Tiny Maywood, Calif., laid off every single one of its city employees on Wednesday.
But that doesn’t mean the city is closing up shop. City Hall will still be open, as will Maywood’s park and recreation center. Police will continue to patrol the streets.
They just won’t be staffed by Maywood employees. The city can’t have any staff because it can’t get liability or worker’s compensation insurance for them. Maywood’s carrier, the California Joint Powers Insurance Authority, dropped it earlier this month in part because of several police-related claims.
Instead of declaring bankruptcy, Maywood officials decided to outsource all city functions. The Los Angeles County Sheriff’s Department will patrol the streets, while the neighboring city of Bell will cover other city functions, such as staffing City Hall.
Maywood already relies on contract workers and outsources many city services. The director of parks and recreation, for instance, is a contractor, and the city’s lights, landscaping and street sweeping are handled by private companies. Los Angeles County maintains the library and fire department.
Some of Maywood’s 96 employees — which include 41 police officers — will also continue as contract workers. Elected officials, such as the city council and the city clerk, will remain on the job in the 1.5-square-mile municipality, which has about 45,000 residents.
"Odds are residents will see the same faces as in years past, just under a different administrative process," said Magdalena Prado, the city’s community relations director, who is a contract worker and is keeping her post.
Maywood is billing itself as the first American city to outsource all of its city services. In an odd twist, officials say it can provide even better services because the shift will help it save money and close a $450,000 shortfall in its $10 million general fund budget.
For instance, the contract with the sheriff’s department costs about half of the more than $7 million spent annually to maintain the Maywood police department, Prado said check cash advance. And patrols will be increased.
"Our community will continue to receive quality services," Mayor Ana Rosa Riso said in a statement. "Maywood’s streets will continue to be swept, our summer park programs will continue to operate and our waste will be collected and hauled as scheduled."
Stressed cities
A growing number of cities are looking to contract out or share services regionally as the economic downturn takes its toll on municipal budgets.
"Everything is on the table," said Chris Hoene, research director at the National League of Cities. "The fiscal stress cities are feeling mean they are looking for alternative options to deliver services that cost less money."
Some 7 in 10 city officials said they are cutting personnel to balances their budgets, while another 68% are holding off on capital projects, according to a survey the league did in May. More than half of respondents say they will make to further slash city services next year if taxes or fees are not raised.
Not everyone is distressed by Maywood’s unusual plan for providing city services. While Jesus Padilla feels sorry for the workers being affected, he thinks things might improve. He’s made lots of calls to the county sheriff’s department when he worked as a security guard and said officers always responded promptly.
"The council made the best decision it could," said Padilla, a local activist who has lived in Maywood for more than 30 years. "It’s going to be good for the city and the citizens."
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A McLean tech company recently opened a Columbia office — and it needs bodies to fill desks.
Internet telephone company iCore Networks took space last month at 5950 Symphony Woods Road in Columbia and has plans to employ 30 at the office by the end of 2010.
To date, around half of the 30 positions have been filed, meaning they’re still on the hunt for 15. CEO Stephen G. Canton said the Columbia office is searching for network engineers, salespeople and project engineers.
And in the middle half of 2011, Canton expects to hire another 20 employees in Columbia with a long-term goal of expanding that office to 100 workers. The jobs range in pay from $25,000 to $80,000, not including commission, Canton added.
McClean-based iCore was attracted to Columbia because of its proximity to both D.C. and Baltimore, Canton said.
The 9-year-old company has an annual revenue of $25 million, Canton said.
Gas prices in Denver slipped a bit over the last week, but remain well over mid-February levels, according to the American Automobile Association’s Daily Fuel Gauge Report.
Monday’s average price for regular-grade gasoline in Denver is $2.694, down 1.1 cents from the price a week ago but up 1.3 cents from a month ago, AAA says.
Regular gas in Denver cost $2.46 in mid-February, when prices began a slow rise.
As of Monday, mid-grade gas in Denver averages $2.882 a gallon, down 1.1 cents from a week ago, and premium gas is $3.011, down 1.2 cents in a week, while diesel is $3.017, down 0.2 cents.
The highest price ever recorded for regular gas in Denver was $4.006 a gallon on July 17, 2008. A year ago Monday, regular cost $2.211 a gallon.
Statewide Monday in Colorado, the average price of regular gas is $2.742, AAA says, while mid-grade is $2.933, premium is $3.064 and diesel $3.058.
Nationwide, regular gas costs an average of $2.867 Monday, down 4.1 cents from a week ago but up 0.3 cents from a month ago.
Colorado is again among the 10 states with the cheapest gas, AAA says. Pump prices are lowest this week in Colorado, Oklahoma, Missouri, Arkansas, Louisiana, Alabama, Mississippi, Tennessee, Ohio and South Carolina.
Gas is most expensive in California, Washington state, Alaska, Hawaii, Idaho, Montana, Utah, Illinois, New York and Connecticut.
The Fuel Gauge Report is compiled for the AAA by the Oil Price Information Service with the help of Wright Express.
Treasurys came off earlier lows and were mostly flat Tuesday afternoon as optimistic investors prepared for monthly jobs data that is expected to show robust growth in the labor market.
What prices are doing: The benchmark 10-year note edged up slightly to 98-1/32, driving the yield down to 3.86% from 3.87% late Monday. Bond prices and yields move in opposite directions.
The 30-year bond rose 25/32 to 98 with a yield of 4.75%. The 5-year note edged up to 99-6/32 with a yield of 2.60%. The 2-year note fell to 99-9/32 with a yield of 1.07%.
What’s moving the market: Treasury prices were lower earlier on hopes of a positive jobs report.
The Labor Department will release the March jobs data Friday. Economists expect employers added 190,000 jobs to payrolls during the month and that the unemployment rate will hold steady at 9.7%.
Treasurys, which are perceived to be safe haven investment, tend to fall on strong economic data.
Meanwhile, the Conference Board reported that the consumer confidence index rebounded in March, after falling sharply during the previous month, which also pressured Treasurys.
What analysts are saying: "Yields are moving higher in anticipation of good employment data," said Peter Cardillo, chief market strategist at Avalon Partners. "If we see job growth above 100,000, and a downtick in total unemployment, that will put pressure on Treasurys and yields will respond to the upside."
He added that the 10-year yield could push beyond 4%, a key psychological level, on Friday’s data.
"Consumer confidence also took a big leap today, and that number is negative for the bond market," Cardillo said.
Greece’s debt rating may be cut within a month as it struggles to pare the European Union’s largest budget deficit, driving up borrowing costs and renewing pressure on the euro.
Standard & Poor’s said late yesterday it may lower its BBB+ rating by the end of March and Moody’s Investors Service said today it may reduce its A2 grade in a few months. The warnings further complicate the government’s effort to persuade investors that it can slash its fiscal shortfall from last year’s 12.7 percent of gross domestic product.
The euro slumped to a one-year low against the yen, most stocks dropped and the premium on Greek 10-year bonds over German debt widened to the most since Feb. 8 on concern that the country may need EU assistance to avoid missing debt payments. Unions yesterday staged a strike to protest Prime Minister George Papandreou’s drive to slash spending.
“It’s getting more difficult than anticipated for the Greek government to implement the spending cuts it promised,” said Susumu Kato, chief economist in Tokyo at Credit Agricole Securities Asia. Further downgrades “may spread sovereign concerns through other European nations,” he said.
The country’s willingness to keep funding itself in the commercial bond market is key to S&P’s assessment, the company said. The rating could be pressured by lower profitability at the country’s banks or a decline in public support for the budget plan, it said. EU assistance could help if it was likely to lead to a “sustained reduction” in borrowing costs.
Two Grades
“We believe that a further downgrade of Greece of one to two notches is possible within a month,” S&P analysts led by Marko Mrsnik in London said in a statement.
Pierre Cailleteau, managing director of sovereign risk at Moody’s, said in an interview in Tokyo today it may act “in a few months” if policy makers appear to be deviating from their deficit-reduction plan. At the same time, Moody’s may stabilize its rating if Greece follows through with its austerity measures, he said.
“We have to let the government implement its plans,” Cailleteau said. “You can’t expect a government to be able to turn around public finances in a few days.”
S&P cut Greece’s rating in December from A- and signaled at the time it may reduce it again from BBB+. Moody’s lowered its rating by one step the same month.
ECB Rules
If Moody’s cuts its credit rating to the same level as the other major ratings companies, it could exacerbate Greece’s financial distress at the end of this year when the European Central Bank is due to revert to old collateral rules that were loosened during the global recession. Greek government bonds would then no longer be eligible as collateral at the ECB, making it even more difficult for the nation to borrow.
The euro dropped to 120.51 yen as of 11:20 a.m. in London from 122 cash advance america.03 yen in New York yesterday. It earlier touched 120.24 yen, the lowest since Feb. 24, 2009. The single currency has fallen about 6 percent against the dollar this year on concern Greece’s fiscal woes may extend to Spain, Portugal and other European nations seeking to pare budget gaps.
Credit-default swaps protecting the debt of Greece rose 10 basis points to 392, according to CMA DataVision. The spread between 10-year Greek bonds and similar-maturity German debt widened by 13 basis points, or 0.13 percentage point, to 352 basis points.
Tear Gas
Papandreou’s government is running into opposition at home to its strategy. Air-traffic controllers, customs and tax officials, train drivers, doctors at state-run hospitals and school teachers walked off the job yesterday to protest spending cuts. Police fired tear-gas and clashed with demonstrators in central Athens after a march organized by labor unions.
Greek bonds have slumped, driving up borrowing costs, as investors fear the government will fail to meet its pledge to cut its budget gap to 8.7 percent of GDP this year. It aims to cut the deficit below the EU’s 3 percent limit in 2012.
The premium investors demand to hold Greece’s 10-year securities instead of Germany’s rose to the most in more than two weeks.
The government needs to sell 53 billion euros ($72 billion) of debt this year, the equivalent of 20 percent of GDP. The yield on the country’s two-year note yesterday rose to the most since Feb. 9.
EU governments are looking for guarantees that Papandreou will slash spending before they spell out what help they may offer. EU and ECB officials visited Athens this week to verify that budget cuts are being implemented.
Additional Measures
Under proposals adopted this month by euro-area finance ministers, the Greek government will have to take additional measures to cut its budget gap if it fails to satisfy the European Commission next month that its current strategy is on track. These may include higher value-added tax, a levy on luxury goods, higher energy taxes and spending cuts, they said.
“There will be some conditions attached” to European assistance for Greece, Cailleteau said. “I don’t see the evidence that would justify these kinds of assertions that Europe will not help Greece.”
German, French and Greek voters are “in denial” about Greece’s ability to get its deficit under control without external aid, Barry Eichengreen, an economics professor at the University of California at Berkeley and author of a 2006 history of the European economy, said in a Bloomberg Television interview yesterday.
Finance Minister George Papaconstantinou said Feb. 23 that the government will do “everything it needs to meet” its targets and that any decisions on possible new measures will be announced after talks with European governments.
Virginia Power is committing $4 billion over the next three years to improve and expand its electric service.
Dominion Virginia Power CEO Paul Koonce, in a letter to be included with bills sent to Virginia customers in January, outlines plans for improving service reliability and adding more renewable sources of energy.
Koonce was named chief executive in June.
"Keeping your lights on safely, efficiently and at a reasonable cost are my highest priorities,"Koonce said in the letter.
To keep up with growing demand, the company will add new, gas-fired generating units and a hybrid coal station. It is also making environmental improvements to older stations to reduce emissions.
Dominion says it is committed to meeting Virginia's goal of achieving 15 percent of its electricity sales from renewable sources by 20205, and to reducing the growth in customer demand for electricity by 10 percent over the next 12 years high quality business cards.
"Meeting these goals will be a challenge," Koonce says. "Despite the recession, customers are using more power, lending credence to the forecast that demand will rebound as the economy recovers."
Dominion Virginia Power plans to offer new energy efficiency programs this year for both residential and business customers, and digital meters are now being installed in some of its service areas.
Last summer, Dominion (NYSE: D) applied for $200 million in federal stimulus money to speed up the installation of 2.4 million smart meters.
U.K. consumer confidence fell for a second month in December, complicating Prime Minister Gordon Brown’s efforts to revive his popularity before next year’s election, market researcher GfK NOP said.
An index of consumer sentiment dropped to minus 19 from minus 17 the previous month, GfK NOP said in an e-mailed statement today in London. A gauge of expectations for the economy over the next year fell nine points to minus six.
“This must be concerning for the government,” Nick Moon, an analyst at GfK, said in the statement. “What will be particularly worrying for Gordon Brown is that the index for the state of the economy, which had crept into positive territory, has fallen by a substantial nine points.”
Brown, who must call an election by June, is struggling to claw back the support lost to the opposition Conservatives during the financial crisis. Bank of England policy maker Kate Barker said Dec. 15 an economic recovery will be “bumpy,” and data released yesterday showed British retail sales unexpectedly fell in November for the first time in six months.
Retail sales growth will “fizzle out” next month, and trading conditions across the industry are likely to “remain challenging” in 2010, the Confederation of British Industry said yesterday instant personal loans guaranteed.
A gauge of the economy’s performance over the past year slipped two points to minus 61. A measure of consumers’ willingness to buy big items such as refrigerators and furniture rose three points to minus 16, GfK said.
Housing Recovery?
British consumers are still adapting to a recession that sparked the country’s worst housing slump since the early 1990s and has led to 600,000 job losses, pushing the unemployment rate to 7.8 percent. Barker said she would be “surprised” if the recent pick up in property prices were sustained next year as unemployment threatens household finances.
The market researcher surveyed 2,004 people between Dec. 4 and Dec. 12 on behalf of the European Commission. The margin of error is estimated at two percentage points, the report said.
There’s something different about the Masters’ Select Funds. Though it’s not unusual for a team of professionals to manage mutual funds, these offerings put a fresh spin on it.
Rather than bulk up with an in-house team of analysts and portfolio managers to establish the Masters’ Select Funds, Litman/Gregory Fund Advisors chose to play overseer. It hired highly regarded money managers as subadvisers — each responsible for a portion of one of its funds.
"Each manager has a very concentrated mandate to own only eight to 15 of their best ideas," says Chief Investment Officer Jeremy DeGroot. The funds are diversified from the different styles in investment philosophies of each manager, so there’s a broader mix of industries and stocks.
The largest fund is top-rated Master’s Select International Fund, with $1.4 billion in assets and a return of just more than 39 percent this year. Its five-year annualized return of 7.6 percent still places it among the top in Morningstar’s foreign large blend fund category.
DeGroot recently offered insight on his market perspective:
What’s your take on the market rally we’ve seen this year, and what do you expect lies ahead?
I want to be clear that Litman/Gregory’s view doesn’t impact how the Masters Funds are invested since those funds are built stock by stock by the managers. The reason I’m saying that is because Litman/Gregory is not that optimistic about stock returns looking out three to five years from now.
We think the consumers’ need to increase savings and rebuild their balance sheets is going to lead to slower growth in consumption.
That among other factors will lead to reduced earnings growth for companies. So in terms of outlook, we’re kind of in the subpar economic recovery group. We’re not in the V-shaped economic recovery group.
What’s guiding that outlook?
The market is expecting a stronger earnings recovery than we think is likely.
We think the baseline case scenario is for subpar recovery coming out of this recession. That’s because of the overhang of debt in our economy — because of all the government spending, the huge deficit that’s likely to lead to higher interest rates down the road, probably higher taxes on individuals. Those are not going to be positive for economic growth.
After taking a hit, don’t consumers usually return to being fat and happy — shaking off what ails them?
This time is different from most typical economic cycles in that this recession is more of a balance sheet recession. It wasn’t caused by the Federal Reserve worrying about inflation and an overheating economy and raising rates — leading to a contraction in consumer credit and a reduction in spending and business inventories getting cut. That did happen, but that’s not really what triggered the recession. We’re building debt upon debt, and we’re overspending our income for a number of decades.
Historically there have been some studies that have looked at the after-effects of balance sheet recessions, and they take much longer for economies to rebound. Unemployment usually stays significantly higher than it does in a normal recession. You know the Fed can’t lower rates any more. They’re doing other things to increase liquidity. We’re always hesitant, as everyone in the investment business is, to say it’s different this time. But it’s different from the typical cycle in our view.
Are there any factors that would trigger you to adopt the more positive scenario?
We think there has to be a significant reduction in household debt levels. We think it’s going to happen, hopefully fairly gradually, but when that happens, that is a headwind to growth. But we also think there are some worst-case scenarios for subpar growth where there could be a significant decline in the dollar. We expect a modest sustained gradual decline because it’s in no one’s interest to have the dollar crash.
With all the turmoil in the market over the last few years, has your firm’s team approach been tested?
We talk to managers about their mistakes a lot. And we think you really learn about the person, the team and their mind-set. If they’re willing to admit their mistakes and learn from them or if their ego is too big to really even acknowledge it.
The bottom line is that we removed one manager in the fall of last year, not based on short-term performance. It had been a process of reassessing over a couple of years, but with the other mangers we reconfirmed our confidence in their ability to perform well.
Federal Reserve Chairman Ben S. Bernanke said a “strong case” can be made for keeping the central bank involved in bank supervision, and subjecting interest rate policy to congressional audits may undermine confidence in monetary policy. “There is a strong case for a continued role for the Federal Reserve in bank supervision,” the Fed Chairman said in a commentary released today on the Web site of the Washington Post. “Because of our role in making monetary policy, the Fed brings unparalleled economic and financial expertise to its oversight of banks.”
Bernanke has presided over the most expansive use of Fed powers since the Great Depression. While the 55-year-old Fed chairman has said he averted a financial meltdown, lawmakers have voiced concern about potential taxpayer losses and proposed the most sweeping dismantlement of Fed authority since the creation of the institution in 1913.
The Fed chairman said legislation under consideration in Congress would impair the ability of the central bank to fulfill its basic functions.
“A number of the legislative proposals being circulated would significantly reduce the capacity of the Federal Reserve to perform its core functions,” he said. “Now more than ever, America needs a strong, nonpolitical and independent central bank with the tools to promote financial stability and to help steer our economy to recovery without inflation.”
Lax Supervision
Senate Banking Committee Christopher Dodd, a Democrat from Connecticut, has criticized the central bank for lax supervision and introduced legislation this month that would strip bank oversight from the Fed and create a single bank regulator. Dodd would also limit the central bank’s ability to loan to individual companies.
“Congress has a lot of public support for an attack on the Fed,” Allan Meltzer, a Fed historian and professor at Carnegie Mellon University in Pittsburgh, said in an interview Nov. 23. “They bailed out everybody in sight.”
The Standard & Poor’s 500 Index slid 1.7 percent to 1,091.49 in New York while two-year Treasury yields fell to the lowest level since December.
Dodd and Representative Barney Frank, chairman of the House Financial Services Committee, want to take away the Fed’s rule- writing power on consumer financial products and give it to a new Consumer Financial Protection Agency.
“The Federal Reserve, like other regulators around the world, did not do all that it could have to constrain excessive risk-taking in the financial sector in the period leading up to the crisis,” Bernanke said. The Fed has reviewed its performance and “moved aggressively to fix the problems,” he added easy payday loans.
Trigger Losses
As the subprime mortgage crisis began to trigger losses in bank portfolios, Bernanke used emergency authority last year to purchase securities from Bear Stearns Cos. and facilitate its merger with JPMorgan Chase & Co.
Bernanke also pushed the Fed’s backstop lending beyond banks, setting up programs to support the commercial paper and asset-backed securities markets. The Fed Board approved the bank holding company applications of Goldman Sachs Group Inc. and Morgan Stanley, giving them access to the Fed’s loan window.
Under Bernanke, the Fed has more than doubled its assets to $2.21 trillion and become the lender of last resort to government bond dealers, banks, Wall Street firms and U.S. corporations. The central bank has also propped up markets for mortgage-backed and asset-backed securities that support credit to consumers, small businesses and commercial real estate.
Reform Bill
A financial regulatory reform bill proposed by Frank, a Democrat from Massachusetts, would limit Fed emergency lending to broadly available credit programs. The Frank bill preserves the Obama administration’s proposal to make the Fed the lead regulator of risk across the financial system.
The central bank’s independence is also under fire from both chambers of Congress. Frank’s committee advanced a proposal this month to remove a three-decade ban on congressional audits of Fed interest-rate decisions. The proposal was offered by Representative Ron Paul, a Republican from Texas, and based on a bill with more than 300 co-sponsors.
Bernanke said studies show that central banks independent of political influence tend to keep inflation and interest rates lower than their less independent counterparts.
“The general repeal of that exemption would serve only to increase the perceived influence of Congress on monetary policy decisions, which would undermine the confidence the public and the markets have in the Fed to act in the long-term economic interest of the nation,” Bernanke said.
Under the proposal by Dodd, commercial banks would lose their power to appoint directors of the 12 regional Fed banks. Instead, directors would be chosen by the Fed’s Senate-confirmed governors, and each board chairman would be appointed by the president of the United States and subject to Senate approval.
The proposal would create political oversight of the Fed bank presidents, who are among the most vocal proponents on the Federal Open Market Committee for keeping inflation low.
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