re taking out a huge mortgage right now, but we won’t feel the pain until later.”
So far, the demand for Treasury securities from investors and other governments around the world has remained strong enough to hold down the interest rates that the United States must offer to sell them. Indeed, the government paid less interest on its debt this year than in 2008, even though it added almost $2 trillion in debt. The government’s average interest rate on new borrowing last year fell below 1 percent. For short-term i.o.u.’s like one-month Treasury bills, its average rate was only sixteen-hundredths of a percent. “All of the auction results have been solid,” said Matthew Rutherford, the Treasury’s deputy assistant secretary in charge of finance operations. “Investor demand has been very broad, and it’s been increasing in the last couple of years.” The problem, many analysts say, is that record government deficits have arrived just as the long-feared explosion begins in spending on benefits under Medicare and Social Security. The nation’s oldest baby boomers are approaching 65, setting off what experts have warned for years will be a fiscal nightmare for the government. “What a good country or a good squirrel should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group, the giant bond-management firm. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.” The current low rates on the country’s debt were caused by temporary factors that are already beginning to fade. One factor was the economic crisis itself, which caused panicked investors around the world to plow their money into the comparative safety of Treasury bills and notes. Even though the United States was the epicenter of the global crisis, investors viewed Treasury securities as the least dangerous place to park their money. On top of that, the Fed used almost every tool in its arsenal to push interest rates down even further. It cut the overnight federal funds rate, the rate at which banks lend reserves to one another, to almost zero. And to reduce longer-term rates, it bought more than $1.5 trillion worth of Treasury bonds and government-guaranteed securities linked to mortgages. Those conditions are already beginning to change. Global investors are shifting money into riskier investments like stocks and corporate bonds, and they have been pouring money into fast-growing countries like Brazil and China. The Fed, meanwhile, is already halting its efforts at tamping down long-term interest rates. Fed officials ended their $300 billion program to buy up Treasury bonds last month, and they have announced plans to stop buying mortgage-backed securities by the end of next March. Eventually, though probably not until at least mid-2010, the Fed will also start raising its benchmark interest rate back to more historically normal levels. The United States will not be the only government competing to refinance huge debt. Japan, Germany, Britain and other industrialized countries have even higher government debt loads, measured as a share of their gross domestic product, and they too borrowed heavily to combat the financial crisis and economic downturn. As the global economy recovers and businesses raise capital to finance their growth, all that new government debt is likely to put more upward pressure on interest rates. Even a small increase in interest rates has a big impact. An increase of one percentage point in the Treasury’s average cost of borrowing would cost American taxpayers an extra $80 billion this year — about equal to the combined budgets of the Department of Energy and the Department of Education. But that could seem like a relatively modest pinch. Alan Levenson, chief economist at T. Rowe Price, estimated that the Treasury’s tab for debt service this year would have been $221 billion higher if it had faced the same interest rates as it did last year. The White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, the Treasury has to refinance, or roll over, a huge amount of short-term debt that was issued during the financial crisis. Treasury officials estimate that about 36 percent of the government’s marketable debt — about $1.6 trillion — is coming due in the months ahead. To lock in low interest rates in the years ahead, Treasury officials are trying to replace one-month and three-month bills with 10-year and 30-year Treasury securities. That strategy will save taxpayers money in the long run. But it pushes up costs drastically in the short run, because interest rates are higher for long-term debt. Adding to the pressure, the Fed is set to begin reversing some of the policies it has been using to prop up the economy. Wall Street firms advising the Treasury recently estimated that the Fed’s purchases of Treasury bonds and mortgage-backed securities pushed down long-term interest rates by about one-half of a percentage point. Removing that support could in itself add $40 billion to the government’s annual tab for debt service. This month, the Treasury Department’s private-sector advisory committee on debt management warned of the risks ahead. “Inflation, higher interest rate and rollover risk should be the primary concerns,” declared the Treasury Borrowing Advisory Committee, a group of market experts that provide guidance to the government, on Nov. 4. “Clever debt management strategy,” the group said, “can’t completely substitute for prudent fiscal policy.”
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