12-23-08

 12-23-08Merced Sun-StarCalifornia officials cross fingers for federal rescueMerced Congressman Dennis Cardoza says Congress will insist on moderation...Rob Hotakainen and Michael Doyle / Bee Washington Bureauhttp://www.mercedsunstar.com/167/v-print/story/605713.htmlWASHINGTON -- California is broke and cannot afford thousands of public-works projects -- but Uncle Sam could be riding to the rescue.Even before President-elect Barack Obama takes office Jan. 20, his transition team is negotiating a huge stimulus package now estimated to be worth about $850 billion. Cash-strapped states and cities are salivating at the prospect of the largest public-works program since the New Deal.In California alone, officials have identified $28 billion worth of ready-to-go projects -- and the wish lists just keep growing.Everyone wants a piece of the action. Mayors in cities from Fresno to Sacramento need street improvements. Environmentalists think national parks like Yosemite need help. And San Joaquin Valley farmers say the stimulus bill could help fund canal improvements."I believe the funds should go to the places that have the toughest times right now," said Democratic Sen. Barbara Boxer, who heads the Senate Environment and Public Works Committee.For Boxer and her Golden State colleagues, of course, that means California. They note that California is the nation's most populous state, and that many of the state's highways are in disrepair and among the most congested in the nation. Boxer said that California should receive 10% to 12% of any appropriation, based on its population.The stimulus package is about more than just highways, and the current negotiating is about more than just dollar amounts.States, for instance, usually must provide a 20% match to receive federal money for transportation projects. Now, though, state officials and others are trying to get the requirement waived for a stimulus bill. And with more than 40 states projecting budget deficits in the next two years, that request is finding sympathy on Capitol Hill."Many states simply don't have the ability to make the 20% match in the short term," John Porcari, Maryland's secretary of transportation, told the House Transportation Committee at a recent hearing.The committee's chairman, Democratic Rep. Jim Oberstar of Minnesota, said that's "why it's important to have 100% federal funding in a rescue or recovery proposal."While the idea is getting broad support among Democrats, some Republican leaders are raising questions. House Minority Leader John Boehner of Ohio said he has "grave reservations about taking $1 trillion from struggling taxpayers and spending it on government programs." He suggested tax cuts as a better alternative to kick-start the economy.Other opponents, led by the National Taxpayers Union, argue that Congress should not bail out states, because they increased their spending by 124% over the last decade, bringing about their own troubles.Wish listsGov. Arnold Schwarzenegger said California needs more than $500 billion for infrastructure projects over the next 20 years. But he said the state could get going on $28 billion worth of projects within the first 120 days of Obama's administration."With an immediate commitment to national infrastructure investment, it's possible to put shovels in the dirt and start immediately on projects across the nation," Schwarzenegger said.This month, the U.S. Conference of Mayors produced a 607-page compilation of 11,391 infrastructure projects it deemed "ready to go." This "Main Street Economic Recovery Plan" called for about $73 billion in federal spending.Fresno alone sought help with 10 projects that included irrigating downtown landscaping. Together, they would cost $50 million.Modesto was more ambitious, listing three dozen projects, from new wells and street paving to solar panels on city buildings. The total Modesto price tag: a quarter of a billion dollars.Sacramento made a $2.7 billion request covering everything from raising Folsom Dam to building new police and fire stations."It was like make-a-wish," said a skeptical Rep. Dennis Cardoza, D-Merced. "People saw this as, let's see if we can hit the federal government lottery."The municipal demand puts some lawmakers in a bind. No lawmaker likes to reject constituent requests, especially when voters see a record-setting spending bill chugging down the Capitol Hill tracks. But Republicans and members of the centrist Democratic Blue Dog coalition, including Cardoza, say they will insist on fiscal moderation.The municipal projects are not the only requests on the table. Lawmakers like Rep. Jim Costa, D-Fresno, are pushing support for high-speed rail, providing federal aid to augment $9.95 billion recently approved by California voters.And state and city officials aren't the only Californians seeking a cut of the stimulus pie. The National Parks and Conservation Association has offered a $2.5 billion package of parks projects. The trick is to cast the work in terms of jobs created. Every public agency worth its salt is starting to come up with its own wish list."Water districts are coming to us with lists, so we'll see what's possible for them," Costa said.Anxiously awaitedCalifornia Assembly Speaker Karen Bass, in a quick trip to Capitol Hill last week, pressed the case for spending some of the stimulus dollars on human investments. This could include money for child care, job training, food stamps and health insurance, Bass said.In a similar vein, some lawmakers, including Cardoza, have urged that home-mortgage assistance be included in the stimulus package.The chairman of the House Appropriations Committee, David Obey, D-Wis., has been quietly meeting with congressional leaders and the Obama transition team to craft the package.For the sake of speed, some lawmakers want to bypass the usual committee hearings that would precede such a huge package. But by sidestepping potential hurdles, Democratic leaders could invite criticism over fast-tracking one of the most expensive bills in history. Even some Democrats, including Costa, contend the regular congressional process should be followed.But many in California say the situation is urgent, particularly with state lawmakers and the governor unable to reach accord on a budget.Boxer issued a report this week highlighting the state's troubles. Among the highlights: From January through September of this year, 189,000 California homes were lost to foreclosure. In cities such as Los Angeles, San Francisco and San Diego, housing prices have declined 25%. And California lost 136,000 jobs in the last year, and its unemployment rate is 8.4%, the highest in 14 years.Meanwhile, politicians in Sacramento continue wrangling over how to close a budget gap that's predicted to hit $42 billion by June 2010. On Wednesday, state officials halted funds for thousands of public works projects statewide, an attempt to stop the state's fiscal bleeding.Backers of a stimulus quickly cited the action as a reason for Congress to act quickly when members convene for a new session on Jan. 6."California's decision to cut funding for vital infrastructure projects is yet another reminder of the desperate need for new and rapid federal stimulus investments," said Stephen Sandherr, chief executive officer of the Associated General Contractors of America. "With these investments, we'll put people back to work and money back into the economy." Merced County's jobless rate rises to 13.3 percentIt ranks as the fifth-highest unemployment level in the state, which has an 8.3 percent average...CORINNE REILLYhttp://www.mercedsunstar.com/167/index-p2.htmlMerced County's unemployment rate climbed again last month, to its highest level since March, according to new figures from the state's Employment Development Department. The local unemployment rate hit 13.3 percent in November. That's up from October's 11.6 percent and the county's year-ago rate of 10.1 percent.As it has been for years, Merced's unemployment rate was considerably higher last month than both the state's 8.3 percent and the nation's 6.5 percent. Only four California counties had worse unemployment rates than Merced in November: Alpine, Sutter, Colusa and Imperial. "The Valley always feels it a little bit harder when times get tough, and I think this is evidence of that," said Frank Quintero, the city's economic development manager. "You know it's a challenging time when you're seeing longtime members of our business community having to let people go." Statewide last month, joblessness was the highest it's been in 14 years. Analysts expect unemployment to continue to climb across the nation as more companies look to layoffs to stay afloat amid a worldwide economic downturn.Locally, most of last month's job losses came from the agricultural sector, the EDD data show. Pedro Vargas, a state labor market consultant based in Merced, said some of those losses are in line with regular, seasonal fluctuations. "To an extent, those losses are expected," Vargas said. "That's the trend we see in rural counties." Joblessness may go down in Merced when farm work picks up again, he added. The county's unemployment rate has been increasing since September. The last time it rose above last month's rate was this March, when joblessness hit 13.6 percent."It seems to me like things are going to get a lot worse before they get better," lamented Tyrone Carter, a Merced resident who's struggled for months to find steady work. "I know so many people who can't find jobs right now. Everybody's hurting."For the last month and a half, Carter has been holding a neon sign on the corner of M Street and Olive Avenue advertising the Mervyns liquidation sale. The 32-year-old said he feels lucky to have found work, even if it's temporary. "It's better than nothing," he said. "But I don't know what I'm going to do when they don't need us anymore."Quintero said he's trying to stay positive. "I'm looking at it this way: Merced has an experienced, skilled work force ready to go," he said. "We're ready to grow our commercial and industrial sectors."For information on how to file for unemployment benefits, go to www.edd.ca.gov.Feinstein, Boxer lead pollution inquiryBoth senators have directed staff to investigate Beachwood...JONAH OWEN LAMBhttp://www.mercedsunstar.com/167/v-print/story/607064.htmlThe toxic plume beneath Merced's Beachwood neighborhood has caught the attention of some powers in Washington.Senators Barbara Boxer and Dianne Feinstein have both directed their staff to inquire into groundwater pollution by a subsidiary of pharmaceutical giant Merck & Co. and its connection to the sickness of local residents. Feinstein's office has sent a staff member to Merced to collect information. Boxer's office has contacted local officials as well.Boxer, who chairs the Senate Committee on Environment and Public Works, plans to press the new Environmental Protection Agency to regulate Chromium 6 in drinking water, said Bettina Poirier, staff director of the committee.The interest of the two senators was aroused because of a 2007 lawsuit filed in Fresno's federal court. The suit alleges that a subsidiary of Merck & Co. polluted the ground water with a toxic chemical, chromium 6, which made residents sick. The suit further alleges that the company failed to notify residents of the danger to their health.The half-abandoned site on the corner of Santa Fe Drive and Beachwood Road is in the midst of a cleanup that began in the early '90s.While Merck's lawyer in the case, Stephen Lewis, says the company did pollute the site, he claims there is no evidence to connect local sickness with the company's pollution.Two arrested for burglary attempt at gold mine...From reportshttp://www.mercedsunstar.com/275/v-print/story/606136.htmlTwo Chowchilla men were arrested early Sunday morning for trying to steal gold from a mining operation in Snelling.The men were found by Merced County Sheriff's Deputy Dylan Buessing. Dressed in black, former employees Larry David Bullard, 59, and Anthony Foster, 44, were found standing on top of the mining operation's gold room. They had a swamp vacuum, which could be used to suck up sand processed by the mining operation, according to the Sheriff's office. They also had several canvas bags ready to store the sand. During past burglaries, thieves have collected sand and used a filter to retrieve the gold.Bullard and Foster were booked into Merced County Jail on $20,000 bail. Bullard, who was arrested in Sept. 2000 for the same offense in the same location, has bailed out of jail. Two arrested for burglary attempt at gold mine...From reportshttp://www.mercedsunstar.com/275/v-print/story/606136.htmlTwo Chowchilla men were arrested early Sunday morning for trying to steal gold from a mining operation in Snelling.The men were found by Merced County Sheriff's Deputy Dylan Buessing. Dressed in black, former employees Larry David Bullard, 59, and Anthony Foster, 44, were found standing on top of the mining operation's gold room. They had a swamp vacuum, which could be used to suck up sand processed by the mining operation, according to the Sheriff's office. They also had several canvas bags ready to store the sand. During past burglaries, thieves have collected sand and used a filter to retrieve the gold.Bullard and Foster were booked into Merced County Jail on $20,000 bail. Bullard, who was arrested in Sept. 2000 for the same offense in the same location, has bailed out of jail. Our View: Vilsack and the ValleyNew ag secretary will have a major impact on region's No. 1 industry.http://www.mercedsunstar.com/181/v-print/story/607070.htmlThe nomination of Tom Vilsack to be President-elect Barack Obama's secretary of agriculture has drawn praise, for the most part, from farm interests and environmentalists alike. But there are some specific concerns for California and the Valley.Vilsack, the former two-term governor of Iowa, is well-versed in the highly subsidized commodity agriculture of the Midwest, but has little experience in the complex issues of California's agriculture, with its specialty crops and its controversial water problems.But Vilsack won't be able -- and shouldn't be permitted -- to overlook California, the largest agricultural producer in the nation at roughly $37 billion each yearThat bounty is threatened by a number of problems, from foreign competition and the strength of the dollar to environmental concerns and the overarching issue of water supplies. Vilsack will need to get up to speed on those matters quickly, or his tenure may turn out to be a disappointment for Californians from every side of the debate.Given Obama's expressed determination to reduce greenhouse gases in the fight against global climate change, Vilsack will have an important role in the administration. Agriculture is responsible for as much as one-third of the greenhouse gases produced in the United States by some estimates.Vilsack is a major booster of corn ethanol -- not surprising for a former governor of Iowa. But on that score he may tangle with Stephen Chu, Obama's designee for secretary of energy, who is a fierce critic of using corn to make fuel instead of food.That debate will be important for California, which produces some corn ethanol now but could become a major source of other bio-fuels in the future.In another area, Vilsack could be a very good choice for California and the Valley. He will be in charge of many of the nation's nutrition programs, including those that affect children most profoundly. On Wednesday, he said the Department of Agriculture "must place nutrition at the center of all food assistance programs administered by the department."That's good news in the Valley, where childhood obesity is rampant -- ironically, often among the poor -- because of ignorance of nutrition needs.But a focus on better nutrition is also an economic opportunity for Valley farmers. Better nutrition is often as simple as "eat more fruits and vegetables," and who knows more about fruits and vegetables than Valley growers? Thus a push for better nutrition could also fuel a move toward a more sustainable economic environment for the Valley's farmers.That's a very great deal to pile on the plate of an ag secretary who hasn't even been confirmed by the Senate yet. But the Valley has a great deal at stake with this appointment. Fresno BeeCasinos may take hit in recessionIndustry used to success finds players cutting back...Chris Collinshttp://www.fresnobee.com/local/story/1092440.htmlGaming industry experts used to think that gambling was just like smoking -- no matter how bad the economy got, people wouldn't quit.But now they're not so sure.Case in point: Donna Henderson. The Fresno woman and her husband, Chuck, used to go to Table Mountain Casino every other day. They were so busy playing bingo -- sometimes making a couple thousand dollars each week -- that they had no time for the penny machines. That has all changed.On a recent weekday, the Hendersons sat together at a slot machine stretching out their $20 limit for the day. They've reduced their casino trips to twice a month. Household bills seem to be increasing all the time, they said, and their Social Security income only goes so far."That's all we've got," Donna Henderson said.Across the country, the gaming industry has been dealt a heavy blow by the recession. Gambling revenues in Nevada, for example, have fallen 22% compared to last year.Indian casinos are not required to report their revenues, and financial information provided to the state is confidential.California casinos aren't seeing big declines, experts speculate, but they aren't seeing much growth either. While local casinos may be getting some customers who can't afford Las Vegas, they also are finding gamblers less willing to ante up."There's definitely a headwind," said Kyle Kirkland, who co-owns Club One Casino in downtown Fresno. "There's not as much growth as we hoped."Officials from the largest local casinos -- Chukchansi Gold Resort & Casino, Tachi Palace Hotel & Casino, and Table Mountain Casino -- did not return calls.Dennis Conrad, a Reno gaming analyst who is familiar with the California casino industry and who has a number of tribal casino clients, said casinos in the Central Valley are likely "experiencing anything from flat growth to single-digit declines.""They're all scrambling to figure out how to hold on to what they have, though maybe they are doing slightly better relative to other markets," said Conrad, who is president of Raving Consulting Company.Las Vegas and other destination spots -- including large Southern California tribal casinos -- have taken the brunt of the economic punch, experts say. About seven out of 10 industry experts and analysts surveyed recently by the American Gaming Association said that tribal casinos have been affected less by the downturn than commercial casinos.When gas prices skyrocketed and the housing crisis hit, consumers cut back on their travel budgets, leaving Sin City with empty hotel rooms and reduced crowds at restaurants and entertainment venues.Local casinos may have picked up the slack, experts said.But even so, the economy has made gamblers more cautious, said Ken Adams, a Las Vegas gaming analyst with CDC Consulting."People will say, 'Well, wait a minute -- Vegas is pretty expensive, so we won't go there. We'll go to Table Mountain instead, but not as often,' " Adams said.The tribal casino industry in California has ballooned since voters passed a proposition in 2000 that allows casinos to have slot machines and other popular games. In a region that covers California and northern Nevada, Indian casinos brought in nearly $7.8 billion in the 2006-07 fiscal year -- more than 2 1/2 times the revenue from six years ago.But some industry experts say that even if commercial and tribal casinos pull through the recession relatively unscathed, they will have learned a tough lesson."There was a real belief for a long time that the casino industry was resilient to downturns -- just like smoking, people would gamble no matter what happened," said Bill Eadington, an economics professor and the director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada in Reno. "But more than any time since I've been a professional economist, people have been really scared. On the consumer side, we're seeing that reaction."Bette Espinoza of Madera, for example, was at Table Mountain on a recent weekday for one of her monthly excursions to the casino. She said she used to go at least a few times a week, but can no longer afford to do so."Nobody has the money to come up here and throw it away," Espinoza said.When people do show up at the casinos, they tend to spend less money, Eadington said. Many people are taking advantage of slot machine technology that helps them keep track of the money they're gambling, he said.Higher gas prices this summer discouraged gamblers from driving to some local casinos, said Tom Stewart, general manager of Eagle Mountain Casino near Porterville. But relief at the pump has meant extra cash for gamblers."Now people have more disposable income, and that's really helped us," Stewart said.Susan Jensen, a spokeswoman for the California Nations Indian Gaming Association, said revenues may plateau or decrease slightly this year for tribal casinos in California, but she expects them to continue to rise in the long term."The locals are still going to the casinos. They're still gambling," Jensen said.She noted the opening of California's newest Indian gaming site. The $530 million Red Hawk Casino near Placerville and east of Sacramento opened Wednesday to a crowd of 10,000 people. Traffic was backed up for a mile."I heard it was standing-room only," Jensen said. Sacramento BeeWall Street Journal: CalPERS takes giant hit on real estate...The State Workerhttp://www.sacbee.com/static/weblogs/the_state_worker/2008/12/wall-street-journal-calpers-ta.htmlHere's a front-page Wall Street Journal piece that has created a bit of a stir.    Calpers has said in recent weeks that it expects to report      paper losses of 103 percent on its housing investments in    the fiscal year that  ended June 30. That's because Calpers     invested not only its own money, but billions of dollars of    borrowed money that must be repaid even if the investment     fails...     Calpers stresses that it is a long-term investor and can earn     back the declines in the future, just as it erased declines     suffered in the dot-com bust a few years ago.Click here to read the story by WSJ reporters Michael Corkery, Craig Karmin, Rhonda L. Rundle and Joann S. LublinCalifornia's giant pension fund takes giant hit on real estate...Michael Corkery, THE WALL STREET JOURNAL...Saint Louis Todayhttp://www.stltoday.com/stltoday/emaf.nsf/Popup?ReadForm&db=stltoday%5Cbusiness%5Cstories.nsf&docid=47C1993889194F69862575230006BF7CAt the height of the property bubble, California's giant pension fund, known as Calpers, made a fateful decision: It aggressively poured money into real estate. As a result, today it's one of the biggest owners of undeveloped residential land in America.Partly because of these investments, California Public Employees' Retirement System is struggling to avoid one of its worst annual declines since its 1932 inception. Cal­pers has lost almost a quarter of its assets since July 1.The problems come at a time of uncertainty for the nation's largest public pension fund.Calpers is now warning California's cities, towns and schools that they may have to cough up more money to cover the retirement and other benefits the fund provides for 1.6 million state workers.Calpers has said in recent weeks that it expects to report paper losses of 103 percent on its housing investments in the fiscal year that ended June 30. That's because Calpers invested not only its own money, but billions of dollars of borrowed money that must be repaid even if the investment fails.In the latest wrinkle: To generate sorely needed cash, a troubled Calpers venture known as LandSource recently started the process of selling land in the worst property market in a generation. Calpers potentially could lose nearly $1 billion on LandSource, a $2.5 billion deal completed early last year.With $239 billion in assets as of June, Calpers' portfolio was bigger than the government-run funds of Russia, South Korea, Dubai and Chile combined. In recent years, Calpers became much more aggressive than other pension funds in making nontraditional investments — real estate, foreign stocks, even forest land.Unless Calpers' returns bounce back by June, the fund expects that the rates it charges governments to participate in the pension could rise starting in 2010.Calpers points out that its commercial properties, including a chunk of Time Warner Center in New York, haven't been nearly as hard hit as residential investments, which are valued at about $6 billion. Together, residential and commercial holdings total about one-tenth of the fund'soverall $182.6 billion portfolio. Its real estate portfolio fell 14.4 percent for the 12 months ended in September.Calpers stresses that it is a long-term investor and can earn back the declines in the future, just as it erased declines suffered in the dot-com bust a few years ago."No one in the marketplace knew how swiftly the housing market would fall, not the Federal Reserve, not the Treasury," said Ted Eliopoulos, head of Calpers' real estate portfolio.The fund also has added "checks and balances" on property-investment decisions, Eliopoulos said.The details of Calpers' housing deals, and the identities of some of the house builders it invested with, are only starting to come to light. That's because investments often were made through ventures with names such as "Hearthstone Path of Growth Fund," and Calpers doesn't detail many of their holdings.Calpers says its investments were done with "customary oversight" and were "appropriate for the asset class and typical of the industry."In recent years Calpers invested in:— Three large parcels near Phoenix, one of the nation's hardest-hit property markets. Last month, Calpers in effect walked away from one of the three, after having invested $140 million.— A massive block of land with room for about 8,000 units near the small town of Mountain House, Calif., the nation's most "underwater" housing market by one measure. As of June 30, Calpers valued the investment at negative $305 million.— About 10,000 acres near Jacksonville, Fla. The plan was to sell timber from the property, as well as residential lots. But as real estate collapses, it could take five years before the venture can start selling lots.Just one particularly bad year for investments can have serious consequences for California governments in the retirement system. Calpers recently estimated that if its declines for the current fiscal year are greater than 20 percent, it would trigger an increase of 2 percent to 5 percent of an employer's payroll.Currently, the average employer-contribution rate for public agencies, including cities and counties, is 13 percent of payroll, Calpers said, which is already on the high side for state pension funds, according to industry analysts. A 5 percent increase in California's rate would be the largest increase to hit public employers since the dot-com bust.Rate increases aren't a certainty, Calpers says, as the fund still could earn back its declines.Real estate losses aren't the primary reason Calpers is taking a hit. Its stock portfolio is down 41 percent this fiscal year.But Calpers has targeted less money in bonds, and about double the allocation to private-equity investments and real estate deals, than the average public pension fund, according to Calpers documents and an industry survey.Calpers got more aggressive in real estate amid the tech-stock selloff of 2000-02. Its board decided to increase its investments in real estate and private equity, shifting some money out of safer but lower-yielding holdings such as bonds.Robert Carlson, a former Calpers board member who left the board earlier this year, said publicly at that time, "We believe taking no risk is the biggest risk you can take."Land purchases are among the riskiest real estate investments. Not only can property values swing wildly, but unlike, say, a stock, land can take months or years to sell. Amplifying risk, many of Calpers' land investments used borrowed money.Investing borrowed money acts as a lever: In a rising market, it lifts overall returns because you're profiting not only on your own capital, but the borrowed money, too. But in a falling market, that leverage amplifies losses.To help it identify promising real estate investments, Calpers turned to a small circle of partners it had previously done deals with since 1992, albeit on a much smaller scale."The early investments had worked very well," said Barry Gross, president of DevelopersResearch, an Irvine, Calif., advisory firm that had consulted on several earlier and smaller Calpers land investments. "Calpers said, if we can do it with 300 houses, let's do it with 3,000."Michael McCook, then head of Calpers' real estate investments, proposed boosting returns by investing more borrowed money. "I told them it would help in the good times, and it would hurt in the bad times," McCook recalled telling the board in 2002.Investing borrowed money is common in land-buying partnerships. McCook said he felt Calpers would be at a disadvantage when vying for a piece of these deals if it was unwilling to boost returns in a similar way.Calpers already had used borrowed money in commercial-property deals. Between 2001 and 2002, it raised the amount permitted to an average 50 percent from 25 percent.In residential-property deals, traditionally Calpers hadn't used much borrowed money. But in2005, the trustees sanctioned use of borrowed money in residential deals at an average rate of 60 percent.Because the average rate applies to Calpers' entire housing portfolio, some individual deals used as much as 80 percent borrowed money, McCook said. Calpers says other public pension funds have invested borrowed money at the same level.The increased use of borrowed money corresponded with the peaking property market. In 2004 and 2005, housing prices were jumping as much as 30 percent a year.Until last year, Calpers' strategy worked. Through its housing partners, the fund pursued big, complex deals with large builders. Returns on housing investments were an impressive 16 percent average annually from 2004 through 2006.In a typical deal, Calpers would provide the funding to its partners, who would team up with a builder to buy land. Most of the equity would come from Calpers, while the builder would put down 10 percent to 15 percent, in exchange for the right to eventually buy the land.Builders like to do this because it lets them essentially control land without having it weigh down their balance sheets. And Calpers hoped for big returns by selling that land to the builders in a booming market.As the property market soured, deals that once looked smart revealed a dark side, because Calpers agreed to terms that exposed it to more risk in bad times.For instance, Calpers guaranteed $1.7 billion in debt across several deals. Typically, house builders are the guarantors — that is, they're on the hook in the event of a default.By being guarantor, Calpers used its rock-solid reputation to obtain lower borrowing costs. But today, as projects struggle, the guarantees mean Calpers is pouring additional cash into projects from which it might otherwise walk away.Calpers is setting up a new computer database to more closely track "balance and diversification" in the real estate portfolio. It also is proposing to reduce the maximum amount of borrowed money that can be used in housing deals, and to cut back on loan guarantees.EPA: 7 Western states fall below new air standards...Associated Press Writer http://www.sacbee.com/827/v-print/story/1494290.htmlBOISE, Idaho -- Most states west of the Rocky Mountains contain areas that fail to meet new pollution standards for microscopic particles that can cause breathing problems for children and the elderly, federal officials said.The Environmental Protection Agency released its list Monday of counties, areas or tribal lands that are exceeding daily standards for fine particle pollution caused by emissions from vehicles, industry and wood stoves, among other sources.In the western United States, Utah, Montana, Arizona, Idaho, Oregon, Washington, California and Alaska had "nonattainment areas" exceeding the standards, which were toughened in 2006. Colorado, Wyoming, New Mexico and Nevada had no nonattainment areas. The nonattainment areas "need to build stronger partnerships and work harder to protect their people from adverse health effects of air pollution," said Elin Miller, the EPA's regional administrator in Seattle.The agency said parts or all of seven counties in northern Utah were not in compliance. Those areas are along the Wasatch Front, which has seen heavy residential and commercial development over the last decade.Utah Department of Environmental Quality spokeswoman Donna Kemp Spangler said the pollution was likely coming from a variety of sources, including cars and trucks."That's why it's no surprise you're seeing it in the urban areas along the Wasatch Front. It's the growing areas, and the more automobiles there are the more pollution there's going to be," she said.The EPA also put on notice all or part of 30 counties in California, one each in Montana, Washington and Arizona, and two apiece in Oregon and Alaska.They are among 211 counties in 25 states identified by the EPA as failing to meet air quality standards. The agency said more than 100 million people living in 46 metro areas are breathing air that has gotten too full of soot on some days.The pollutants in question are extremely small, measuring at one-thirtieth the diameter of a human hair. The particles can get deep into the lungs, even entering the bloodstream, and are blamed for respiratory problems, especially in children and elderly.Fine particle pollution - found in dust, dirt, soot and smoke - has a variety of sources. But the biggest contributors are emissions from vehicles, large livestock operations, power plants, industrial facilities and wood stoves and fireplaces.High concentrations can also be dictated by geography, such as areas where weather inversions trap dirty air in the bowls formed by surrounding mountains.EPA scientists used monitoring data collected in 2004, 2005 and 2006 to determine compliance. The listing means states now have three years to work with communities to develop plans for improving air quality in the noncompliant areas, or risk sanctions such as fines.Researchers say smoke from wood burning stoves used to heat homes was the primary source of problems in locations such as Juneau and Fairbanks, Alaska; Pinehurst, Idaho; and Libby, Mont., where efforts are under way to reduce particulate levels.In the last two years, government officials have been working on an initiative to replace older wood stoves in the Libby area with cleaner burning models. An estimated 1,000 wood stoves were replaced in the county under the program, which cost about $1.3 million."Potentially they could show us 2008 was a good year, and in this case we would think the wood stove change-out had something to do with that," said Callie Videtich, EPA spokeswoman in Denver.Some of the other areas identified are Nogales, Ariz.; Klamath and Lane counties in Oregon; and Wapato Hills/Puyallup River, Wash.In Utah, the list includes Salt Lake, Box Elder, Tooele, Weber, Davis, Utah and Cache counties, as well as the Logan area, which also includes part of Franklin County, Idaho. Capital PressPump station in race against timeCanal authority battles city, environmentalists to keep water flowing...Tim Heardenhttp://www.capitalpress.com/main.asp?SectionID=67&SubSectionID=616&ArticleID=47184&TM=42436.36A  local water agency in the northern Sacramento Valley is seemingly in a race against time.The Tehama Colusa Canal Authority plans a $165 million fish screen and pumping station to replace the Red Bluff Diversion Dam, which provides water for some 150,000 agricultural acres during the summer months but has been targeted by environmentalists.The project must still be funded by Congress and the earliest the plant could be completed is 2011 or 2012, canal authority general manager Jeff Sutton said. But the diversion dam's fate could be determined early next year as a federal judge considers measures to save endangered fish.The canal authority hopes to win a reprieve for the seasonal dam, at least until it can get the new pumping station in place."Certainly we're hoping that it will be realized that we're attempting to pursue this win-win solution, both for economic values as well as environmental values," Sutton said.One hitch in the water agency's plans could be a lawsuit filed this summer by the city of Red Bluff. The city wants compensation for the roughly $4 million a year it would lose by not having Lake Red Bluff, which is created by the lowered dam and provides recreation in the heart of town during the summer.The lawsuit could force the Tehama Colusa Canal Authority and the U.S. Bureau of Reclamation to redo environmental documents for the pumping project, which could delay its completion, Sutton said.Hanging in the balance is the fate of water deliveries to 17 different water districts in Tehama, Glenn, Colusa and Yolo counties, whose customers produce some $250 million in crops each year and contribute about $1 billion to the regional economy."It's scary," said Tehama Colusa Canal Authority board member Steve Dennis, who grows almonds, walnuts, wheat and rice in western Colusa County. "I don't know what we'd do. We wouldn't have enough water without the dam right now until the fish screen comes in ... It borders on desperate."Most of what we grow out there is orchards, which are perennial crops," he said. "We can't just sit around for a couple of years and wait."Built in the 1960s, the Red Bluff Diversion Dam has long been blamed for contributing to the declines in salmon and steelhead trout populations. In 2005, the Pacific Coast Federation of Fishermen's Associations, the Natural Resources Defense Council and other groups sued federal authorities over the Central Valley Project's water diversion system.U.S. District Judge Oliver Wanger ruled this summer that the Red Bluff dam and other diversions harm the state's salmon population, and he ordered the Bureau of Reclamation and the National Marine Fisheries Service to seek ways to protect the fish.A biological opinion is due out in March that will analyze the Central Valley Project's impact on the fish, which could trigger a ruling to raise the Red Bluff dam's gates permanently.The Bay Institute, a plaintiff in the suit, opposes any delays in removing the gates, executive director Tina Swanson said."We recognize the water users' concern that the dam provides them with a lot of their water," Swanson said. "However, there is an existing pumping plant there right now and they are able to divert water.... It is not the volume of water they want, but it is some water."But the 465 cubic feet per second generated by the research pumping plant next to the diversion dam is only a small fraction of the roughly 1,600 cfs diverted by the dam at peak irrigation, Sutton said.More than half the farmland served by the dam grows permanent crops, including about 60,000 acres of almonds, he said."The economic impacts would make Klamath look small in comparison," he said, referring to the controversy ignited by the 2001 cutoff of water to farmers in the Klamath Basin.As for Red Bluff's lawsuit, City Manager Martin Nichols said the city has no desire to delay the pumping plant."Yes I do recognize that our lawsuit is a potential threat to their getting funded," Nichols said. "All we're asking for is to be part of the solution here. The canal authority and the bureau are going to the government for money to mitigate the loss of the dam. We're looking to mitigate the economic loss of the dam."San Francisco ChronicleCourt reinstates clean air rule during EPA fix...Tuesday, December 23, 2008http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2008/12/23/national/w094656S21.DTL&type=printableA federal appeals court is reinstating one of President George W. Bush's clean air regulations while the Environmental Protection Agency makes court-mandated changes.In July, the U.S. Appeals Court for the District of Columbia Circuit threw out the Clean Air Interstate Rule. That regulation required 28 mostly Eastern states to reduce smog-forming and soot-producing emissions that can travel long distances in the wind.But on Tuesday a three-judge panel of the court decided to reinstate the rule while the EPA develops a new clean air program.Judge Judith W. Rogers said throwing the rule out completely "would sacrifice clear benefits to public health and the environment while EPA fixes the rule."Environmental groups sue over EPA mining rule...JESSE J. HOLLAND, Associated Press Writerhttp://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2008/12/22/national/w105236S92.DTL&type=printableEnvironmentalists sued the Bush administration on Monday, trying to stop the Environmental Protection Agency from changing a rule they say keeps mining waste from entering mountain streams."The notion that coal mining companies can dump their wastes in streams without degrading them is a fantasy that the Bush administration is now trying to write into law," said Judith Petersen of Kentucky Waterways Alliance, one of the groups that sued in U.S. District Court in Washington.At issue is mountaintop mining, in which forests are clear cut and holes are drilled to blast apart rock. Massive machines then scoop coal from the exposed seams. The rock and dirt left behind is dumped into adjacent valleys, changing the natural shape of the earth, lowering the height of the mountain and covering streams.Current policy says land within 100 feet of a stream cannot be disturbed by mining unless a company can prove it will not affect the water's quality and quantity. The new regulation would allow mining that would alter a stream's flow as long as any damage to the environment is repaired later.Opponents want a federal judge to overturn or delay the new regulation."This is among the eleventh hour land mines planted by the Bush administration that an EPA headed by Lisa Jackson stands to inherit," Earthjustice lawyer Jennifer Chavez said, referring to President-elect Barack Obama's pick to head the agency. "We are doing what we can to make it easier for the incoming administration to undo the damage wrought by the last one and restore our nation's commitment to protecting the waters and summits of the Appalachians."Mining industry groups, though, argue the rule change has been in the works for years, and would change very little over how mountaintop removal mining is done."There's been an enormous amount of overreaction to this," West Virginia Coal Association President Bill Raney said Monday. "They're trying to make it something that it truly is not."EPA spokesman Jonathan Shradar said the agency "approved the new rule because it strengthens the environmental review required for mining activities and reduces potential adverse effects to water quality and fish and wildlife resources."On the Net:EPA "stream buffer zone" regulation: www.epa.gov/EPA-IMPACT/2008/December/Day-12/i29150.htmEnvironmental groups lawsuit: www.earthjustice.org/library/legal_docs/sbz-rule-final-complaint-12-1 9.pdfVentura County StarCasitas water suit may set a precedent, lawyer saysGroups from across the country want a rehearing...Zeke Barlowhttp://www.venturacountystar.com/news/2008/dec/23/casitas-water-suit-may-set-a-precedent-lawyer/When the federal government recently asked for a rehearing in the argument it lost over whether Casitas Municipal Water District should be compensated for protecting the endangered steelhead, people started taking sides.Some say the case involving the small water district in the hills of Oak View could have a ripple effect across the West.Environmental groups, water rights lawyers and fisheries biologists around the country filed friend of the court briefs, asking the U.S. Court of Appeals for the Federal Circuit to rehear the case for fear it could weaken the Endangered Species Act and the government's ability to protect animals."A lot of people are very conscious about it because of the precedent it may set for California as well as the rest of the country," said John Echeverria, with the Georgetown Environmental Law & Policy Institute. He filed a brief along with the Natural Resources Defense Council. Other groups who wrote similar briefs include the Defenders of Wildlife, Environmental Defense Center, California Trout, and the Sierra Club.The groups that have backed Casitas included water districts all around the state, the California Building Industry Association and property rights groups. Casitas claims because it is essentially forced to send water down a fish ladder for the federally endangered trout, it should be reimbursed for it. Opponents argued this has never been an issue with other endangered fish and they fear it could set precedent in dealing with other water rights issues.The water district that serves much of western Ventura County won the latest battle in September, when the U.S. Court of Appeals for the Federal Circuit decided 2 to 1 that the water was taken from the district, not merely regulated as the U.S. attorney argued. If a rehearing is not granted, the only avenue left for the plaintiffs is the Supreme Court, Echeverria said.Independent of this argument, Casitas still has to prove that it, not the federal government, owns the water it has to send down the fish ladder. Roger Marzulla, who is representing Casitas and deals with property rights cases, said he thinks the details of the case are limited to Casitas."It certainly doesn't have the wide-reaching implications the other side is saying," said the Washington, D.C.-based lawyer. But a brief filed in the court last week, signed by more than 40 law professors, said the recent decision is an upheaval of established law.Al Sanders, conservation chairman of Los Padres chapter of the Sierra Club, said his group fears what can happen to imperiled fish populations up and down the coast if Casitas wins. "Attempts to bring the fish species back everywhere could take a dive because there is no money earmarked to deal with this," he said. Steve Wickstrum, general manager at Casitas, said he wasn't surprised that so much has been made about the case."When you go in to protect an endangered species, who is responsible, the local guy or the nation as a whole?"New York TimesHome Sales in November Fell at Faster Pace Than Expected...Jack Healy http://www.nytimes.com/2008/12/24/business/economy/24housing.html?_r=1&hp=&pagewanted=printHome sales declined dramatically last month and housing prices posted their sharpest decline in four decades as a rapidly slowing economy discouraged many potential buyers from tip-toeing into the market.Sales of existing homes declined 8.6 percent last month, to a seasonally adjusted rate of 4.49 million, according to the National Association of Realtors, a trade association. The median price of a home fell 13 percent in November, to $181,300 from $208,000 a year ago. That was the lowest price since February 2004.“They’re about as god-awful as they can get,” said Robert Barbera, chief economist at ITG. “This is pretty breathtaking stuff.”The troubles plaguing the housing market, which is at the heart of America’s financial crisis, are only multiplying as the broader economy deteriorates. Even though mortgage rates dropped after the Federal Reserve slashed interest rates to record lows near zero percent, economists said that housing would continue to lag as unemployment increases and the spiral of slumping consumer spending and waning industrial growth continues. The economy was shrinking over the summer and corporate profits were falling even before the financial crisis struck with full force. On Tuesday, the Commerce Department reported that the gross domestic product, the broadest measure of the economy, declined at an annual rate of 0.5 percent in the third quarter as corporate profit fell 1.2 percent.Analysts are forecasting that those declines will be followed by much larger decreases this quarter as the longest recession in a quarter century gains intensity.Stock markets lingered in negative territory as investors took in the economic news. The Dow Jones industrial average sank about 60 points to 8,461 while the wider Standard & Poor’s 500-stock index was down 0.6 percent at 2 p.m. Tuesday. Shares of major homebuilders such as Toll Brothers and Pulte Homes were trading lower. Sales of single-family homes dropped 8 percent from October to November while the sales of condominiums and co-ops fell an even sharper 13 percent, the Realtors association reported.The pool of unsold homes grew slightly to 4.2 million last month. At the current sales rate, it would take 11.2 months to burn off the excess inventory, which is up from a 10.3-month supply in October.The Commerce Department also reported that new home sales dropped to a seasonally adjusted annual rate of 407,000 in November, from a downwardly revised rate of 419,000 in October. The median price of a new home sold in November was $220,400, down 11.5 percent from the period a year ago. It was the biggest year-over-year price decline since a 12.7 percent drop in March. Investors on Wall Street seemed to take the economic news in stride. Housing values have plummeted since the peak of the market in July 2006, when the median home price was $230,200. But the housing bubble burst, sales declined, credit dried up and a flood of foreclosed homes hit the market, a combination of events that pulled median prices down 21 percent to their November levels.Still, some economists said that home prices will fall even farther before they dip low enough to entice potential home buyers. Joshua Shapiro, chief United States economist at MFR, said that some parts of the country may only be halfway through such a retrenchment.“You need to have a correction, you need to have an adjustment,” Mr. Shapiro said. “The faster it happens, the better.”Lawrence Yun, chief economist of the National Association of Realtors, said that 45 percent of all home sales in November were so-called “distressed sales,” meaning that the sellers faced foreclosure, or they were forced to sell their home for less than the value of the mortgage. That was slightly higher than the previous month. “It’s probably the largest price drop since the Great Depression,” Mr. Yun said. “There needs to be some measure to counter this pessimism. Without housing market stabilization, it’ll be very difficult for the economy to recover.”That trend is especially pronounced in regions of the country hit hardest by housing’s boom and bust. In parts of Southern California, more than half of all houses sold in November had gone through foreclosure at some point in the last 12 months, according to MDA DataQuick, a real-estate research firm.“Outside of distressed properties, the market is nonexistent almost,” Frederick Cannon, an analyst at Keefe, Bruyette & Woods, said of the California market. “You don’t want to sell into it. Most people are saying, ‘I’ll just stay in this house.’ ”In California’s Riverside County, real-estate agent Gary Crutchley said that he had sold six homes in the last four months. Three were foreclosure sales, two were “short sales” in which homeowners sold to avoid a foreclosure, and one was a traditional sale — a couple who had saved their money, and were now looking to buy into a distressed market.“They’re few and far between,” Mr. Crutchley said.CNN MoneyWhen mortgage rescues go badMore than half of adjusted loans go into default again. The problem: Many workouts don't actually lower payments…Les Christiehttp://money.cnn.com/2008/12/23/real_estate/new_modifications_same_problems/index.htm?postversion=2008122314NEW YORK (CNNMoney.com) -- That lenders are ramping up their attempts to help troubled home borrowers is the good news. Now for the bad: Most of the mortgage fixes being deployed are destined to fail.Hope Now, the coalition put together to fight foreclosures, boasts that it has helped 3 million families stay in their homes since the housing crisis began in July 2007. But a recent report issued by the U.S. Comptroller of the Currency (OCC) found that 53% of borrowers who had their mortgages modified in the first half of 2008 were already at least two months delinquent again. The report covered 60% of the outstanding primary mortgages. Meanwhile, foreclosures remain on the rise: More than a million homes have been repossessed since the start of the meltdown.Michael Van Zalingen has witnessed the problem first hand as director of home ownership services for Neighborhood Housing Services of Chicago, a non-profit group that provides foreclosure-prevention counseling. Lenders and servicers take two approaches to working out mortgage problems: repayment plans and mortgage modifications. Repayment plans allow borrowers some time to make up missed payments. Modifications actually rewrite the terms of loans by freezing or lowering interest rates, extending the life of the loan, or reducing the amount owed. Mortgage modifications are meant to be more effective. The problem, Van Zalingen said, is that they too often fail to reduce a borrower's monthly house payment. The lenders often don't change the interest rates but merely freeze them at a high, unaffordable level, and then add missed payments into the balance, which increases it, according to Van Zalingen.He said that one-third of his 121 clients granted modifications between January 2007 and June 2008 wound up with housing payments equal to a whopping 50% or more of their gross incomes. "The modifications did not put any breathing room into their budgets at all," he said.Before the housing bubble began, underwriters generally wouldn't approve mortgages that required monthly payments of more than 28% of a borrower's gross income.Modifications that include interest rate reductions that result in lower payments perform much better. A recent Credit Suisse study reported redefault rates of only 15% for this kind of modification.Chris and Cherita Barnes: Help...but not reallyChris and Cherita Barnes got a mortgage modification from their servicer, Ocwen Financial Corp., in March 2008. But they're already behind again.The loan workout froze the 8.75% interest rate on their adjustable rate loan, but added their missed payments, interest and late fees back into the mortgage balance, raising it to $354,000 from $329,000. The Barnes' new monthly bill came to $3,167, up from $2,890. That was better than it would have been had their interest rate continued to reset higher but it still pushed their mortgage payments, including taxes and insurance, to about 53% of their income. The couple, who both work and have three kids, are now trying to figure out what to do next.The Barnes' predicament is not unusual, according to James Jones, a foreclosure-prevention counselor with the East Side Organizing Project in Cleveland. "I see quite a few of these [unmanageable modifications]," said Jones. "When we get offered them by lenders, we challenge them."But many borrowers are terrified of losing their homes and, in that vulnerable state, will accept whatever lenders offer them -- especially if they don't have an experienced advocate helping them.Van Zalingen said his counselors try to negotiate better workouts, but the modification offers are often presented on a take-it-or-leave-it basis, and many desperate homeowners take them.Geoffrey Bagley: Unrealistic expectationsGeoffrey Bagley is another borrower who received an unsustainable mortgage modification. After the monthly payment on his adjustable rate mortgage jumped to $2,400 from $1,300, he got a workout with the help of the National Community Reinvestment Coalition, a community advocacy group that offers mortgage-prevention counseling. That workout may have pushed his payment down to $2,000, but it still represented more than 50% of the gross income he and his wife earn. "That's because the lender based the modification on the Bagley's income with overtime," said Jesse Van Tol, a spokesman for the coalition. "But in a recession, that overtime often disappears."Lately, the couple has lost hours at work and they started missing payments. They're trying to apply for another, more affordable modification, but it looks like they'll probably lose their Maryland home.Modifications that don't involve some kind of principal reduction or somehow lower payments substantially "just don't work very well," said Mark Zandi, chief economist for Moody's Economy.com. But, he added, many lenders have recently gotten much more aggressive when it comes to loan modifications. The attitude among lenders seems to be evolving. In just the past couple of months, JPMorgan Chase (JPM, Fortune 500), Bank of America (BAC, Fortune 500) and Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) announced more comprehensive foreclosure-prevention programs.According to Paul Koches, an executive vice president at Ocwen, it makes no sense to modify a loan if it results in an unaffordable payment. The mortgage will simply default again, resulting in even wider losses. Ocwen is now considering reworking that Barnes' loan."I got a call from Ocwen out of the blue," said Chris Barnes. "They now want to work with me to resolve my situation."