Finance Blog number 1

While the national economic picture is starting to brighten, the states are still suffering their worst budget crises in decades, a new report found.

States that have already slashed services and raised taxes to close a collective $54 billion budget gap now face another $51 billion deficit this year and next, according to preliminary results from the Fiscal Survey of States released Thursday.

"These are the worst numbers we’ve ever seen in the decades of putting together this report," said Scott Pattison, executive director of the National Association of State Budget Officers. "States have been forced to lay off and furlough employees, raise taxes, drain rainy day funds and sharply cut state spending in ways that impact every part of state government."

The full report, which will be released in December, is jointly compiled by the budget officers’ group and the National Governors Association. Fiscal year 2010 started on July 1 in 46 states.

Some $135 billion in federal stimulus funding helped states avoid even more draconian cuts, particularly to health services and education. But it was not enough to put the states back on solid footing.

States typically continue to suffer for two years after a national recession is declared over. Many economists predict that the current downturn ended last quarter, when the gross domestic product grew at a 3.5% annual rate.

Back-to-back expenditure reductions

Governors and lawmakers are expected to reduce spending by at least 4% this fiscal year, on top of a 4.8% pullback last year, the study found. This is the first time that expenditures have declined in back-to-back years.

Based on preliminary projections, half the states plan to lay off workers in the current fiscal year, Pattison said in a conference call with reporters. "State governments consider layoffs or furloughs a last resort," he said.

The national recession and soaring unemployment rate, which topped 10% last month for the first time in 26 years, has wreaked havoc on state tax revenues. Some 42 states cut their fiscal 2009 budgets, and 33 states slashed spending for 2010.

Also, states hiked taxes and fees by a total of $23.8 billion, along with $7.7 billion in other revenue increases, for fiscal 2010.

The survey came a day after two other reports also depicted states’ grim financial situations. One, from the Center on Budget and Policy Priorities, said states need as much as $50 billion in additional stimulus funds to keep them from making severe cuts that could threaten the national economic recession and cost 900,000 people their jobs.

Meanwhile, the Pew Center on the States released the names of 10 states in the greatest economic peril.

Already, less than five months into fiscal 2010, several states are looking at additional budget cuts.

Rhode Island announced Tuesday that it is facing a revenue shortfall for the current fiscal year of $130.5 million. Gov. Donald Carcieri said the state must examine its aid to local governments, since it has already cut personnel and social service programs.

And in California, Gov. Arnold Schwarzenegger said Tuesday that his state is facing a budget gap of up to $7 billion. The state will likely announce across-the-board spending cuts in January.

"So we just have to hang in there, tighten our belts and live within our means," Schwarzenegger said.

Last month, Massachusetts Gov. Deval Patrick announced a plan to close a $600 million mid-year budget gap that includes $352 million in cuts across state government, limited revenues hikes and draining a $60 million surplus from the last fiscal year.

And earlier this week, New York Gov. David Paterson said the state would have to come up with an additional $10 billion in savings. He is cutting state agencies funding by 10%, and is proposing reducing $1.3 million in local assistance programs, $686 million in education funding and $471 million in health care spending.

"Frankly, we are running out of money," he said.  

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British Airways and Spain’s Iberia announced on Thursday a preliminary agreement for a $7 billion merger to create the world’s third-largest airline by revenue.

The deal, which the companies hope to close by the end of 2010, ends the British flag carrier’s long pursuit of Iberia to create an enlarged group, able to cope with the industry’s largest downturn in decades.

BA shareholders will have 55 percent of the combined firm, to be headquartered in London with 419 aircraft flying to 205 destinations, while Iberia shareholders are to get 45 percent.

In a joint statement, BA and Iberia said the merger would provide “enhanced scale to compete with other major airlines and participate in future industry consolidation.”

The new company will combine British Airways’ strong position in Europe-to-North America traffic with Iberia’s Latin American business, and will potentially be reinforced by a planned alliance with AMR Corp’s American Airlines faxless payday loan.

Iberia’s chairman Antonio Vazquez will be chairman of the new company, while BA’s Chief Executive Willie Walsh will be CEO. Each airline will have seven members on the new 14-member board.

The deal will create a new holding company, which will own the two airlines. The two companies will have dual hubs in London and Madrid, and will keep their own licenses, codes and brands for the first five years of the merger.

This mirrors the structure set up by Air France-KLM from the Franco-Dutch merger in 2004, which created a holding company plus two operational units to preserve national identities and bilateral international landing rights.

Ahead of the announcement of a deal, BA shares closed 7.5 percent higher at 206.8 pence, while Iberia shares ended up 11.8 percent at 2.22 euros.

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If you expect holiday bargains to get better as Christmas Eve draws near, you may be disappointed this year.

Retailers aren’t as panicked about the upcoming holiday shopping season as they were last year.

That’s bad news for shoppers because this could mean leaner sales, sparsely stocked stores and a run on the best deals for such sought-after items as smartphones, thigh-high boots, side-sling bags and ruffled cardigans.

With this scenario in mind, retail experts said their No. 1 tip for gift shoppers this year is grab what you want, when you see it.

"Merchants got burned badly last year when they were left with a lot of unsold merchandise after Christmas," said George Whalin, retail expert and president and CEO of Retail Management Consultants.

And since the past 10 months have been a sales nightmare for most merchants, amid an ongoing spending slump, sellers have up to 30% less merchandise stocked for the year-end gift-buying season that unofficially kicks off the day after Thanksgiving.

The November-December period is critical for sellers because it can account for as much as 50% or more of retailers’ profits and sales for the full year.

Without the fear of being overstocked, merchants will also be less promotional with holiday goods versus last year in order to preserve their profits.

So don’t expect big red sales signs screaming 50%, 60% or even 70% off right after Black Friday, analysts said.

"This year, the magic point for retailers will probably be 40% off and maybe 50% and another 20% off on clearance items much later in the season," said Marshal Cohen, chief retail analyst with market research firm NPD Group.

Will there be a holiday rush?

With the nation’s unemployment rate at its highest level in more than two decades, no one expects Americans to whip up an uninhibited shopping frenzy over holiday gifts.

The National Retail Federation, the industry’s largest trade group, expects holiday sales will decline 1% this year, although that dip would be an improvement over 2008’s 3.4% drop for the season.

Still, some industry watchers say the recent pick-up in monthly sales seen at chain stores, coupled with more than a year of pent-up demand among consumers, could make it hard for many to resist "splurging" a little bit on the seasonal sales that are coming up.

If that happens, it could bring a run on some merchandise in the coming weeks, said Craig Johnson, president of retail consulting group Customer Growth Partners payday cash loan.

If some sellers are caught with product shortfalls, Johnson said they could even sneak in spring merchandise by December to fill any vacant spots in their stores.

"This is not a totally new phenomenon," he said. "We’ve heard rumors that some teen-focused retailers may bring in spring products by mid-December."

Johnson also gave examples of what he expects to be this year’s hot holiday sellers. "Everyone already has a big flatscreen TV," said Johnson, "E-readers, whether it’s [Amazon’s (AMZN, Fortune 500)] Kindle or Barnes & Noble’s Nook e-reader that’s coming out later this year, are going to be hot."

Smartphones and gaming consoles will be top purchases as well, he said. In clothing and accessories, women’s embellished leggings, boots, sweater vests and side-sling handbags will be in big demand, Johnson said.

NPD’s Cohen, has a somewhat different perspective.

"If consumers can’t find something in one store, they will look elsewhere, or online," Cohen said.

Regarding introducing spring products during the winter sales events, Cohen said that it could actually be a smart move by retailers to infuse some newness and freshness into the stores.

"You want to keep consumers coming back to the store. It’s a good way to get holiday gift card [recipients] to come back, too," he said.

Countering Johnson’s predications of holiday hot sellers, Cohen thinks many consumers will shop for traditional gifts.

"It’s back to tradition this year. Sweaters, perfumes, small leather items, music. movies, board games and gift cards," he said.

The single biggest holiday shopping trend, however, will be "fewer people on the shopping list," said Cohen. ‘For those on the bottom of the list, people will be baking cookies."

Talkback: Are you giving more or fewer holiday gifts, and how much do you plan to spend per gift this year versus last year? E-mail your response to realstories@cnnmoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.  

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Bailed-out British lender Lloyds Banking Group is to cut a further 5,000 jobs by the end of 2010 as it continues to overhaul its operations and integrate HBOS.

Lloyds, 43 percent owned by the government, said on Tuesday it would take mitigating actions, including redeploying staff and releasing contractors and temporary employees, to limit the net reduction in permanent jobs to 2,600.

That would take net cuts to permanent jobs at Lloyds to around 9,000 since it acquired HBOS in January. Analysts have estimated that over 30,000 jobs could go as the two banks integrate.

News of further bank sector redundancies came a week after more than 5,400 jobs were cut at part-nationalized rival Royal Bank of Scotland and HSBC.

The Unite union said the cuts were “corporate arrogance.”

“This country’s financial sector should be looking toward the future, rather then continuing to slash jobs without proper consideration of how to re-build the public’s confidence in our tarnished banking sector,” Unite national officer Rob MacGregor said in a statement calling for a suspension of job losses payday advance.

Lloyds said 2,820 roles — the bulk of the total — would be cut in group operations, with contractors and temporary staff helping to keep the net reduction to 1,350.

It will also cut 1,190 jobs in insurance across Britain, and 950 in its mortgage operations where business will be consolidated to a handful of sites.

Lloyds said compulsory redundancies would be a last resort.

(Reporting by Clara Ferreira-Marques; Editing by Dan Lalor)

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General Electric Co. and Comcast Corp have agreed on a valuation of around $30 billion for NBC Universal, ironing out what has been a key obstacle in talks to form a joint venture between NBC Universal and Comcast, a source familiar with the matter said on Sunday.

French media conglomerate Vivendi, which owns 20 percent of NBC Universal, has not yet agreed to a deal between GE and Comcast. GE owns 80 percent of NBC Universal.

(Reporting by Jui Chakravorty Das, writing by Megan Davies; Editing Bernard Orr)

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U.S. securities regulators are reviewing a proposed roadmap to move U.S. companies to international accounting rules, but are struggling with a lack of public consensus on how to get there, a Securities and Exchange Commission official said on Thursday.

Last November, in one of the Commission’s last major projects under former Chairman Christopher Cox, the SEC staff released a suggestions that would have U.S. companies filing financial results under International Financial Reporting Standards, or IFRS, by 2014, with the option for some companies to adopt the rules earlier.

The adoption of international accounting standards by U.S. companies would move the world toward one set of standards, and might make it simpler for investors to compare companies operating in different regions. Proponents also say this would enable companies to raise capital more easily in whatever markets appeal to them.

When the SEC’s new chairman, Mary Schapiro, took over early this year, she said she would review the proposals, and SEC officials have promised to provide more clarity before 2010.

But at a New York State Society of CPAs conference in New York on Thursday, Julie Erhardt, deputy chief accountant at the SEC, said that while most of the public agrees with the concept of one single set of high-quality accounting standards, regulators have noted there is very little agreement on anything else.

“The comment letters on how to get there were an array, meaning every possible idea you could think of on how to get there, somebody had in a letter — there was no unanimity,” Erhardt said.

The so-called roadmap proposal was originally open for public comment until mid-February, but the SEC extended that period until late April. The agency received about 220 comment letters on the topic, but that is a small number considering the change is likely to affect all of the 10,000-plus U fast payday loan no faxing.S. companies regulated by the SEC.

“In terms of the staff being able to say, ‘Well, here’s a majority view,’ you can’t say that,” Erhardt said of the comment letters which differed on basic concepts such as how many accounting standard setters to have, and whether the United States should permit any companies to make the switch early.

“It creates more of a blank sheet of paper for the staff working with the commissioners,” she said, noting the Commission simply “hasn’t decided yet.”

Among other issues, several companies said they do not believe the SEC has accurately estimated how much a switch to IFRS would cost, and some wonder whether Congress actually supports the proposal, Erhardt said.

Major economies like Japan, Canada, and South Korea are joining Europe and the more than 100 other countries using IFRS, but the United States, which still operates off Generally Accepted Accounting Principles (GAAP), risks remaining the last major holdout.

Some critics say that if the United States embraces IFRS, it could jeopardize more than a century of progress under U.S. accounting rules, and expose companies to more lawsuits because IFRS has largely been designed by less litigious countries and is viewed as more principle-based than rules-based.

“We’re working on what the next steps could and should be, but there isn’t a date certain to announce anything,” Erhardt said.

(Reporting by Emily Chasan, editing by Matthew Lewis)

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Stimulus may have created or saved 640,000 jobs so far, but many of those positions were never intended to last.

The American Recovery and Reinvestment Act was designed to put millions of people to work, mainly for "shovel-ready" projects. By their very nature, most of those projects last only until the work is completed or the funding runs out.

That means millions of workers hired with stimulus funding are left looking for a job after the stimulus-funded program is completed.

Of the nearly $500 billion in stimulus funds allocated to stimulus projects, $100 billion is set to go towards long-term programs, like health research and green energy projects, according Elizabeth Oxhorn, spokeswoman for the Obama administration Recovery Act. But the vast majority of that funding — the other $400 billion — will go to short-term contracts.

A prime example was the work needed by the Federal Communications Commission to help the nation transition to digital television last spring. Congress allowed the FCC to extend the deadline for the transition by five months to help some 3 million people make the switch.

An FCC spokeswoman said there were hundreds of thousands of consumers’ calls coming in as the original deadline approached, overwhelming their in-house call center. The agency decided to outsource its call center for the second go-around and awarded a stimulus-funded contract to TeleTech (TTEC), a call-center company based out of Englewood, Colo.

Over the course of the five-month contract, TeleTech hired and trained 4,231 people in call centers across nine states. More than 1.2 million consumer calls were handled by those workers in centers in Arizona, Alabama, California, Colorado, Florida, Kentucky, New York, Pennsylvania, and West Virginia.

TeleTech ramped up its hiring as the June deadline approached, so most of those 4,231 jobs lasted for just a month or less, said TeleTech spokesman Bob Livingstone. The company began winding down the call-centers after June, and when the contract ended in August, all of the jobs that TeleTech created were terminated.

Livingstone said all of the temporary employees who were hired for the DTV contract were eligible for rehire at TeleTech, and a small handful remain with the company after applying for work on other projects. Because the jobs were so spread out geographically, Livingstone said the company was unable to determine which current employees had actually worked on the DTV contract.

Though none of those stimulus-created jobs exist anymore, TeleTech reported that it had created 635 full-time jobs — a number it reached based on a government formula for reporting stimulus jobs creation. The formula calculates the economic impact of jobs saved or created based on hours worked at an annualized rate. A spokeswoman for the FCC confirmed that the number was reported correctly.

Stop-gap or big bet? The DTV stimulus jobs example underscores the difficulty in both reporting the number of jobs created and the ability to create long-lasting, high-impact jobs during an economic downturn.

Economists say that a majority of the jobs created by stimulus projects are likely to end the same way that the DTV call center positions did, lasting only as long as the funding.

"The bottom line is these are meant to be stop-gap measures," said Doug Roberts, chief investment strategist at ChannelCapitalResearch.com. "This is fairly typical in stimulus plans. It’s the same as it was in the 1930s: to put people back to work, the government looks at all of the stuff that was on its to-do list."

Roberts said the idea behind temporary, "shovel-ready" stimulus jobs, is to help the labor market ride out the storm: When the money runs out, hopefully the economy will have bounced back, and those temporary workers will be able to find full-time employment.

But others say the economy won’t be healthy enough to support job growth when stimulus funding runs out, and most businesses have indicated that they will not be hiring in the coming quarters.

"Unless they pass another stimulus bill, you’ll get an economic uptick, but not much job growth, and then another downturn," said Al Angrisani, head of hiring consultancy Angrisani Turnarounds and former assistant secretary of labor under President Reagan. "Hoping that jobs will be there when the money runs out is like betting on animal spirits. The businesses that they’re betting on are all deleveraging."

Do you have a job because of the $787 billion stimulus package? We want to hear from people whose jobs have been created or saved by the American Recovery and Reinvestment Act. Please e-mail your stories to CNNMoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here. 

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As credit card companies continue raising rates and fees, lawmakers are considering bills to stop such hikes until new credit card laws take effect.

In the House, a key committee passed a bill to move up by nearly three months the start date of new laws aimed at cracking down on the way credit card issuers raise fees and assess credit risk. The new start date would be Dec. 1, up from Feb. 22.

"It was argued … that they needed more time, and we granted them more time, but it was under the understanding that abusive practices would not continue, and double and increase dramatically," said Rep. Carolyn Maloney, D-N.Y., a bill sponsor, debating amendments to it.

The House Financial Services committee passed it on a voice vote.

In the Senate, Sen. Chris Dodd, D-Conn., Sen. Charles Schumer, D-N.Y., and others have introduced a bill to freeze credit card interest rates until the new legislation takes effect Feb. 22.

"We worked long and hard to enact the safeguards included in the Credit CARD Act," Dodd said. "And no sooner had it been signed into law, but credit card companies were looking for ways to get around the protections this Congress and the American people demanded."

Congressional watchers say that the odds are against passage for either bill, especially since the two are not identical.

"For now, this seems to be much more about scoring political points by beating up on unpopular credit card companies than on pushing legislation that can get enacted quickly," said Jaret Seiberg, an analyst with Concept Capital’s Washington Research Group.

Public up in arms

Still, public outrage continues to boil over on the topic, especially as card issuers continue to hike rates.

On Tuesday, the Pew Charitable Trusts released a study showing that interest rates rose by an average of 23% from December 2008 to July 2009.

Also, they found that all the largest banks and card issuers had engaged in practices that would be prohibited under the new credit card laws, such as hiking penalty rates on those who are just barely late on a credit card payment default payday loan. The new law would only allow such a hike if the cardholder is more two months late.

"The unfair and deceptive practices that the credit card act targets remain widespread, and in some cases we’ve seen it getting worse," said Nick Bourke, manager of the Pew Safe Credit Cards Project.

The banks say that tinkering with the new law start date is unnecessary. They say rates are rising because customers and economic times are riskier. Record number of cardholders have been walking away from card debt, unable to pay, according to Federal Reserve data.

"We oppose it, because the two main factors driving the changes are the increased risk of nonpayment from the borrower and the riskiness of the economy," said Scott Talbott of the Financial Services Roundtable, a business lobbying group.

Last week, Republicans on the House panel pointed to a letter from Federal Reserve Chair Ben Bernanke about the consequences of moving up the effective date. Bernanke said advancing the date could be tough on companies and would prevent the Fed from getting feedback on its proposed new rules cracking down on fees.

"Although a December 1 effective date could provide benefits for consumers, the Board continues to believe that. . .card issuers must be afforded sufficient time for implementation to allow for an orderly transition and to avoid unintended consequences," Bernanke wrote.

The Credit CARD Act was signed into law by President Obama on May 22, with a first round of changes — including giving cardholders 45 days notice before a hike takes effect — taking hold in August. The more substantial changes were slated to take effect about six months later.

Among other things, the new law bans rate hikes unless a consumer is more than 60 days late — and then restores the previous rate after six months if minimum payments are made. It also makes it harder for people under age 21 to get credit cards. 

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