The three-member group tasked with determining how much money will come into the state lowered it’s March estimate for fiscal year 2012 based on legislative changes and set new growth levels for that fiscal year and the next on Friday.

The REC voted 3-0 to set it’s new FY 2012 estimate at $5.97 billion, or 1.3 percent more than actual FY 2011 returns of $5.89 billion. That’s about $210 million less than the REC’s March 25 estimate for FY 2012, which put net receipts at $6.18 billion.

The group said legislative changes since that March meeting resulted in $196.5 million less coming into the general fund, largely due to a change in the way cigarette and tobacco taxes are collected. Revenue from the sales and use tax is also likely to decrease, the group agreed.

The REC painted a brighter picture for FY 2013, estimating revenues of $6.2 billion or 3.9 percent growth compared to the FY 2012 estimate.

David Roederer, the director of the Department of Management and the chairman of the REC, said uncertainty at home and abroad has threatened economic growth.

“I think that we do have a real mixed bag,” he said. “The part that I think is most uncertain that is really hard to get a handle on is the international situation that we have.”

The good news, Roederer said, is companies and corporations are making money and agriculture is doing well in the state.

“I think once they start getting some kind of a signal as to what direction government policy is going to go, I think that in fact is going to speed up the recovery,” he said.

Holly Lyons, director of the fiscal services division of the Legislative Service Agency, also pointed to uncertainty as a deterrent to economic growth. But she said Iowa has a diversified economy and is still reporting job, income and revenue growth, just not to the levels she would like to see.

“As we predicted a year ago, we’re chugging up the hill but it’s a long, steep hill,” Lyons said.

David Underwood, the citizen appointee to the REC, said he was unable to find anyone that is confident the economy will continue to grow without seeing another dip into recession.

“But one silver lining I did find was any recession in the next few months is likely to be short and shallow,” he said.

The group will meet again in December to revise its estimates. The governor and Legislature must use that number when putting together their budget plans. If the REC’s estimate decreases when the group meets again in March, the lesser of those two estimates must be used.

“We’re hoping this information can get out to build awareness of the cliff we’re speeding toward,” said Charlie Brown, director of the Center for Colorado’s Economic Future at DU on Wednesday.

Targeting education

In a roughly 45 minute Power Point presentation, Brown and his colleagues detailed the dire straits the state is sailing into as the slew of constitutional tax-limits in place here led by the Taxpayer Bill of Rights slowly strangle the government, even as the recession releases its grip and revenues begin again to climb.

A little more than a decade from now, Brown said, the state will face a $3.6 billion shortfall. The state will have only enough money to pay for the three big ticket services: education, health care and incarceration.

“There will be no tax revenue for public colleges and universities, no money for the state court system, nothing for child protection services, nothing for youth corrections, nothing for state crime labs and nothing for other core services…”

Brown said that education funding will suffer most. The state will see successive governors repeating variations of the kind of speeches Governor John Hickenlooper gave this year, when he proposed a $375 million slash in the education budget, explaining that “that’s where the money is.” Brown said K-12 education funding will be picked over and parceled out and repeatedly thinned. He said pressure will mount for higher education in the state to be privatized.

Hard sell

The Center has so far only released a summary of its “phase two” study of Colorado’s budget prospects. The full report will likely become available in the next two months or so and will be posted online. The first phase of the study was released earlier in the year. The Center was tapped in 2010 by state lawmakers staring at ledgers soaked in recession red after a year of dramatic cuts in program funding. The Center’s phase one work, which was by design only descriptive, has been lauded as clear-eyed, nonpartisan and comprehensive.

Phase two of the research offers strategies to address the budget crisis and so is sure to be more controversial. Yet the Center has tried mightily to avoid partisan pitfalls by offering two scenarios to balance the books. The first outlines the cuts in programs it would take to close the yawning shortfalls that will increasingly plague the state in coming years. The second scenario presents a program of tax increases to bridge the gap.

“It’s a hard sell,” Brown soberly told the smattering of state reporters gathered in the lecture room. “It’s very tough. There’s no magic pill…. You have to dramatically cut services or increase revenues. You could do a combination but, I can tell you, it’s one thing to say ‘We’re cutting services.’ It’s another thing to say ‘We’re increasing taxes.’ No one wants to get up and say ‘We’re going to raise your taxes and provide you less services.’

Cuts would be centered on education but would also come to eliminate programs or whole departments. On the chopping block mainly would be the departments of agriculture, higher education, local affairs, military and veterans affairs, natural resources, personnel and administration, public health, public safety, regulatory agencies and revenue.

The coming budget gaps cannot be addressed “by mere belt tightening,” the researchers wrote in their summary of findings. “If state government were a tree, it would mean lopping off entire branches.

“In that case a wholesale rethinking of government would be necessary. Should tax dollars continue to subsidize in-state tuition at state colleges and universities? Can we still afford to supervise and rehabilitate youthful offenders? What about the state psychiatric hospital[s]…? What about state enforcement of disease control and clean water regulations?”

Cutting or taxing

The scenario presented by the researchers to increase revenue hinged mostly on a new graduated income tax, extending sales taxes to personal services outside of health care like those provided by divorce attorneys, and rebalancing the local-state school funding structure by placing a greater share on local districts and instituting a statewide uniform mill levy.

Brown said the proposed tax increases, although substantial, are sufficiently restrained as to keep Colorado “competitive” with the tax regimes in place in surrounding states.

He conceded, however, that the tax increases are illegal as long as the Taxpayer Bill of Rights remains in place or unmodified, which is a serious impediment to raising revenue.

It’s difficult enough, of course, to find a politician anywhere in the country willing to make the case for tax hikes. In Colorado that argument is hobbled by the need to alter the constitution or submit ballot referendums for each of the tax increases or modifications proposed by the Center researchers.

The Center’s Steve Fisher said that bringing the public into the discussion is essential.

“Our educational role is big. We’re not advocating one way or the other. We plan to do a lot of public education.”

Brown said he alone gave more than 30 presentations on the Center’s “phase one” findings and expects to do the same kind of tour for “phase two.” The Center’s website will include the narrated Power Point presentation given to reporters Wednesday. It also includes an interactive “Bridge the Gap” feature where readers can try to balance the budget themselves.

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The USPS pegs projected losses over the next ten years at a colossal $238 billion, based on ongoing precipitous declines in first-class mail use. Both industry insiders and government officials, however, say that number is ludicrously inflated.

Ruth Goldway, chair of the Postal Regulatory Commission, an oversight agency that acts as a middleman between the Postal Service and the federal government at large, called it an “unsubstantiated figure with no basis in reality.”

Phil Dine, a spokesman for the National Association of Letter Carriers (NALC), which represents more than 90 percent of all letter carriers, tells The American Independent, “Nobody takes that seriously.” Both called the number a scare tactic that USPS management is using to jolt Congress to rush into reforms.

The numbers from the last several years seem to back up what Goldway and Dine say. Getting to $238 billion in losses by the start of the next decade would require the absolute worst annual loss the Postal Service has suffered in recent years to more than triple, then stay that high for the entire decade. Yet overall mail volume is actually increasing (though first-class mail is still far below pre-Internet-Revolution levels) as the country gradually claws its way out the recession, making such a scenario beyond unlikely.

Still, even if it’s not to the tune of $238 billion, there’s no denying that the Postal Service is in trouble. It ended 2010 with a net operating loss of $8.5 billion, marking the fourth straight year — and the worst of them yet — that the USPS has ended up in the red. But industry insiders say these grim numbers — the source of anti-labor grousing from the likes of Rep. Dennis Ross (R-Fla.) — leave out a crucial part of the complete picture, a piece that completely flips the narrative on the dire straits the Postal Service allegedly faces.

A retirement deal struck

The roots of the issue go back 40 years. In 1971, the federal government authorized a complete overhaul of the postal system. It replaced the nearly 200-year-old Post Office Department with the U.S. Postal Service, which has delivered the mail ever since. The main difference between the two, though the changeover may have been little noticed by the public, is that the Post Office Department was a Cabinet-level department of the federal government and, as such, was funded with federal money. The Postal Service is a federal agency in a much looser sense and operates entirely on revenue generated by consumer purchases.

At the time of the changeover, the new Postal Service struck a deal with the Office of Personnel Management (OPM), the federal agency that oversees all federal civil service programs (such as the old Post Office Department). For those postal workers who began their careers before 1971, the OPM would use federal funds to contribute to pension plans at a rate based on 1971-level earnings, without adjustments for inflation or post-‘71 pay raises. The USPS agreed to keep using the Civil Service Retirement System (CSRS), the pension system for all federal employees, for simplicity’s sake.

Over the next several decades, inflation rose and postal worker salaries grew, from an average of under $10,000 annually at the time of reorganization to over $50,000 today (PDF). As a result, the USPS has contributed an increasingly disproportionate part of pension costs to the CSRS each year since 1971.

‘Pre-funding the grandkids of people who haven’t been born yet’

By 2003, the Postal Service began lobbying Congress to do something to reform the system and reduce its pension obligation. Instead, in 2006, Congress passed the Postal Accountability and Enhancement Act, which, among other things, required the Postal Service to fund 75 years’ worth of retiree health benefits over ten years. Of this singular requirement, the NALC’s Phil Dine says, “It’s pre-funding the grandkids of people who haven’t been born yet. No other organization, public or private, has to do anything like that.”

And that, to bring it all full circle, is where the budget shortfalls come in, according to postal worker union representatives, as well as the Postal Service itself. Each year, September 30 (the end of the fiscal year) hits, and the Postal Service has to dump $5.5 billion into its Retiree Health Benefit Fund. Without that requirement, the Postal Service’s annual profits could have reached as high as $3.3 billion in recent years. Of course, the $8.5 billion loss last year still leaves $3 billion in red ink even after discounting the retiree fund money, but Jim Sauber, head economist and chief of staff for the NALC, contends that even that shortfall is simply the result of a “non-cash” adjustment to the USPS workers’ compensation fund, following tumbling interest rates.

The short end of the stick

Indeed, though the recession and the rise of online communication have put an undeniable damper on mail in general, Dine reports that the latest figures have the USPS making $226 million in net profit in the first quarter of this year — a trend that should continue, at least until September 30 comes around. Even when offset by the hit the Postal Service takes from that non-cash workers’ comp adjustment based on slashed interest rates, Dine says that the USPS would have made $837 million since 2007, were it not for the pre-funding requirement.

Still, despite the singularity of the requirement, the NALC argues that the Postal Service does have the money to remain afloat, if it were simply allowed to use it. Those disproportionate pension contributions? According to external audits performed by consultants from the Segal Company and the Hay Group, the Postal Service has put anywhere between $50 and $75 billion extra into the CSRS since 1971.

The USPS would like to use that money to cover its retirement obligations, but the Office of Personnel Management controls the funds, and recognizing the overage would mean making up the difference itself. “We’re happy to pay our fair share,” says the NALC Chief of Staff Sauber. “We just don’t want to get the short end of the stick, which is what we’ve gotten from OPM.”

Even the OPM concedes that it’s not unreasonable for the Postal Service to seek a re-evaluation of how pension contributions are tabulated. “[In 2003], the Postal Service proposed that the obligations for pre-1971 service be calculated on the basis of a simple years-of-service approach,” OPM planning director John O’Brien told the House Oversight Committee at a hearing last year. “Other than one technical flaw [a quibble over annuity growth], this is not an inconceivable approach. While it may be worthy of future consideration by the Congress, OPM believes that it is not possible based upon current legislation.”

Postal Service: Soon to be extinct?

That last detail is the sticking point in all this. Any change would require an act of Congress, a fact emphasized by unions, the Postal Service and the OPM alike. Unfortunately for the Postal Service, Congress is unlikely to act on this any time soon.

With a 2012 budget fight looming, any solution that would increase the federal deficit by shifting money from a federal pension system into a financially independent organization’s retirement accounts is not going to be popular.

As if to confirm this very notion, Rep. Stephen Lynch (D-Mass.) introduced a bill last month that would resolve this exact issue by transferring all surplus contributions into the USPS Retiree Health Benefit Fund. The American Postal Workers Union Thursday came out in support of the bill, and higher-ups at NALC tell The American Independent that they’re happy with it as well, but it may not have the necessary support where it counts. The bill has just 35 co-sponsors in the House. It’s currently in the Republican-controlled House Oversight Committee, which has instead turned its attention to a new Postal Service labor contract that House Democrats, postal unions and USPS management have all called fair, but that committee Republicans have alleged is too labor-friendly and only underscores the value of private courier services like UPS and FedEx.

In a hearing last month, amid Republican claims that the contract is inflexible and promotes high labor costs, Rep. John Mica (R-Fla.) said, “The Postal Service has become a dinosaur that will soon be extinct […] and that’s why I use FedEx and UPS.” In fact, one of the Postal Service’s fast-growing sectors is what it calls “last-mile service,” in which it delivers packages door-to-door on behalf of UPS and FedEx, which don’t provide universal service.

Of the push to devalue postal unions and avoid releasing the pension funds, Sauber asks, “Should we really be crushing the Postal Service right now, at a time of 9 percent unemployment?” Congress has five months to decide its answer to that question. If the answer falls to Oversight Committee Republicans, America’s Postal Service may become all but unrecognizable in the near future.

Viacom CEO Philippe Dauman topped the USA Today list, with a combined $84.5 million in pay, between a $2.6 million salary, an $11.25 million bonus and a $70.5 million return on stock options in 2010. Hovering near the bottom were executives like Steve Jobs, John Mackey of Whole Foods and Vikram Pandit of Citigroup, whose symbolic $1 annual salaries belie massive net worths thanks to their holding stock in their respective companies. Though Jobs’ $8.3 billion and Mackey’s $1.8 billion dwarf Pandit’s net worth, estimated in the tens of millions, as of this year, Pandit will earn $1.75 million, exceeding what he was earning before the recession hit.

All told, the 175 CEOs that USA Today collected data on made a combined $1.84 billion, with a median annual pay of $8.8 million. This represents a 26 percent jump in annual pay from 2009; average private industry workers, on the other hand, saw pay raises of 2.1 percent over the same period.

Meanwhile, hedge fund managers are making money that makes CEO income look pitiful by comparison. The top 25 hedge fund managers in the U.S. made a combined $22 billion, bolstered by surging gold prices and a generally bullish market. This works out to an average of $883 million in 2010 income for those 25 managers, the third-highest in history.

Far and away the top earner among them was John Paulson of Paulson $ Co., who personally made $4.9 billion in 2010, largely in gold. Other hedge fund managers invested heavily in the emerging lawsuit market, lending millions to law firms heading up major class-action suits. Interest on the loans is passed on to the firm’s clients in additional fees, meaning that many plaintiffs who are victorious in class-action suits end up paying for the “privilege” of winning.

Even assuming Paulson works at the high-end of the industry standard for people working for hedge funds — say, 60 hours a week — his astronomical pay would break down to about $436 per second on the job. It would take him one minute and 48 seconds to earn the median yearly income for American men.

Despite their massive haul in 2010, hedge fund managers continue to exploit a controversial “carried interest” tax loophole that allows them to pay a maximum of 15 percent on the vast majority of their income, as opposed to the 35 percent that others in the top tax bracket are required to pay. Efforts (PDF) to close the loophole in the past have been unsuccessful.

The “gross vacancy rate” — the percentage of households that were empty at any time during the year — stands considerably higher, at 14.3 percent. The figure of 11.3 percent comes from the year-round vacancy rate, which is a better metric of economic vulnerability, as it doesn’t include homes that are lived in seasonally or households that often mark seasonal variations in residency, such as apartment buildings in college towns.

The count of vacant homes only extends to residences that are deemed livable. The Census Bureau’s definition of vacancy explains:

Vacant units are excluded if they are exposed to the elements, that is, if the roof, walls, windows, or doors no longer protect the interior from the elements, or if there is positive evidence (such as a sign on the house or block) that the unit is to be demolished or is condemned.

As a CNN Money story from last week reported, Florida has been one of the states worst hit by the abandonment of houses. It’s likely that the so-called “natural decline” — a euphemism for a population dying of old age — common in Florida and the decreased influx of new retirees to fill in the gaps has contributed to vacancies in the state. Other states with high vacancy rates, like Alabama, with 16.9 percent of homes vacant, and West Virginia, with 16.7, have similar levels of natural decline.

Other states and localities don’t have such simple explanations. At times, the vacancies seem downright capricious. Idaho, for example, has seen the greatest increase of any state in vacant homes since before the housing bubble burst. In 2005, 7.8 percent of homes in Idaho were vacant; in 2010, 15.4 percent. Neighboring Montana, meanwhile, was one of just ten states that have actually seen a decrease in the vacancy rate since 2005, and it has the lowest rate overall, with 6.9 percent of Montana homes vacant throughout 2010.

Looking at metropolitan areas rather than states also offers some surprises. Miami and Tampa topped the list in overall vacancy rates, though coming in at number five was Sun Belt boom city Phoenix, Ariz., with a hefty 18.4 percent vacancy rate in the greater Phoenix area. Springfield, Mass., saw the lowest overall vacancy rate, 4.9 percent, which is a return to its 2005 rate; 16 major metropolitan areas also returned to 2005 (or earlier) rates, though most had vacancy rates in the double digits.

But the results don’t mean that immigrants were spared from economic harm. The unemployment level among immigrants is still about double its pre-recession rate, and wages fell off considerably among foreign-born workers. This might be because undocumented immigrants cannot receive unemployment benefits, making them more likely to accept low-paying jobs and reduced hours instead of holding out for better positions.

Latinos were hit hardest by the recession, with 4.4-percentage-point drops in employment for both Latinos overall and Latino immigrants. While native-born Latinos continued to lose jobs between June 2009 and June 2010, though, foreign-born Latinos began to gain jobs in construction, health services and sales. Construction was one of the sectors hit hardest by the recession, which led to large job losses among immigrant men.

Along with unemployment, Latino workers suffered lower median earnings during the recession and the recovery. Median weekly earnings for Latino immigrants fell by 7 percent between 2008 and 2010, from $454 to $422.

Despite the fact that foreign-born workers gained jobs more quickly during the recession, economists say there is no evidence to support claims that immigrants take jobs away from Americans. Although workers in certain sectors may face job losses due to immigration, overall immigration can actually improve employment for native-born Americans.

Correction: This post initially stated that native-born workers had lost 1.2 billion jobs since the end of the recession. Thankfully, the economy is not that bad; the number has been corrected to 1.2 million.

Output at factories, mines and utilities fell 0.2 percent, the first decline since the recession ended in June 2009, according to figures from the Fed today. Another report showed builders were less pessimistic than projected this month. [...]

Economists forecast production would increase 0.2 percent, according to the median of 63 projections in a Bloomberg News survey. Estimates ranged from a decrease of 0.3 percent to a gain of 0.4 percent. The drop followed an unrevised 0.2 percent gain in August.

It isn’t good to read too much into any one month’s data. But why might this piece of bad news be particularly bad?

Because industrial production — manufacturing, mining and utilities, often seen as a economic bellwether — had previously seemed a bright spot in an otherwise gloomy economy. Total levels of production plummeted back to 1998 levels during the recession. But they bounced back quickly, as companies restocked their shelves and upgraded their equipment during the recovery.

Now, economists would expect the consumer to step in: Customers buy more goods, meaning businesses order more goods, meaning manufacturers make more goods, hiring workers in the process. But that hasn’t happened. The regular Main Street consumer remains constrained by high levels of unemployment and stagnant wage growth. So overall production has stalled out as well, and industrial producers see no need to add jobs. It’s just one more example of the sluggish overall picture.

What’s most frightening is just how much lower-income Americans have pulled back: Your average earner is now spending less than half per day what he spent in May 2008, and 20 percent less than he spent a year ago. Those are really massive cuts.

Given that consumer spending makes up about 60 percent of the U.S. economy, that does not attest just to how hard the middle class has taken the recession, but to how hard it will be for the recovery to take hold. Until consumers spend more, employers won’t hire. But if employers won’t hire, consumers can’t start spending more. That is the horrible pretzel logic of the current economic situation.

At the core of the problem is the economy, which has few jobs to attract immigrants to the U.S. or help young people move out of their parents’ homes. This is applicable to legal and illegal immigration, both of which have dropped as the number of jobs remains low. For those already here, the recession has been especially hard on immigrants, and foreign-born men in particular, as industries such as construction shrink.

As Annie Lowrey has reported, low housing numbers means lower revenues for city governments. Cities expect revenue to fall by 1.8 percent this year, which will mean major cuts for services such as education, police and roads.

Michael Bromwich, head of the Bureau of Ocean Energy Management, Regulation and Enforcement, and Interior Secretary Ken Salazar (Pete Marovich/ZUMApress.com)

The Obama administration announced today it is lifting the moratorium on deepwater drilling in the Gulf of Mexico that was imposed in the aftermath of the BP oil spill. But Interior Secretary Ken Salazar gave few details about how soon drilling would resume in the Gulf.

Salazar said he believes it is “appropriate” to allow drilling again in the Gulf now that the Interior Department has reviewed offshore drilling safety and issued new rules on the practice. But he noted that drilling will be allowed only for “those operators to clear the higher bar that we have set.”

[Environment1] Salazar and Michael Bromwich — head of the newly formed Bureau of Ocean Energy Management, Regulation and Enforcement — said they could not give a clear timeline for when drilling would resume, noting that oil companies must first comply with the new standards.

“I don’t think any of us siting here today knows which of the operators have begun implementing those requirements,” Bromwich said, adding that anybody who offers a time frame is “just guessing.” Salazar, pressed by reporters on the question, said, “We will soon have deepwater drilling resume in the Gulf.”

Already, though, the oil industry is raising concerns about the potential pace of drilling application approvals. The American Petroleum Institute, the powerful oil industry trade group, said it was concerned a “de facto moratorium” would remain in place because the Interior Department doesn’t have adequate resources to process applications.

API President Jack Gerard said in a statement, “Without additional resources and a serious commitment by the government to process and approve permits and other requirements expeditiously, the moratorium will give way to a de facto moratorium, which will continue to cripple the already hard-hit Gulf region and cost more than 175,000 American jobs a year.”

API spokeswoman Cathy Landry says most companies “have all the requirements in place” already and will be turning in their applications for drilling quickly. In all, 36 rigs were affected by the moratorium.

It’s not just the oil industry that’s worried about the move; Sen. Mary Landrieu (D-La.), who placed a hold on President Obama’s nominee to head the White House Office of Management and Budget, Jack Lew, until the moratorium was lifted, said in a statement that she would wait to lift the hold until she has time to review the administration’s efforts to review permits. Landrieu and other Gulf coast lawmakers have raised questions about the amount of time it will take for drilling to resume once the moratorium is lifted.

“I am not going to release my hold on Jack Lew,” Landrieu said in the statement. “Instead, I will take this time to look closely at how BOEM is handling the issuing of permits and whether or not drilling activity in both shallow and deep water is resuming. When Congress reconvenes for the lame duck session next month, I will have had several weeks to evaluate if today’s lifting of the moratorium is actually putting people back to work.”

Bromwich said BOEM has “ramped up” the allocation of resources for processing offshore drilling applications in the Gulf, adding 20 additional people for the task. He said it should only take “a day or two” to conduct the additional inspections required by the new safety rules.

Still, he admitted that submitting and processing applications will likely require time. “What’s going to slow them down to some extent is the time that applicants are going to take … as well as the time that our people are going to take to make sure that the applications are compliant,” Bromwich said.

The drilling ban is a direct response to the April 20 Deepwater Horizon oil rig explosion and resulting oil spill, which dumped 4.9 million barrels of oil into the Gulf.

The moratorium was imposed in May and then reissued in July, after the Fifth Circuit Court of Appeals let stand a June decision by a federal judge to overturn the ban, arguing that the Obama administration did not offer adequate justification. The moratorium was slated to end on Nov. 30, and today’s announcement means the administration is ending it more than a month early.

Gulf Coast lawmakers have aggressively opposed the moratorium, arguing that it will result in lost jobs and undue economic hardship in the region. But a report released by the Obama administration in September says that the impact of the moratorium was not as great as expected because deepwater drillers have not fired many of their employees. The Department of Commerce report says in total the moratorium will result in the temporary loss of 8,000 to 12,000 jobs in the Gulf. Many of the jobs will come back once the moratorium is lifted. Small businesses will be impacted the most, the report says.

The Interior Department issued late last month two new offshore drilling rules, on drilling and workplace safety. Bromwich delivered to Interior Secretary Ken Salazar early this month a report on the moratorium. After reviewing the report, Salazar said he decided to lift the ban.

In order to receive approval from the department, drillers will have to meet new safety standards for cementing wells and preventing blow-outs as well as prove they will be able to respond to a worst-case oil spill.