Collapse of the U.S. Economy

State Tax Revenue in U.S. Drops Most Since 1963, Study Says

January 7, 2010

Bloomberg - U.S. state tax collections fell the most in 46 years in the first three quarters of 2009 as the recession shrank revenue from sources including personal income, the Nelson A. Rockefeller Institute of Government said.

Revenue dropped 13.3 percent, or $80 billion, compared with the same nine months of 2008, to $523 billion, the institute said. Collections in the third quarter alone sank 10.9 percent to about $162 billion, according to the report released today by the Albany-based body. It was the fourth straight quarterly decline. The institute is the public policy research arm of the State University of New York.

“The first three quarters of 2009 were the worst on record for states in terms of the decline in overall state tax collections, as well as the change in personal income and sales tax collections,” Rockefeller analysts Lucy Dadayan and Donald J. Boyd wrote in the report. (The institute explores ways to help state and federal governments work better.)

The worst economic slump since the Great Depression has forced states to cut spending, raise taxes and pass down costs to local governments to cope with $193 billion of combined budget deficits in the current fiscal year, according to a Center on Budget and Policy Priorities report issued last month.

Budget gaps have opened in 31 states since fiscal year 2010 began, Dadayan and Boyd wrote, citing a National Conference of State Legislatures study.

“2010 is going to be very difficult for the states and the next year is likely to be significantly worse,” Rockefeller Deputy Director Robert Ward said in an interview.

California’s Deficit

California’s deficit is going to total $20 billion for the next 18 months, Governor Arnold Schwarzenegger said in a speech yesterday. Schwarzenegger, a Republican, is scheduled tomorrow to release his budget plans for the state, the largest issuer of municipal debt.

New York is grappling with an $8 billion budget deficit, Governor David Paterson said in his state-of-the-state speech yesterday.

“The great recession hit virtually every single source of tax revenue and pushed a number of states to revise revenue forecasts numerous times throughout fiscal 2009 and 2010, with significant impacts on services,” Dadayan and Boyd wrote.

State income tax revenue was down 11.8 percent in the third quarter, sales tax collections were down 8.9 percent, and corporate income tax declined 22.6 percent, according to the study.

The Obama administration’s $787 billion stimulus package made up as much as 40 percent of the revenue losses states suffered, Ward said by telephone.

“It is a very significant amount of compensation but by no means eliminates the problem,” he said.

Ward said economists are split over whether the economy is recovering. He said taking an optimistic view “states still have some way to go just to stop the losses.”

Local tax revenue grew by 0.7 percent in the third quarter, the report said.

U.S. Unexpectedly Cuts 85,000 Jobs in December

Jaunary 8, 2010

Reuters - U.S. employers cut 85,000 jobs in December, confounding expectations the labor market was finally stabilizing and piling pressure on President Barack Obama to spur job growth.

The jobless rate held steady at 10 percent, the Labor Department said on Friday, but it would have marched higher if a surprisingly large number of discouraged jobseekers had not left the labor force.

November payrolls were revised to show the economy actually added 4,000 jobs rather than losing 11,000, as initially reported, breaking a streak of 22 consecutive monthly losses. With revisions to October, however, the economy lost 1,000 more jobs than previously estimated over those two months.

Unemployment remains the Achilles heel of the economy's recovery from its worst recession in 70 years, with job creation critical to sustaining the recovery when government stimulus fades.

"The jobs numbers ... are a reminder that the road to recovery is never straight. What this underscores, though, is that we have to continue to explore every avenue to accelerate the return to hiring," Obama said, announcing new investments in clean energy.

Economists had expected a flat reading for payrolls, with the unemployment rate ticking up to 10.1 percent.

U.S. stocks rose, while government bond prices climbed and short-term interest rate futures gained as investors bet the weak jobs market would keep inflation tame and encourage the Federal Reserve to keep lending rates near zero for a long time.

Two Fed officials said on Friday they would like to see the nation's jobs picture improve before the U.S. central bank withdraws extraordinary support for the economy and markets...

Retail Space Opens Up as Big Chains Shrink

Many big chain stores are expected to keep downsizing, letting other retailers grab the vacant spots in malls and big-box buildings more cheaply.

January 2, 2010

Los Angeles Times - Surges of large-scale retail bankruptcies such as Circuit City electronics and Mervyns department stores altered the shopping landscape in 2009 -- and experts say 2010 is likely to bring even more changes.

Amid a still-tepid economic recovery, big retail chains are expected to continue closing their less productive stores and retrenching on expansion plans. But at the same time, others will be hurtling into the breach to take advantage of falling rents and vacancies in neighborhoods they couldn't get into a few years ago.

"The prediction for next year is more re-sizing and relocating of retailers," said real estate broker Richard Rizika of CB Richard Ellis.

There are almost 100 empty big-box retail stores in Los Angeles County, according to a study by Rizika. They have a combined total of 4.5 million square feet, or about 78 football fields' worth of vacant space for rent or sale. Most of that came from liquidated businesses Circuit City Inc., Mervyns and home furnishings chain Linens 'n Things Inc.

Neighborhood and community shopping centers in Los Angeles experienced falling rents and rising vacancies in the third quarter, according to real estate data provider Reis Inc. About 5.7% of the space is empty, a slight increase from a year earlier.

Taking advantage of bargain rents, big-box retailers PetSmart Inc. and Staples Inc. are introducing smaller stores that will enable them to fit into more expensive or more urban locations where space is at a premium, Rizika said.

Bargain-chic women's clothier Forever 21 Inc., once a chain of small boutiques, is upping the ante by moving into full-size department stores abandoned by Mervyns.

Nordstrom Rack, the lower-priced cousin of Nordstrom, snagged some of the empty spots too, but company spokesman Colin Johnson said the expansion didn't reflect a companywide shift into selling lower-priced goods.

"This was a strategy we put in place before the downturn began," he said, and the recession has given Seattle-based Nordstrom Inc. the chance to get into new locations at bargain rates.

Also moving aggressively into big spaces vacated by failed retailers is Wisconsin-based Kohl's Corp., which added seven new stores in Los Angeles County in 2009. The mid-tier department store has assumed leases and bought empty buildings throughout California as part of a growth strategy.

Popular upscale stores such as Nordstrom are still highly sought after by mall owners, but the less-pricey Kohl's, Target and even so-called dollar stores such as 99 Cents Only have lately earned respect from landlords, said retail property expert Michael Wiener.

"Deep discounters have proliferated and will move into more attractive locations," Wiener said. "All of a sudden they are the darlings and can have the pick of the litter."

Wiener is chief executive of Excess Space Retail Services Inc., a New York company that helps retailers figure out what to do with store space they can't use anymore. With unemployment still high, more tough times are ahead for stores and retail landlords, he predicted.

As many as 8,000 stores will close nationwide in the first half of 2010, Wiener said, and more grief will follow for landlords who have bank loans coming due while facing declining occupancy and rents.

"We think the industry will suffer well into 2011."

Contributing to the heartache, at least for landlords, Wiener said, will be a source most casual observers assumed retailers had made peace with: the Internet. Most stores have mastered the process of selling online and will find less need for bricks-and-mortar stores in the years ahead, he said.

The prediction that online shopping would be the undoing of malls was first made during the Internet gold rush of the 1990s, but instead malls thrived and expanded.

"People didn't quite trust the Internet," Wiener said.

Now they're more technically savvy and the percentage of shopping they do online is probably going to get bigger. Online shopping accounted for less than 1% of all retail sales at the end of 1999, according to the U.S. Census Bureau. Ten years later, Internet sales were almost 4% of the total.

"There's still a lot of upside for the Internet," Wiener said.

Also worrisome for retailers and their landlords are consumer spending patterns, a recent report by investment bank Hovde Capital Advisors said. Rocked by recession and a shaky job market, people are saving more and spending less. They also have less access to credit through credit cards and home equity loans.

"These trends do not bode well for mall fundamentals," the Hovde report said.

Mall landlord Sandy Sigal acknowledges that 2009 was tough on the retail industry, but he holds a more optimistic view of the future.

"Last year was panic and desperation" for tenants, some of whom begged his Woodland Hills company, NewMark Merrill Cos., to let them stop paying rent, Sigal said. Now, "they are more realistic. Tenants are getting better at learning how to survive in this market."

NewMark has helped them learn by subsidizing business consultants to advise tenants and by pitching in to fund direct mail campaigns, social marketing and other advertising programs.

"The idea is to teach tenants to fish," he said.

Undercover "secret shopper" surveys show service at stores is improving, he said. "In the long run, you are going to have survivors who get darn good at what they do. What's left is the best of class."

Running hot these days, he said, are drugstores, such as CVS, that offer a wide range of merchandise and keep long hours.

"People use them as minimarkets now," Sigal said.

Discount stores, including grocers such as Food 4 Less, also are doing well, he said. Others are still in pain, he said.

"I wouldn't want to be in high-end clothing or jewelry right now."

Mired in Crisis, States Kick Off Legislative Year

January 6, 2010

AP - Governors in California, New York and Kentucky spelled out ambitious plans to create jobs and deal with a crippling financial crisis Wednesday at a time when states around the country are opening their legislative sessions under an ominous cloud of economic uncertainty...

The pain is being felt in most states as lawmakers begin sessions this month. The Center on Budget and Policy Priorities says state budget shortfalls are likely to reach a staggering $180 billion for the coming fiscal year - a crunch that means new tolls to fund road projects, more prisoners being released early to trim corrections budgets, and possibly the end of welfare programs in some states.

In his final State of the State speech, Schwarzenegger sought to look beyond his often-rocky tenure and tell lawmakers they must act boldly to reform the state's tax and budgeting systems so future leaders do not find themselves in similar dire circumstances. He noted sweeping changes to the tax system recommended by a bipartisan commission last year.

He also outlined plans to train 140,000 workers and create 100,000 jobs in a state with an unemployment rate of more than 12 percent - but acknowledged the need for more cuts in the face of a $20 billion budget deficit.

In warning that the months ahead will not be easy, Schwarzenegger conceded that some areas of state government had been cut too far, pointing to K-12 and higher education. He said he would seek to protect education funding, calling it an embarrassment for California that the state spends far more on its prison system than on its universities. Prisons account for roughly 11 percent of general fund spending, compared to 7.5 percent for higher education.

"First, as bitter as the words are in my mouth, we face additional cuts. We know what that means. We know the pain it entails," he told lawmakers packed into the Assembly chamber as his wife, first lady Maria Shriver, looked on. "What can we say at this point except the truth? That we have no choice."

In New York, Paterson addressed budget deficits in his speech by proposing the merging of state agencies and public tracking of agency performance. He asked Lt. Gov. Richard Ravitch to take the lead on a four-year recovery plan, proposed a constitutional spending cap and promised to use his executive authority to veto or delay spending to keep the government solvent.

In a speech critical to improving his standing in the polls, the Democrat called for curbing the state's overspending and for creating jobs, in part by renewing New York's once-mighty manufacturing sector. Among his proposals is the acquisition and renewal of abandoned factories for sale back to the private sector...

The majority of state senators who responded to an annual, pre-session survey from The Associated Press said that more budget cuts may be in order during the session to help prepare for the next, two-year budget cycle that begins in mid-2011...

California's tax revenue is not expected to rebound for another three or four years. Even when it does, the boom-and-bust cycle will continue without sweeping reform, Schwarzenegger said.

"If I had hesitated to attempt something because it was too hard, I'd still be yodeling in Austria," he said.