Monthly Archives: February 2009

Washington Deficit Balloons to $8 Billion

OLYMPIA, Wash. (AP) — Washington’s tax revenue is expected to drop another $2.3 billion through mid-2011, pushing the state’s projected deficit to about $8 billion, state officials said Thursday.

The rapidly worsening deficit will almost certainly force legislators to develop plans for new taxes. But that’s no slam-dunk solution: Voter-approved tax limits would require new revenue streams to be sent to the ballot, in the middle of a lingering recession.

The new revenue projection was unveiled late Thursday afternoon in a special, preliminary meeting of the state’s economic forecast council. Arun Raha, the state’s chief economist, said Washington and the nation remain in the midst of “an unprecedented economic crisis.”

“The state economy is caught up in a downward spiral that has devastated the national economy,” Raha said.

The 21/2-year deficit has now grown by about a third since the Legislature convened earlier this year. The new drop in revenue breaks down as about $700 million less for the current fiscal year, and about $1.6 billion less for the 2009-2011 budget cycle.

Lawmakers have taken some early actions to address the problem. On Wednesday, the Legislature passed and Gov. Chris Gregoire signed into law some immediate spending cuts and money transfers that freed up several hundred million dollars to help the state’s bottom line.

The federal government also has chipped in, sending a limited bailout through the new stimulus package — but that alone won’t solve the problem. Details are still being sketched out, but the stimulus package is expected to include about $2 billion that could be used to help backfill the budget hole.

The new “rainy day” emergency savings fund also will help fill the gap. Lawmakers may have to raid it sooner than expected, perhaps dipping into its reserves just to get through the current fiscal year, which ends June 30.

After that immediate budget problem is solved, lawmakers will still have to fix the budget for the 2009-2011 period, which is where most of the shortfall is.

Democratic leaders said they still must wait until March, for a more firm projection of revenue and state spending growth, before writing their budgets in earnest. The governor’s budget director, Victor Moore, agreed.

Minority Republicans, however, reiterated their call for even more immediate spending cuts, saying the Democratic majority isn’t moving fast enough in the face of a massive budget hole.

“I think still that there’s an opportunity to do some things here and save some pain by moving earlier,” said Sen. Joe Zarelli, R-Ridgefield.

Even with Thursday’s dour news in hand, top Democrats said it was still premature to begin publicly discussing new streams of tax revenue.

Leaders acknowledge that some tax package will probably have to be part of the budget solution, but they’re still planning to pencil out deep spending cuts first. Only then will they ask whether the public would support taxes to keep some favorite programs, said Senate Majority Leader Lisa Brown, D-Spokane.

“If we decide an all-cuts budget is not something we can accept because of its impact on the social safety net, and because of how much backwards we’d have to go in education and higher education, then we will consider revenue options at that point,” Brown said.

Senate Democrats are even planning to leave the Legislature for a few days in March for town-hall meetings to gauge their constituents’ feelings about the proposed budgets, Brown said.

Republicans, however, are warning that a deep recession is the wrong time to reach for more money from taxpayers.

“I just don’t think we should be throwing in the towel and asking the taxpayers for a bailout,” said Rep. Ed Orcutt, R-Carrolls. “We’re in a consumer-led recession. If we take money out of the taxpayers’ pockets, they’re not going to be able to increase their consumer spending.”

Dow Slides to New 6-Year Lows, Led by Financials, at 7,259, down 207

NEW YORK (AP) — Stocks tumbled again on Wall Street Friday, leading a worldwide rout, as investors lost even more confidence in the ability of U.S. banks to right themselves.

Investors again pummeled the shares of financial bellwethers Citigroup Inc. and Bank of America Corp., sending them down 21 percent and 18 percent respectively in early afternoon trading.

Poor earnings reports from Lowe’s Cos., a major home improvement retailer, and department store chain J.C. Penney Co. gave the latest stark indicator of trouble in the broader economy.

The Dow Jones industrials fell 128.39, or 1.72 percent, to 7,337.56. On Thursday, the Dow fell to its lowest level since Oct. 9, 2002, the depths of the last bear market.

The Standard & Poor’s 500 index tumbled 13.32, or 1.71 percent, to 765.62, while the Nasdaq composite index fell 8.39, or 0.58 percent, to 1,434.43.

The sell-off followed steep drops in other major markets in Europe and Asia. Germany’s DAX and France’s CAC-40 each fell more than 4 percent, and Tokyo’s Nikkei fell 1.9 percent and the Hang Seng in Hong Kong fell 2.5 percent.

Stocks have fallen steadily over the past two weeks as investors lost confidence in multiple Obama administration programs aimed at bolstering the economy. Just this week the government finalized two major initiatives, a massive fiscal stimulus package and a relief plan for homeowners.

“There’s perceived disappointment from the lack of clarity from the Treasury (Department) for what it will do with the financial sector,” said Wasif Latif, portfolio manager at USAA Investment Management Co. “That’s hitting financials regularly.”

Both Citi and Bank of America, which also got hammered on Thursday, have been among the hardest hit by the ongoing turmoil in the industry and received multiple multibillion investments from the government.

Citi shares tumbled 53 cents to $1.98 while Bank of America, which touched a 25-year low earlier in the day, sank 68 cents to $3.25.

As investors dropped out of stocks, safer instruments like Treasury debt and gold rose. The price of the benchmark 10-year Treasury note rose sharply, sending its yield down to 2.72 percent from 2.86 percent. Gold jumped 3 percent to $1,005.60 per ounce.

A pair of poor earnings reports Friday only worsened sentiment about the economy. Lowe’s said fourth-quarter profit dropped 60 percent after customers cut back on spending and the company gave a full-year profit estimate that disappointed investors. Department store chain J.C. Penney said profits tumbled 51 percent.

“There’s still a big fear factor syndrome,” said Michael Strauss, chief economist and market strategist at Commonfund. “There is a focus on what is happening here and now instead of six months to nine months from now.”

Declining issues outnumbered advancers by about nine to one on the New York Stock Exchange, where volume came to 803.59 million shares.

The Russell 2000 index of smaller companies declined 8.75, or 2.10 percent, to 407.96.

Other world indicators also fell. Britain’s FTSE 100 declined 3.18 percent, Germany’s DAX index tumbled 4.76 percent, and France’s CAC-40 fell 4.25 percent.

Kitsap Sun Plans Wage Cuts, Pension-Contribution Freezes

Bremerton

E.W. Scripps Co., which owns the Kitsap Sun and 13 other daily newspapers, announced Wednesday a companywide salary reduction.

In a statement sent to employees, Scripps President and CEO Rich Boehne cited a tough economy and a need to control costs throughout the newspaper chain.

“Maintaining financial health and flexibility must be a top priority in this environment,” Boehne said. “The economy is throwing new and bigger challenges at us each day and we intend to have the strength to weather the storm.”

The reduction in pay takes effect March 9, according to Sun President and Publisher Mike Levi. The company will also suspend its 401(k) matching program for employees, and freeze contributions to its pension plan.

In his message, Boehne cited the company’s core mission of journalism in looking to the coming months and years.

“There’s reason to trust that our current sacrifices can result in future dividends for all us who help create the next successful chapter of the news industry and The E.W. Scripps Company.”

Wholesale Prices Make Big Jump

WASHINGTON (AP) — Inflation at the wholesale level surged unexpectedly in January, reflecting sharply higher prices for gasoline and other energy products.

The Labor Department said Thursday that wholesale prices increased by 0.8 percent last month, the biggest gain since last July and well above the 0.2 percent increase that economists had expected.

The acceleration was led by a 3.7 percent surge in energy prices with gasoline prices jumping by 15 percent, the biggest gain in 14 months.

Even outside the volatile food and energy sectors, wholesale prices showed a bigger-than-expected increase, rising by 0.4 percent. Economists had expected a slight 0.1 percent rise in so-called core inflation.

Food prices were well-behaved last month, falling for a second straight month. The 0.4 percent decline in January reflected lower costs for beef and dairy products which offset gains in the price of vegetables and chicken products.

In addition to the big jump in gasoline costs, prices for home heating oil were up by 5.4 percent and liquefied petroleum gas, which is often used to heat homes in rural areas, surged by 20.2 percent, the biggest jump in more than six years.

Outside of food and energy, there were increases for pharmaceuticals, light trucks and passenger cars and civilian aircraft.

Despite the big jump in wholesale prices in January, economists do not believe inflation is on the verge of becoming a problem, given the country’s deep recession.

That downturn, which began in December 2007, has been keeping a lid on inflation pressures, which has given the Federal Reserve the room to slash a key interest rate to nearly zero without having to worry about kindling inflation.

Federal Reserve Chairman Ben Bernanke told an audience at the National Press Club on Wednesday that he saw little risk that the Fed’s efforts to fight the recession and a severe financial crisis would trigger inflation presusres.

He said that once the economy begins to rebound and financial markets stabilize, the Fed will be able to quickly reverse the actions it has taken before inflation becomes a problem.

Leading Indicators Rise More Than Expected in January

NEW YORK (AP) — A private sector measure of economic activity jumped unexpectedly in January for a second straight monthly increase, due mainly to federal efforts to expand the money supply.

The New York-based Conference Board said Thursday that its January index of leading economic indicators rose 0.4 percent. Economists surveyed by Thomson Reuters expected no change in the index, which forecasts economic activity for the next three to six months based on 10 economic components, including stock prices, building permits and initial claims for unemployment benefits.

The Conference Board said the single biggest boost to the index was the real money supply. The government’s effort to address the credit crisis has put more money in circulation.

Five of the 10 factors that make up the index increased in January, including the interest rate spread, an index of consumer expectations, and manufacturing orders for non-defense and consumer goods.

Last month’s gain compared with a 0.2 percent increase in December and a drop of 0.7 percent in November. Those measures were revised down from prior estimates.

Conference Board economist Ken Goldstein says the “intensity” of the recession could begin to ease in the next few months.

“The second half of 2009 may see a period of anemic growth,” Goldstein said in a statement, but “robust” growth would not return until well into 2010.

Unemployment claims and building permits were among the biggest drags on last month’s index.

The Labor Department reported Thursday that new applications for unemployment benefits totaled 627,000 last week, the same as the previous week, but that was still more than the 620,000 claims economists expected.

Tens of thousands more jobs cuts were announced earlier this week. General Motors Corp. said Tuesday it would cut 47,000 jobs, or 19 percent of its work force, by the end of the year. Goodyear Tire & Rubber Co. said Wednesday it will cut nearly 5,000 jobs, or about 7 percent of its work force. And Chrysler said it will cut 3,000 more jobs.

An improvement in the unemployment figures would be a more reliable sign of improvement, said Joel Naroff, president and chief economist at Naroff Economic Advisors Inc.

“Just having more money does not mean the economy is going to expand,” Naroff said. “Probably the most important issue that I want to see is some healing in the confidence numbers. If we can turn the psychology around, we can start to spend on the household side and slow the employment numbers on the business side.”

The Commerce Department reported Wednesday that construction of new homes and apartments dropped 16.8 percent last month to a seasonally adjusted annual rate of 466,000 units. That was well below the 530,000 units economists expected, and the slowest pace on records dating back a half-century.

Applications for building permits, considered a good barometer of future activity, also dropped to a record low.

Thursday Stocks Drift Following Economic Readings: Dow at 7,507, Down 48

NEW YORK (AP) — Investors are sitting on the sidelines for a second day as they wait for signals about the direction of the economy.

Mixed economic readings are offering the market little guidance.

A private research group said its index of leading economic indicators has shown a surprise increase for January. But the Philadelphia Federal Reserve says conditions in the region’s manufacturing sector have weakened this month.

Stocks finished essentially flat Wednesday after tumbling Tuesday on worries about the global economy and Eastern European banks.

At midday, the Dow Jones industrials are down 3 at 7,552. The Standard & Poor’s 500 index is up 2 at 791, and the Nasdaq composite index is down 3 at 1,465.

Top Health Officials Warn of Funding Cut

By Rachel Pritchett

rpritchett@kitsapsun.com

SILVERDALE

As the economy worsens, Kitsap’s top health officials are fighting hard to prevent threatened funding cuts they say could affect many locally.

As word spread that a new state revenue forecast may peg the deficit much higher, at $8 billion, Kitsap Mental Health Services’ executive director warned that cuts in the governor’s proposed 2009-2001 budget or from other sources that are too deep will throw his agency into a “treat-and-street” mode.

Staffers will be limited to treating only the worst-off clients, then turning them loose, said Joe Roszak.

“If the cuts are severe and significant enough, we could reach a tipping point where we provide only crisis-stabilization services,” he said. 

His biggest fear is loss of outpatient services, he said Wednesday after presenting his concerns at a League of Women Voters meeting.

The county’s only public mental-health agency will be OK through June 30, he said. The Peninsula Regional Support Network, which funnels state funds to his agency, will pull from its reserves to continue KMHS current funding, should state cuts between now and then take place, he said.

Dr. Scott Lindquist, director of the Kitsap County Health District, fears the loss of public-health nurses and environmental health specialists in agencies such as his.

“These two positions are the core of public health,” he said at the League of Women Voters meeting.

Budget cuts for agencies like his so far for 2009 have come to a total of $33 million statewide and a loss of 250 positions. Many health districts have had to cuts services in health visits to high-risk families, chronic disease prevention, disease investigation, oral health and environmental public health, according to the Washington State Association of Local Public Health Officials. 

Locally, reduced funding could possibly prompt the health district to move away from immunization and family-planning services, Lindquist said.

The public-health funding slip began with the passage of I- 695, the $30 license tab initiative, in 1999 and never fully recovered. 

Add a recession and the result is “a perfect storm,” Lindquist said.

Meanwhile on Wednesday, Tom Kruse, vice president of strategy and business development at Harrison Medical Center, said the governor’s proposed budget would result in a $4.3 million loss for Harrison, which, like the other entities, is under the funding gun. 

The down economy means Harrison will have to make up a $9 million to $12 million deficit in pension funding, he said during a Kitsap Sun editorial-board meeting.  

Barbara Malich, chief executive officer for Peninsula Community Health Services, said funds availability forced six positions to be cut within her agency, and another 18 could be cut later this year if federal stimulus money doesn’t make its way locally. 

Peninsula Community Health Services provided low-cost health care to 17,465 patients last year. Malich also spoke to the Kitsap Sun editorial board.

Harrison’s Kruse echoed Malich’s concern about the $787 billion economic-stimulus bill just signed by the president.

Kruse, too, hopes money earmarked in the bill for health care doesn’t get siphoned off somewhere else.

“I don’t think we’re advocating for a change,” he said.

Some of the health officials are anxious to see Kitsap commissioners put into effect what’s known as Hargrove initiative, which allows counties to pass a tenth-of-a-percent increase in the sales tax to supplement some sorts of  mental health and substance-abuse services. The Hargrove Bill has passed the Legislature in 2005, but takes either commissioners’ decision or a public vote to implement locally.

Roszak, from Kitsap Mental Health Services, said voters are in no mood to pass a tax increase, but without sufficient local funding, the cost comes much dearer.

Bozeman Has Highest Praise for Foster Parents

Kitsap’s most well-known foster child, Bremerton Mayor Cary Bozeman, has highest praise for people who take on foster children.

“They’re heroes in my book,” he said.

“You change lives.”

When he was 6, Bozeman, his sister and brother were abandoned by their parents and left in an orphanage.

After two years, he lived with an aunt and uncle and in foster homes all over the place, including Seattle, where he went through three just in high school. 

Bozeman lived out of his ’49 Ford for many months before graduating from Lincoln High School in 1959.

He new saw his father again. He saw his mother a couple of times and lived with her briefly. She had drug and drinking problems, and ended up beaten and killed in Texas.

“I’m a survivor, been on my own since I was 10 years old. No one’s given me money,” said Bozeman, who eventually worked his way through college to graduate from University of Washington.

He went on to devote 30 years to Boys and Girls Clubs, and has a place deep in his heart for the young ones.

“I tell kids, ‘Your life’s not about circumstances; it’s about choices you make,’ ” he said.

“I had a tough life … it made me better.”

— Rachel Pritchett