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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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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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Chipotle Mexican Grill Inc. Thursday posted sharply higher fourth-quarter profit as restaurant openings and higher menu prices helped push revenue up 12 percent.

The Denver-based fast-casual restaurant chain known for its bulging burritos (NYSE: CMG) posted quarterly net income of $31.6 million, or 99 cents a share, up from $17 million, or 52 cents a share, in the same quarter of 2008.

Analysts on average had expected earnings of 81 cents a share, Thomson Reuters reported.

Revenue for the fourth quarter rose to $387.4 million from $345.3 million a year earlier. Analysts had forecast revenue of $388.2 million.

Chipotle opened 45 new restaurants in the quarter, bringing its total to 956 payday loans in 1 hour. Same-store restaurant sales rose 2 percent, largely on menu price increases.

Revenue-level operating margins were 24.5 percent, up from 21.1 percent a year earlier.

For full-year 2009, Chipotle reported net income of $126.8 million, or $3.95 a share, versus $78.2 million, or $2.36 a share, in 2008.

Full-year revenue was $1.518 billion, up from $1.331 billion the previous year.

Chipotle said it expects to open 120 to 130 new restaurants in 2010, with flat same-store sales. It plans a move into the United Kingdom by spring.

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A decade-old medical technology startup called Disc Dynamics Inc. has closed its doors and is selling off its assets, according to reports.

The Eden Prairie-based company was developing a treatment for lower back pain, but never got its product approved by the U.S. Food and Drug Administration.

Former CEO Steven Healy left the firm last July to be CEO of Maple Grove-based Lumen Biomedical. Healy, the former president of St. Jude Medical Inc.’s Cardiac Surgery division, had been CEO since 2002.

Disc Dynamics’ Chief Financial Officer Keith Eastman couldn’t be reached for comment.

Three employees remain from the peak of 32 workers, including Eastman, who is managing the sale of the company’s assets, according to a report in the Minneapolis Star Tribune.

Disc Dynamics’ technology was designed to treat lower back problems by injecting a fluid into the spine through a catheter. The fluid then expands and gels inside the back to create an artificial nucleus for the disc.

The company raised about $65 million in venture capital over the years from a variety of investors including Eden Prairie-based Split Rock Partners and Fridley-based Medtronic Inc.

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The running numbers on the worst job crisis since the Great Depression have become the new national boxscore.

Even those with cursory interest in the economy are aware the national unemployment rate stood near or past 10 percent nationally for most of 2009.

Still others can reel off the current numbers for Missouri (9.6 percent) and Illinois (11 percent) with the authority of a seasoned economist.

Now, for the first time, policy-makers have a tool to regularly measure the depth of that economic pain at the state and regional level — a quarterly snapshot assessing underemployment and other comprehensive unemployment data on a state-by-state basis.

Since 1994, the Bureau of Labor Statistics has packaged the inclusive national jobs data into its monthly unemployment report. But on a state and local level, such statistics were available only once a year.

A bureau official said the new schedule, two years in development, fills a recession-ravaged public’s need for more information about the state of the economy and job market. And the picture isn’t very pretty.

When the bureau adds workers overqualified for their current positions (underemployed), employees involuntarily subjected to reduced hours and individuals no longer looking for a job to the equation, the national barometer for jobs misery soars to 17 percent.

"It’s not so interesting when the economy is humming along," said Tom Krolik, an analyst with the agency’s local area unemployment statistics division.

The new data provide a steady and reliable estimate of just how deeply the recession has cut into two states in which 773,000

(Illinois) and 137,500 (Missouri) displaced workers are currently drawing unemployment:

— More than 400,000 underemployed in Illinois and nearly 200,000 working below grade level in Missouri.

— Upwards of 350,000 now employed part time involuntarily in Illinois and an additional 153,000 struggling in part-time positions in Missouri.

— At least 30,000 "discouraged workers" (people who have stopped looking for jobs) in Illinois and an additional 10,000 in Missouri.

The state numbers are culled from the same surveys and databases the bureau uses to compile its monthly unemployment statistics.

"The thing that is so discouraging is that we’re not seeing much improvement," said Bonny Filandrinos, president of Staffing Solutions in Clayton, which provides temporary workers to health facilities and other area companies.

Filandrinos says she’s still waiting to see a bounce-back in demand for even temporary or part-time labor. "We’re still in trouble," she said.

Six Flags St. Louis got a glimpse of where the economy still stands earlier this month when 916 temporary 2009 employees attended a party to welcome back temporary workers returning for another season.

By the time Six Flags ends its 2010 recruitment drive — a process that begins with a Feb. 6 job fair — human resources director Colleen Welch estimates about half of the park’s employees will be returnees.

On average, she said, Six Flags sees about 40 percent of its workers return the following season.

Unlike days when the park’s employees swelled in the summer with high school and college students, many of the returnees are older, experienced workers driven to seasonal employment by a bum economy.

Bob Graf, 64, managed to carve out a decent living since abandoning the teaching profession 30 years ago for a second career as a freight broker.

As the middleman that small and mid-sized manufacturers retain to negotiate shipping contracts with trucking firms, Graf considers himself somewhat of an "amateur" economist.

When production slowed and orders started to drop in 2007, Graf figured the economy was going down the tubes.

He figured right.

Last year, the recession hit Graf where it hurts.

With his commissions in the tank, Graf took a second job as a seasonal security guard at Six Flags to help make ends meet. Seeing little improvement in the shipping business, he will be back this summer, supplementing the diminished income from his year-round position.

"I still make money, but it’s not what it was," said Graf, of south St. Louis County.

Still, there are signs of improvement that should eventually show up in the Bureau of Labor Statistics’ expanded database.

Jon Lauer, president of Professional Irrigation Systems in Wentzville, is planning to fill four to six positions lost to layoffs last year.

With commercial and residential construction still in decline, Lauer has changed the focus of his 10-year-old company to the servicing of existing irrigation systems as well as installing some at municipal athletic facilities. The workload, he said, is a far cry from the pre-recession days when 50- to 60-hour weeks were common.

For the past year and into the foreseeable future, he stressed, overtime is out of the question.

"We’re still in the hanging-in-there stage," he said.

As is Rob Huddleston, 41, of Florissant, who has been out of work since losing his welding job in August.

After dipping his toe in a market that seeks to pay experienced welders about two-thirds of what he earned last year, Huddleston decided to accept $5,000 in Workforce Investment Act funding to improve his skills in a retraining program.

The tight job market, he said, "does get discouraging sometimes."

But not so much that Huddleston will show up in the bureau’s category of workers who have put the brakes on the job search.

"I don’t look at giving up as an option," he said. "I know people get discouraged, but if you quit there is nowhere to go but further down."

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Brazilian inflation will quicken above policy makers’ target this year, according to economists surveyed by the central bank.

Consumer prices, as measured by the benchmark IPCA index, will rise 4.6 percent this year, up from a week-earlier forecast of 4.5 percent, according to the median forecast in a Jan. 22 central bank survey published today. The bank targets inflation of 4.5 percent plus or minus 2 percentage points.

Traders expect the central bank to raise interest rates to at least 9 percent, up from a record low 8.75 percent, as early as March to keep inflation in check, according to Bloomberg estimates based on interest rate futures contracts. The benchmark lending rate will be pushed up to 11.25 percent by year-end, according to the central bank survey.

“March would be a good month to start raising rates and to send out a clear message — the central bank is watching inflation and is ready to increase rates as needed,” Carlos Eduardo de Freitas, a former central bank director, said in an interview from Rio de Janeiro guaranteed payday loans.

The annual inflation rate is likely to remain between 4 percent and 4.5 percent if policy makers start acting in March, said Freitas, who is a partner at OF Consultoria Economica, an economic research company in Brasilia.

“Should they wait until the last quarter of the year, consumer prices could rise more than 5 percent this year,” he said.

Economists in the bank’s weekly survey forecast that Latin America’s biggest economy will expand 5.3 percent this year, after contracting 0.26 percent in 2009.

The real gained 0.2 percent to 1.8210 per U.S. dollar at 11:18 a.m. New York time from 1.8247 on Jan. 22.

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Mark Tade, manager of employee relations for U.S. Steel’s Granite City Works, was elected as this year’s president of the Leadership Council Southwestern Illinois, a key economic development organization in the Metro East area.

Members also chose four other council officers for one-year terms:

— Council chairman, Vaughn Vandegrift, chancellor of Southern Illinois University Edwardsville

— Council vice president, Gerry Schuetzenhofer, president of Coldwell Banker Brown Realtors
— Secretary, Richard Sauget Sr short term personal loan., president of East County Enterprises

— Treasurer, Dale Stewart, executive secretary/treasurer of the Southwestern Illinois Building and Construction Trades Council

The Leadership Council was organized to attract and retain jobs and stimulate capital investment in the Metro East area.

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The amount of money that Canadians are stashing away for retirement has been declining for a decade, and the trend is likely to continue through 2020 as the baby boomers move into their golden years, according to a study by the Royal Bank of Canada.

Contributions to registered retirement savings plans, or RRSPs, grew steadily from the late 1960s to the late 1990s.

Since 1997, there has been a "decidedly downward trend" in the RRSP savings rate, the report says.

"This downward trend in itself doesn’t mean there’s a problem," if the level of savings is still adequate for Canadians’ retirement, RBC assistant chief economist Paul Ferley said in an interview.

"The big question is determining how much savings is needed to properly fund the population as they move into their retirement years. At the moment the academic community is working through that analysis. There doesn’t seem to be a consensus on that."

A falloff in savings would have a negative impact on the overall economy because it would result in fewer funds available for business investment.

Government officials said in December they will study and consult the public on a short-list of proposals for how to boost retirement savings.

The list includes everything from a continued reliance on voluntary savings plans and higher contributions to the Canada Pension Plan to supplementary pension plans and tax reform.

A report is expected by May.

Financial planning experts, academics and labour groups have been calling for pension reform, particularly as the massive baby boom population, those born in the two decades following World War II, moves into the retirement years.

Stock market volatility and turmoil in the economy over the past two years have exposed weaknesses in the current system. Fewer than one in four Canadians now holds a private company pension plan.

The decline in RRSP contributions can largely be pinned on changing demographics, according to the RBC paper.

Different age groups tend to save differently for retirement, the study noted, with those in their mid-30s and 40s traditionally saving the most and those ages 34 and under and ages 55 and older saving less.

"Because household RRSP contributions have historically tended to fall after age 55, it is possible that we could actually see a decline in total real RRSP contributions over the next decade," the study said.

The run-up in RRSP contributions as a share of income through the 1980s and early 1990s appears to have been mainly due to the boomers entering their peak saving years, along with rising income growth and comparatively strong real stock market gains, the study found.

Periodic changes in government policy, such as increases to contribution limits and scrapping limits on carry-forward room, also spurred savings.

Retirement savings declines have been driven by falling stock markets and economic slowdown, as well as demographic changes.

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The health care reform bill approved by the Senate on Thursday would do more than any proposal yet to reduce the deficit over time - by an estimated $132 billion over 10 years and by substantially more thereafter.

But reducing the deficit is not entirely synonymous with the oft-stated goal of health reform: reducing the growth rate in health care costs and expenditures - often referred to as "bending the cost curve."

That growth rate is what drives federal spending on Medicare and other federal health programs.

And it’s what budget experts say will pummel the federal budget in future years if nothing is done to change it.

So how would the Senate bill fare in bending the cost curve from the perspective of the federal budget? The short answer is the ever-unsatisfying "it depends."

The Congressional Budget Office estimates the bill could over time reduce the federal budget commitment to health care - that’s spending on programs like Medicare plus the amount of health-related federal tax breaks.

For instance, the CBO estimates that Medicare spending per beneficiary would grow by an average of 2% on an inflation-adjusted basis over the next two decades. That’s half the 4% annual growth rate that has marked the past two decades.

But that estimated reduction is highly dependent on a number of factors.

More than anything, it depends on whether this and future Congresses will do what the bill says … to the letter. The budget agency noted such stick-to-itiveness is rare when it comes to major legislation and said the bill includes measures that "might be difficult to sustain over a long period of time" - such as reduced pay increases for various Medicare service providers.

And reducing the federal budgetary commitment to health care also depends on how well the cost-bending provisions in the legislation work.

In addition to the Medicare savings called for in the bill, two other major provisions could help bend the cost curve, according to former CBO Director Donald Marron.

The first is the creation of an Independent Payment Advisory Board that would recommend ways to reduce Medicare’s spending growth beyond what the legislation calls for. The second is the establishment of an excise tax on very expensive health plans intended to encourage employers and their workers to become more consumer savvy in their health spending choices.

The CBO said in particular that the bill’s savings potential depends on whether the new Medicare board’s recommendations effectively control the growth rate in Medicare spending.

"We need real entitlement reform," said Douglas Holtz-Eakin, another former CBO director. He thinks the board could help make meaningful fixes, but he doubts that Congress will follow the board’s toughest recommendations payday loans for bad credit.

Savings could be jeopardized, further, if any cost-bending provision is weakened or eliminated when the Senate and House hammer out their differences early next year on what a final health reform bill should look like.

Lastly, how far the Senate bill bends the cost curve depends on the success of pilot programs in the legislation designed to make health care delivery more cost-efficient.

"They’re setting up a framework under which we can learn what bends the cost curve over time," said Josh Gordon, policy director at the Concord Coalition, a deficit watchdog group.

In the meantime, while the bill is projected to reduce the deficit in between 2010 and 2019, the federal budget commitment to health care will increase by an estimated $200 billion because of provisions in the bill that call for, among other things, the federal government to subsidize the purchase of insurance by many Americans.

Best-case scenario

CBO estimates are never flawless. The agency strives to offer middle-of-the-road readings, neither too optimistic nor too pessimistic. And they’re based on the language of legislation, not the political realities of Congress.

"I would say the risks [including the political ones] tend to lean towards everything costing more and saving less, but it isn’t out of the realm of possibility that the bill could save more than CBO suggests," Gordon said.

Assume for a moment, though, that the CBO analysis is dead-on. The agency estimates that the Senate bill could reduce federal budget deficits by between one-quarter percent and one-half percent of GDP in the decade after 2019.

That’s a step toward putting the federal budget on a more sustainable track. But it’s just a start.

"It’s a relatively modest contribution to reducing the long-term debt overhang," said Senate Budget Committee Chairman Kent Conrad, D-N.D., in an interview with C-SPAN.

Here’s what modest means. The so-called fiscal gap is estimated to be anywhere from 4% to 8% of GDP, Marron said. That’s a measure of how much spending would need to be permanently cut or taxes permanently raised if lawmakers were to put the federal budget on a more sustainable track long-term.

The Senate bill could move the needle by 0.5% of GDP in CBO’s best-case scenario.

While that doesn’t seem like a lot, it’s far from nothing, especially given how hard the goal of curbing health costs is. And it’s an indication of just how hard the fight will be next year when lawmakers are expected to consider proposals for how to address deficit reduction long-term. 

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South Korean banks may become more willing to finance acquisitions next year as the economy rebounds, said Morgan Stanley Executive Director Peter Chang.

Lenders may “begin to become more open over the next year on providing acquisition financing for deals,” Chang, 32, who oversees Morgan Stanley’s mergers and acquisitions advisory in South Korea, said in an interview in Seoul yesterday. “Improvements in the availability of financing will also help drive the overall level of M&A activity.”

South Korea’s benchmark stock index has jumped 47 percent this year as Asia’s fourth-largest economy leads a regional rebound from the deepest recession since the Great Depression. The economic recovery will fuel overseas takeovers by South Korean companies, Chang said.

“Korea’s economy has held up very well relative to other countries during the financial crisis,” he said. “We think that will create more opportunities for outbound M&A.”

South Korea’s growth will outpace all except China and India among the world’s 15 largest economies over the next two years, according to the International Monetary Fund. The average capital-adequacy ratio at the country’s 18 banks rose to 14.07 percent at the end of September, the highest since at least 2003, the Financial Supervisory Services said Nov. 25.

The ratio, which measures banks’ capital reserves against assets at risk, had fallen to as low as 10.86 percent a year earlier, forcing the government to set up a 20 trillion won ($17 billion) fund to replenish their capital.

Daewoo, Hynix

Morgan Stanley was the top adviser in mergers involving Korean companies this year, according to data compiled by Bloomberg. The New York-based company advised Doosan Heavy Industries & Construction Co. on its 451.6 million euro ($644 million) acquisition of Skoda Power AS of the Czech Republic, the South Korean company’s largest overseas takeover.

Not all companies expected to be up for sale next year will find buyers, Chang said. Korea Development Bank plans to select advisers this month for the sale of Daewoo Shipbuilding & Marine Engineering Co., the world’s second-biggest shipbuilder. Hynix Semiconductor Inc. creditors are accepting letters of intent from potential bidders until Jan. 29.

South Korea’s Financial Services Commission said Dec. 16 the government will focus on selling control of Daewoo Shipbuilding, Hynix, Daewoo International Corp. and Daewoo Electronics Corp. next year.

“It remains to be seen if these deals can all be completed over the coming year,” Chang said. “Particularly for larger assets, there are typically only a limited number of parties who are logical, viable acquirers.”

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