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Just as they are contending with massive gaps in their operating budgets, states and localities must also deal with a $1 trillion deficit in public employees’ retirement benefits’ funds, a new report found.

The shortfall amounts to more than $8,800 for every household in the nation, according to the Pew Center on the States, which published its findings Thursday.

States largely got themselves into this mess by failing to make annual contributions while also enhancing benefits, the study found. Now, they are behind by a total $452 billion in their pension accounts and $555 billion in their retiree health funds, as of the end of fiscal 2008, which ended June 30 for most states.

The deficit is likely even more severe because the report did not take into account the crumbling of the stock market in the latter half of 2008. The typical pension plan lost 25% of its value in 2008.

States must find ways to make up these gaps because retiree benefits for public workers are largely guaranteed by union contract. And they are funded through contributions from both employees and state employers, as well as investment returns.

So when gaps appear, states must ask their residents to make up the difference, usually through property tax or income tax hikes.

"Ultimately, taxpayers could face higher taxes and cuts in services," said Stephen Fehr, one of the report’s authors. "You can’t ignore the problem. It’s just going to be more serious budget trouble for states down the road."

To be sure, the bill isn’t due all at once and no state is in danger of default. These benefits are paid out over decades. Still, the deficits must be addressed sooner than later or the gaps will simply balloon more.

In the most trouble

The consequences of the shortfall could be severe. It comes at a time when states are wrestling with a cumulative $180 billion budget gap for fiscal 2011.

Eight states are in the most dire shape, according to the Pew report. These include: Alaska, Colorado, Illinois, Kansas, Kentucky, Maryland, New Jersey and Oklahoma.

Two of these states — Illinois and Kansas — have less than 60% of the necessary assets on hand to meet their long-term pension obligations.

Only four states — Florida, New York, Washington and Wisconsin — had a fully funded system in 2008, down from just over half at the beginning of the decade.

Overall, state pension systems are 84% funded.

Many states have been lax about funding their pension systems, even during more prosperous times earlier this decade. Some 21 states failed to contribute at least 90% of the required amount during the past five years.

Retiree health care and other non-pension benefit accounts are in even worse condition. Only about 5% of their total liabilities are funded. States generally paying these bills as they come due, rather than setting aside money in advance.

Also, some states sweetened their retiree benefits during the 1990s and earlier this decade, reducing employee contributions or providing cost-of-living increases. But they didn’t allocate money to pay for these changes.

What’s being done

Recognizing the seriousness of the situation, states have begun to act. Fifteen states passed legislation reforming their pension systems in 2009 and 16 are looking at making changes this year.

Since it’s tough to make changes to union contracts, most states apply the new rules to incoming employees only.

Several states, including Kentucky, Nevada, New Jersey, New York, Rhode Island and Texas, have reduced benefits offered to new employees or raised the retirement age. Some are also asking workers to contribute more to their pension accounts or retiree health benefits. And a few have created 401(k) style plans to go alongside their traditional pensions.

In Nevada, for instance, those hired in 2010 and beyond will have to wait until age 62 to retire, instead of age 60. They will also have a less generous funding formula: Their years of service will be multiplied by 2.5, rather than 2.67, to derive the percentage of salary being replaced by pension benefits.

In New York, new hires can’t retire until age 62, instead of age 55, and they will have to work for 10 years instead of five.

"A growing number of policy makers recognize that their states’ fiscal health depends on how well they manage the bill coming due for public sector retirement benefits," said Susan Urahn, the center’s managing director. "We are seeing more and more states explore policy reforms aimed at putting their systems on stronger fiscal footing."

The study looked at 231 state-administered pension plans and 159 state-administered retiree health care and other non-pension benefit plans, which include some localities’ and teacher plans. 

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Wednesday marks the one-year anniversary of the stimulus bill, and from here on out the pace of spending should pick up, according to administration officials.

The federal government expects to spend more money on projects — such as high-speed rail — rather than payments to states and individuals, according to Vice President Joe Biden, who released his annual stimulus progress report Wednesday.

On Feb. 17, 2009, Congress passed a $787 billion economic stimulus program — the largest in the nation’s history — and it has elicited both praise and scorn.

The White House is mounting an all-out campaign this week to tout the benefits of the Recovery Act, saying the package has largely lived up to its promises of stemming job losses and boosting economic growth. Administration officials are touring the nation to highlight stimulus-funded work and detailing where the money has been spent in the past 12 months.

Through the end of January, some $334 billion in spending has been approved, of which $179 billion has actually left federal coffers. Another $119 billion has gone to tax cuts.

"Our work is far from over, but we have rescued this economy from the worst of this crisis," said President Obama on Wednesday, though he noted many Americans may not feel the Recovery Act’s impact because they remain unemployed.

Detractors, however, counter that stimulus has been a waste of money and produced few jobs. And few Americans believe the stimulus program is really working. Only 36% of respondents said the Recovery Act is helping the economy, according to a recent CNN poll.

"In the first year of the trillion-dollar stimulus, Americans have lost millions of jobs, the unemployment rate continues to hover near 10%, the deficit continues to soar and we’re inundated with stories of waste, fraud and abuse," said Senate Minority Leader Mitch McConnell, R-Ky. "This was not the plan Americans asked for or the results they were promised."

Shifting the mix

In the coming months, the pace and mix of spending will change, senior administration officials said. Until this point, the bulk of the spending has been on tax relief and direct aid — such as unemployment benefits — in order to stop the economic freefall.

Going forward, the government will distribute $32 billion in Recovery Act funds per month, up from an average $27 billion a month over the past year, according to Biden’s annual report.

To date, only $31 billion has been spent on projects — such as infrastructure, high-speed rail, broadband and health technology. But in the second phase of the act, the amount of money going to these initiatives will more than double to $7 billion a month as the work ramps up. The administration views this spending as setting the stage for a lasting expansion.

"Many projects are just now getting underway, and will be creating jobs throughout 2010 and beyond," said Biden, noting that the administration will announce an additional $1.5 billion of surface transportation projects Wednesday. "Work on many Recovery Act projects will accelerate in the spring and summer months as weather conditions permit work on roads, bridges, water projects, and Superfund site clean ups."

Payments to states and individuals will fall to $11 billion, from $14 billion, per month. Much of this spending — such as Medicaid funding and additional unemployment benefits — was meant to stabilize the economy during the recession.

The administration will reach its goal to disburse 70% of the Recovery Act funds, or $551 billion, by Sept. 30, senior administration officials said.

The Congressional Budget Office recently hiked the cost estimate of the Recovery Act to $862 billion, though the administration still uses the original $787 billion figure.

Shortcomings highlighted

Republicans, however, were quick to point out stimulus’ shortcomings, stressing the nation’s stubbornly high unemployment rate, which stands at 9.7%.

"Taxpayers aren’t getting their money’s worth from the trillion-dollar ’stimulus’ and struggling families and small businesses are rightly asking, ‘Where are the jobs?’," said Rep. John Boehner, R-Ohio, the House’s top Republican.

Republican Whip Rep. Eric Cantor, R-Va., said states have lost a total of 2.9 million jobs between the bill’s enactment last February through December, though the administration projected stimulus would save or create 3.5 million positions.

In the final quarter of last year, the Recovery Act funded 595,263 direct jobs, according to Recovery.gov. The figure is based on about 160,000 reports from state, local and corporate recipients who have spent $57.9 billion in stimulus money.

It does not tally jobs created indirectly through companies buying supplies for stimulus projects, people spending their tax cuts, increased unemployment benefits and the like.

In total, the economic stimulus program has boosted employment by 1.5 million to 2 million jobs, the president’s chief economic adviser said in mid-January. That number is derived from a mathematical formula based on how much money has flowed out the federal door.

A week ago, the president’s top economic adviser praised the Recovery Act, calling it the "great unsung hero of the past year." Council of Economic Advisers Chair Christina Romer reiterated that the program has funded up to 2 million jobs and helped turn the economy around. 

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London home sellers raised asking prices to a record high this month as they took advantage of a “stock-starved” housing market, Rightmove Plc said.

The average cost of a home in the capital jumped 5 percent to 427,987 pounds ($671,000), the most since records began in 2002, the owner of the U.K.’s biggest property Web site said in a statement today. Average asking prices in England and Wales increased by 3.2 percent, the most since April 2007.

A small apartment in London’s Pimlico district received “astronomical” interest from buyers, real-estate agent James Gubbins said in an interview. The Bank of England said in its quarterly economic forecasts this month that the strength in the housing market may reflect “unusually weak” supply.

“A price jump of 5 percent is more comparable to the pre- credit crunch boom,” Miles Shipside, commercial director of Rightmove, said in the statement. “If sellers return to the market in larger numbers, the current upwards price pressure will not be sustainable with the restricted number of mortgage- strapped buyers.”

London’s Westminster district led gains in the capital, with prices rising 14.9 percent on the month to an average of 1.3 million pounds. The most expensive area is the borough of Kensington and Chelsea, where a 4.6 percent increase pushed up the average value to 1.9 million pounds.

‘Tiny Little Flat’

“The shortage is the main thing that’s cushioning the market,” said Gubbins, an agent at Dauntons in Pimlico, a neighborhood in Westminster. “Last year, buyers were socked to the teeth on the economy and didn’t know what they were going to do, and now they’ve decided to get on with it and stop putting their lives on hold.”

Gubbins said he recently had an “astronomical” number of viewings for a “tiny little flat” in Tachbrook Street in Pimlico, close to the Tate Britain art museum business card. Last year, “it wouldn’t have done at all well.” The one-bedroom property sold close to the asking price of almost 300,000 pounds, he said.

Prices rose 10.3 percent in London from a year earlier. That compares with a 6.1 percent gain in the U.K. as a whole, where prices fell about 12 percent from the peak in May 2008 to the trough in January last year.

Rightmove said a “stock-starved housing market” supported prices across Britain as the average number of properties per real estate agent stayed at a two-year low of 63. The average total for sale at real estate branches fell to 55 in January, the lowest since July 2007, according to a survey by, the National Association of Estate Agents released Feb. 11.

Mortgage Lending

The property market may still falter if mortgage lending weakens. The number of approvals fell to 59,023 in December, the first drop in more than a year and half.

Bank of England policy makers kept the benchmark interest rate at a record low of 0.5 percent this month as they paused their 200 billion-pound emergency stimulus program. Governor Mervyn King said last week it was “far too soon” to say policy makers will make no more purchases as the economy recovers.

“The low interest rate environment is meaning that less people need to sell,” said James Perris of De Villiers Surveyors in London. “If we do see interest rates go up a bit, we may see people more inclined to sell.”

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The Federal Reserve said the U.S. economy continues to show signs of modest improvement but signaled it will stay the course and keep interest rates low to help spur a recovery.

As expected, the central bank left its key interest rate, the federal funds rate, near 0%, the level it has been at since December 2008. That rate is used as a benchmark for a broad range of business and consumer loans.

In a statement released at the end of its two-day meeting, the Fed pointed to improvement in business spending, but said that the "recovery is likely to be moderate for a time."

While that may not sound like a ringing endorsement of economic growth, it was significantly better than what the Fed had been saying in its statements since last April — "Economic activity is likely to remain weak for a time."

Still, the Fed repeated its earlier forecast that conditions are "likely to warrant exceptionally low levels of the federal funds rate for an extended period."

But one member, Kansas City Fed President Thomas Hoenig, voted against the Fed’s latest action. According to the statement, Hoenig thought that economic conditions had changed enough so that the continued expectation of low rates was "no longer warranted." It was the first dissenting vote among Fed policymakers since January 2009.

The Fed said it will stick with plans to let some of its efforts of the past two years expire in the coming months. But it provided no new details of how or when it plans to start pulling back on nearly $2 trillion it has pumped into the economy over the last two years through the purchases of mortgages, long-term Treasurys and the debt of mortgage finance firms Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500).

Some critics of the Fed have worried that the central bank is behind the curve in withdrawing that stimulus, which could feed inflation down the road. But the Fed repeated its earlier view that it believes inflation "is likely to be subdued for some time."

Bruce McCain, chief investment strategist at Key Private Bank, said Hoenig’s dissent is probably a good thing since it may assure markets that the Fed is not getting too far behind the curve in keeping prices in check.

Keith Hembre, chief economist at First American Funds, said if the Fed policymakers had followed Hoenig’s lead and dropped the language on keeping rates exceptionally low, it would have roiled financial markets not yet ready for the Fed to start raising rates.

"Hoeing is one of the more hawkish guys on inflation," Hembre said. "But I think the view [of other Fed policymakers] on inflation is on the mark."

Hembre added that due to the weakness in the job market, he thinks it will be years before there is a big enough increase in wages that could help drive the prices of goods and services higher.

Along those lines, the central bank did highlight some key economic weaknesses that remain, including tight credit, continued declines in real estate investment and employers still being reluctant to hire new staff.

McCain said that given the uneven signs of improvement in the housing market so far, it was not realistic to expect the Fed to lay out plans to start selling the $1.25 trillion in mortgages it expects to own by the end of March. Some have even argued the Fed should raise that limit in order to buy more mortgages.

"There is concern about what happens with the housing market when there is no longer the support of the Fed making these purchases," McCain said. He believes the Fed has decided its best course on mortgages is to "steer the middle course," and go ahead with the purchases it has committed to and no further.

The Fed’s latest meeting comes two days before the Commerce Department is expected to report the U.S. economy grew at an annual rate of 4.6% in the fourth quarter. That would be its strongest pace in four years.

The meeting also comes as the Senate prepares for a key vote Thursday that could clear the way towards confirming Fed chairman Ben Bernanke for another four-year term as head of the central bank. His term is set to expire Sunday, and there has been growing opposition from both ends of the political spectrum to his reappointment. 

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The Boeing Co. announced Thursday that it has realigned its St. Louis-based Integrated Defense Systems unit and will operate under a new name.

The newly renamed Boeing Defense, Space & Security unit reflects part of the company’s "continuing effort to compete in a rapidly evolving global defense and security marketplace," company officials said in a news release.

"Boeing anticipated flattening defense budgets and shifting customer priorities for the past few years and has been taking aggressive steps to position the company for profitable growth in a challenging economy," said Dennis Muilenburg, president and CEO of the Defense, Space & Security unit fast payday loans.

It will retain its operating units — Boeing Military Aircraft, Network and Space Systems, and Global Services and Support. Boeing Defense, Space & Security will consolidate some divisions and make several leadership changes, Muilenburg said.

Boeing’s Defense, Space & Security unit is the second-largest employer in the St. Louis region with about 15,000 workers.

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Investment bank Lazard Ltd said on Sunday that Chairman and Chief Executive Bruce Wasserstein, a legendary dealmaker, had been hospitalized for an irregular heartbeat.

Wasserstein’s condition is serious, but he is stable and recovering, Lazard said, adding that it will not be providing updates at this time.

Wasserstein, a rainmaker since the 1970s, has most recently been involved in the looming takeover battle between Kraft Foods Inc and Cadbury PLC.

The Wall Street veteran achieved fame as an adviser to buyout house KKR on its unprecedented acquisition of RJR Nabisco in 1989, which was recorded for posterity in the book, “Barbarians at the Gate,” by Bryan Burrough and John Helyar no faxing payday loan. Until a few years ago, the RJR takeover was the largest leveraged buyout in history.

(Reporting by Paritosh Bansal; Editing by Jan Paschal)

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SINGAPORE — The global economic crisis may have damped the appetite for most high-end goods, but one small daily luxury —gourmet tea — has been posting surprisingly strong sales, prompting some brands to consider expanding around the world.

With names such as Silver Moon, Emperor’s White Garden, Gout Russe Douchka and Sakura, Sakura, the teas reflect a wide range of exotic flavors, attracting an almost religious following among tea lovers.

While the rarest teas, such as yellow teas, can cost $2,120 for 2 instant payday loan.2 pounds, gourmet teas cost 30 percent more than standard teas on average, making them an affordable luxury for many.

"There is definitely no crisis when it comes down to gourmet tea; our sales have been increasing every year by 15 to 25 percent ever since we started in 1987," said Francois-Xavier Delmas, founder and chief executive of Le Palais des Thes in Paris.

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A U.S. decision to impose special duties on Chinese tires could trigger a host of trade complaints against Chinese products and a backlash from Beijing, creating tensions as Western nations seek China’s support at a G20 meeting.

China responded swiftly to President Barack Obama’s announcement Friday of safeguard duties on tire imports from China, saying on Monday it would request World Trade Organization consultations with the U.S. over the duties.

It also announced its own anti-dumping investigations of chicken products from the United States, a trade worth $800 million a year, as well as U.S. automotive exports.

Looming in the United States are complaints about products ranging from electric blankets to a steelmaking ingredient, while Chinese and European trade negotiators are gearing up for a fight over shoes.

Obama, in a speech on Wall Street, said he was committed to expanding world trade and denied protectionist intent.

“When, as happened this weekend, we invoke provisions of existing agreements, we do so not to be provocative or to promote self-defeating protectionism,” he said.

“We do so because enforcing trade agreements is part and parcel of maintaining an open and free trading system.”

The United Steelworkers union filed the tire protection petition earlier this year. It said a tripling of Chinese tire imports from 2004 to 2008 had cost more than 5,000 U.S. jobs.

The U.S. trade deficit with China totaled $103 billion in the first half of 2009, down 13 percent from last year but it has grown considerably over the last decade.

The imbalance is a source of much ire in Washington and the rest of the country.

U.S. Agriculture Secretary Tom Vilsack said the Obama administration will strongly object to any attempt by China to retaliate against chicken exports.

“There is no reason why another country should try to even the scale, if you will, by focusing on agricultural products,” Vilsack told a National Farmers Union conference.

Stocks on Wall Street slipped shortly after the opening bell on Monday in part over concerns about the trade dispute but finished squarely ahead, with the Dow industrials up 19 points to 9,624. U.S. tire makers Goodyear Tire & Rubber Co and Cooper Tire & Rubber Co ended higher.

NO FULL-SCALE TRADE WAR

While the intensified sparring between two of the world’s biggest economies could trigger a bout of nerves in financial markets, it is unlikely to spiral into a full-scale trade war. 

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Taking on corporate giants can feel like tilting at windmills, but John Kopchinski’s six-year legal battle against Pfizer Inc just made him a rich man.

The Gulf War veteran and former Pfizer sales representative will earn more than $51.5 million as a result of his whistleblower lawsuit against the world’s biggest drugmaker and the record penalty the company must pay the U.S. government for its massive marketing transgressions.

The unassuming Texas resident celebrated his windfall by having a family portrait photograph taken Wednesday morning.

“We’re going to be staying right here in San Antonio in the same house, and my wife tells me when we go to the movies we’re still getting one tub of popcorn — the large tub,” Kopchinski said in a telephone interview.

Kopchinski, appalled by Pfizer’s tactics in selling the pain drug Bextra, filed a “qui tam” lawsuit in 2003, sparking federal and state probes that led to Wednesday’s agreement by the company to pay $2.3 billion in civil and criminal penalties and plead guilty to a felony charge for promoting Bextra and 12 other drugs for unapproved uses and doses.

“In the Army I was expected to protect people at all costs,” Kopchinski said in a statement. “At Pfizer I was expected to increase profits at all costs, even when sales meant endangering lives.

“I couldn’t do that,” added Kopchinski, 45, who was fired by Pfizer in March of 2003, two years before the company pulled Bextra from the market over concerns it raised the risk of heart attacks and strokes.

At the time of his dismissal after raising his concerns with the company, Kopchinski had a baby son and his wife was pregnant with twins. He went from earning about $125,000 a year to living off his retirement fund before landing a job with an insurance company for $40,000 a year.

“It was a lot of stress on the family. I pretty much depleted my entire 401(k),” he said.

“The last six years have been pretty hard, so going forward it’s going to be pretty much easier,” said Kopchinski, noting that college for his young children “is taken care of.”

Erika Kelton, Kopchinski’s lead attorney from the firm of Phillips & Cohen LLP, said large rewards are justified because of what whistleblowers must endure, often for many years, after complaints within the company go unheeded.

“Particularly in pharma, it’s no secret that it’s an industry that can blackball former employees,” Kelton said, “so the reward is important both to encourage people to step forward and to recognize that their contributions are huge.”

Kopchinski and five other whistleblowers will earn more than $102 million in payments from the U.S. government under the False Claims Act through which individuals can reap rewards for exposing corporate wrongdoing.

“The use of whistleblowers has really opened up the keys to the kingdom in terms of what’s going on in these companies,” said Dean Zerbe, senior counsel for the National Whistleblower Center and a partner at the law firm of Zerbe, Fingeret, Frank and Jadav in Washington.

“You’d never find out what’s happening without this kind of reward structure,” Zerbe said. 

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The court-appointed trustee in charge of the Bernard Madoff Ponzi case is preparing to file civil complaints against Madoff’s two sons, as well as his brother, CBS News reported on Tuesday.

Trustee Irving Picard will seek more than $50 million, including at least $30 million in loans to the sons, the report said, citing a source. It added the aim was to recapture money diverted from Madoff’s massive Ponzi scheme.

Picard also wants to force the Madoffs to reveal all of their assets, including bank accounts and a home one son, Mark, bought for $6.5 million in cash, the report said, citing other sources.

Picard could not be immediately reached at his New York office.

Madoff, 71, is serving a 150-year prison sentence after pleading guilty to engineering the long-running $65 billion fraud, Wall Street’s biggest. His sons, Mark and Andrew, ran the trading division at their father’s firm, while Madoff’s brother, Peter, was its chief compliance officer.

(Reporting by Jonathan Spicer; Editing by Muralikumar Anantharaman)

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