New York State Will Likely Default And Rating Agencies Will Be Liable If They Fail To Properly Rate NYS Bonds

Copy of letter sent August 16, 2011

To: Moody's Investors Service, Inc.,101 Federal Street, Suite 1900, Boston, MA 02110
Standard and Poors, 55 Water Street New York, New York 10041
Fitch's, One State Street Plaza,  New York, NY 10004
Dagong Global Credit Rating Co.,Ltd
29/F, Unit A, Eagle Run Plaza, No.26 Xiaoyun Road,Chaoyang District,Beijing, P.R.China 100125

Re: US Rating agencies will face a large liability for improper ratings for NY State Bonds. Default/bankruptcy coming shortly. Catastrophe in waiting: Average NYS non-financial sector income of $50,400 a yr. results in less net income than average NYS dole benefit of $42,000 a yr.


Dear Rating Agencies:
       How long do the rating agencies think this can continue in NY State?  While NY State pays the average public assistance person $42,000 a year in benefits according to Lou Dobbs's radio show on 8/15/2011, the average non-financial sector NY State income was $50,400.*  And NY State relies more heavily on personal income tax for its revenue than other States.*  When will the federal government cut off NY State's Medicaid program which is run as a fraud, where NY State mischarges the federal government $22 billion dollars to fund its non-medicaid State budget?  Andrew Cuomo's business friendly NY has fizzled.  Meanwhile, Andrew Cuomo failed to begin to change the NY Constitution to end unaffordable pension costs.

      "A word to the wise is sufficient."  The US based rating agencies will have a large liability, if NY State bonds are improperly rated.  The future possibility of repaying NY State bonds not backed by a dedicated revenue source is non-existent.  NY State bonds finance State agencies as well as State government.  Some bondholders, such as Thruway bonds or Dormitory bonds, receive first dibs on revenues, if the State doesn't pay on time.  Other bonds are backed by the full faith and credit of NY State without a dedicated revenue source.  But if the State doesn't have enough cash in revenue, how can it pay?

These are the details:
First, this is the text from NY State Constitution: §7. After July first, nineteen hundred forty, membership in any pension or retirement system of the state or of a civil division thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired. (Adopted by Constitutional Convention of 1938 and approved by vote of the people November 8, 1938.)

  Then, in regard retiree costs:
  1. Although, Chris Christie reformed pension and benefit costs in New Jersey, Andrew Cuomo failed to ask this session of the Legislature for a Constitutional Amendment to change the above clause which prohibits NYS from changing any retirement contractually promised benefits, such as Health Insurance and Pensions.  Such an amendment must first be passed by this and then the next legislative session and then finally approved by the voters. 
http://cuomotarp.blogspot.com/2011/08/rating-agencies-informed-as-new-york.html

    2. NY State has not funded its retiree health benefits which were part of State workers' contracts with NYS and are constitutionally protected.  NewYork Adds $56.3 Billion To Its Unfunded Liabilities

    3. NY State's pensions are a Madoff style Ponzi scheme where NYS promises a 7.5% "safe return" when that is impossible.  All the undeposited funds needed to properly fund the pension funds and the losses of up to $7.3 trillion dollars are liabilities of NYS.  Any higher taxes to fund this shortfall would create a stampede of taxpayers getting out of NY State..

Then in regard taxpayers

    4. Taxpayers are fleeing NYS at the largest rate in the USA.   Who'll repay the bonds?

    5. NY State has the highest local and State debt per person and the second highest taxes paid per person of any State but New Jersey.    New York Debt per person including local debt is at $24,195. For a family of four about $97,000.   Will NYS raise taxes even higher and borrow more?

    6. Andrew Cuomo will not attract business or its potential taxes to NYS because NYS has the next to lowest business friendly rating of all the States.   When NY businesses repay the $ 3.6 billion dollar Unemployment Insurance loan to the Federal government this November 2011, NYS will become a business pariah.

    7. What happens when the millions of NYS taxpaying residents earning the average non-financial $50,400 or less discover their net income is less than the average dole recipient's $42,000 a year?   Do they leave the State or go on the dole?

  Then, in regard State revenues:   
   8. The NY Comptroller predicts rising numbers of non-taxpayers in the NY State Medicaid system*.


   9. NY State funded 14% of its budget this year with one time funds that will not be available in future years.

   10. Andrew Cuomo's Budget director says, he has no ability to finance spending commitments already.  This was recorded at a 7/20/2011 hearing of Cuomo's Commission on Judicial Compensation: "We don't even have the ability to finance the spending commitment that are already in place, said Robert L. Megna."


    The Bottom Line:

• a rapidly rising NYS expenditure for retiree and others' benefits
• a reduced number of businesses in NYS paying taxes and paying workers
• more NYS Medicaid non-taxpayers
• taxpayers fleeing the State
• NY State will run out of cash from its diminishing revenue sources
• NY State either defaults or goes bankrupt if Congress enables State Bankruptcy by a new law
• a tax revolt when those millions earning the average non-financial income of $50,400 or less realize that the average NYS dole recipient receives $42,000 yr. in benefits

 And the US rating agencies would be sued by all the suckers still holding devalued and defaulted NYS bonds.   And Dagong may have protected foreign investors and exposed the hopeless finances in New York State.

Sincerely yours,

CuomoTARP.blogspot.com

*See Financial Condition Report for Fiscal Year 3/31/2010

P.S. Please access website for working links to all data.  

Rating Agencies Informed As New York State Pension Funds Have Estimated Losses of $7.3 Trillion Dollars

Letter:   August 11, 2011

To: Moody's Investors Service, Inc.
101 Federal Street, Suite 1900
Boston, MA 02110
Standard and Poors
55 Water Street New York, New York 10041
Fitch's
One State Street Plaza,  New York, NY 10004

Re: Trillions in losses and fraudulent pension asset assumptions in New York State, also, New Jersey.  Potential civil and federal criminal liability

Dear Sirs: You are promising to report on States.  New York State is liable for its Pension funds' losses and underfunding.  This is to inform you that NY State Pension Funds have estimated losses of approximately $7.3 trillion dollars and NYS's assumption of a safe return of 7% can only be characterized as a fraud.  It is not possible for NYS to fund its Pension obligations and/or losses through taxes or by changes in employee contributions which are contractually determined, because of the NY State Constitutional Provision copied here:
   #7. After July first, nineteen hundred forty, membership in any pension or retirement system of the state or of a civil division thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired. (New. Adopted by Constitutional Convention of 1938 and approved by vote of the people November 8, 1938.) Note that Andrew Cuomo is making no efforts to amend the NY Constitution in regard pensions.

        In regard to New Jersey, it was reported that, "to justify an 8.25% interest assumption assets were in investments that could possibly generate that return so, as of May 31, 2011, the plan’s $74.7 billion was allocated 27% in domestic equity, 30% in bonds, 20% in international equity, and 17% in alternative investments.  With only about $300 million in employee contributions coming in over the last two months, while $1.3 billion in payouts left on top of this 10%+ investment drop the plan likely has about $65 billion this morning."   In New York State things are worse, because of NYS Constitutional restrictions on Pension Changes and the trillions of dollar size.

    The NYS Comptroller reports:
 The following table summarizes the market values for March 31, 2010 and 2009 (In Thousands):

Asset Type               3/31/2010 Market Value  %of total      
Domestic Equity            $ 51,495,373             38.9%           
International Equity          21,178,608             16.0
Private Equity                 12,799,735              9.7
Absolute Return Strategy   3,817,538              2.9 
Real Estate                       5,551,078              4.2
Core Fixed Income          33,726,066            25.4 
Mortgage Loans                   845,721             0.6
Short-term Investments     3,086,085             2.3

Total Investments        $ 132,500,204           100.0%

Market losses have exceeded 10% in both domestic and international equities with estimated losses of $7.3 trillion dollars for NYS's portfolio.   Real Estate is substantially decreasing in value in NYS.  Get a good laugh at the 119 page long list of funds held by NY State and ponder how the NY State Comptroller can keep tabs on such a large number of funds.

Now look at Comptroller's investment returns reported last in 2010

                    Based on Market Values as of March 31, 2010.
                               Annualized Rate of Return
                              1 Year        3 Years       5 Years        10 Years
Total Fund              25.87%        -1.68%         4.16%          3.75%
Domestic Equity      51.70         -4.10          2.20           0.52
International Equity  56.77         -5.00          5.52           2.72
Private Equity          11.61          2.40         12.82           8.56
Absolute Return
Strategy                 14.95         -0.44          3.29             —
Equity Real Estate  -27.77        -17.65         -0.11           9.56
Core Fixed Income   7.92          7.00          6.06           7.57
Treasury Inflation
Indexed Securities    5.01          5.75          4.34             —
                               
        The Core Fixed Income and Treasury Inflation Indexed investments cannot expect to earn anywhere near the 7% assumption.   In its latest action, the Federal Reserve has frozen interest rates for the next two years and 10 yr Federal returns would be for the next two years at 2.14%, not 7.0%.

   Bottom line is New York State has an estimated $7.3 trillion dollars in Pension losses and no possible way to fund them, nor to earn 7.0% safe return with 10 yr. Treasuries at 2.14%.  Please read my prior post New York State Rating Downgrade: Who'll Repay The Bonds As Taxpayers Flee? concluding with, Who'll repay the bonds?
  
   As you, the rating agencies, may note in the new law suit against Bank of America, there will be consequences for those not reporting truthfully.  Please also be aware of Federal Law Title 18 as to who may be charged in a federal criminal action.

TITLE 18 PART I CHAPTER 1 #2. Principals
Whoever commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.
Whoever willfully causes an act to be done which if directly performed by him or another would be an offense against the United States, is punishable as a principal.

Sincerely yours,

CuomoTARP.blogspot.com

P.S. Please access website for working links to all data. 

New York State Rating Downgrade: Who'll Repay The Bonds As Taxpayers Flee?

Who pays the bonds off, when the taxpayers flee.

     Did the media (including Fox News), the politicians of both parties and the media pundits lie to you that the US would/could default on its debt?   Alan Greenspan said on Sunday,""The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default."

  Are New York politicians or the sycophant New York media to be trusted?   Will New York debt be downgraded?  Unlike the federal government, New York can quickly default.

     Here's a buyer's guide to New York State bonds or more likely a seller's guide:
   
1.NY Businesses Howl At $21.25 Per Worker, While Cuomo's Budget Will Require An Additional $478 Per Worker In November.   

2.   New York State has the highest debt per person in the USA ($24,195) and the second highest taxes per person ($6,884).   Andrew Cuomo's Budget director says, he has no ability to finance spending commitments already.  This was recorded at a 7/20/2011 hearing of Cuomo's Commission on Judicial Compensation: "We don't even have the ability to finance the spending commitment that are already in place, said Robert L. Megna, who was speaking on behalf of Governor Andrew Cuomo, who appointed three of the commission's seven members."

3. Cuomo's New York Comes In Second To New Jersey For The Most Taxes Per Person.  New York's Taxes paid by residents as percentage of income are 12.1%   "The state [NY] has one of the highest state and local tax collections per capita, an average of $6,884.     According to the Census Bureau, the top ten counties in the U.S. with the highest property taxes as a percentage of home values are all in New York."

4. Rating Agencies Informed As Cuomo's Budget's Imagined $ 4.3 Billion In Revenue Increases Disappears

a. The Cuomo Business Friendly Bubble Burst, when NY was ranked 49th out of 50 States as Business Friendly.   While the Cuomo stooge at the NY Economic Development Agency described his own policy as "anyone proposing nano-scale technology in Syracuse should be taken out to the woodshed."

b. Cuomo's expected tax revenues took another dive into red ink with latest report.  "A gauge of manufacturing in New York State showed the sector unexpectedly contracted for the second month in a row as new orders worsened, while core inflation rose at its highest pace in three years."


c.  This business contraction affects the revenue increases which finance Cuomo's spending.  Cuomo had balanced his budget with imagined revenue increases and Cuomo used temporary sources for 14.7% of his budget revenue, such as, Federal stimulus money (threatened in present federal debt debate), "voluntary contributions" from NY Power Authority and other authorities (they'll charge you higher rates) and delaying paying NY State Income Tax refunds.

d. Cuomo's unrealized revenue fantasies reported by the Comptroller include:
    i. Personal Income tax receipts in 2011-2012 will increase $2.9 billion or 7.9% (but decreased employment reported)
    ii. User taxes and fees (sales and tobacco taxes)will increase $467 million or 3.3 % (but tobacco tax increase will fail link 1  link 2 and workers earning less or unemployed spend less)
   iii. Business taxes will increase $894 million or 12.3% (but business declines)
   iv. Payroll Tax will increase $63 million or 4.6%  (but, rising unemployment including State layoffs decrease payrolls)
  A budget shortfall of $4.3 billion dollars must be borrowed this year.


5.  New York Pension Books are Cooked

6. Cuomo has a "funds shift [that] would result in the use of state bond proceeds for payment of a portion of debt service on MTA revenue bonds."

7. Cuomo's budget used the "Madoff-like" assumption of a 7.5% safe return on pension investments. and continues to allow borrowing to fund contributions.

8. Cuomo failed to budget in the required repaying of the federal government for Medicaid frauds. This is minimally estimated at $6.4 billion.



Finally, 9. Who'll repay the bonds? New York Exodus As Tax Payers Flee At The Highest Rate In USA.    New York State businesses also will flee.   Small-business lobbyist Mike Durant noted, New York has "consistently ranked worst or in the top three worst in business climate. You can't suck every penny out of people and expect them to remain in New York."

cc: Moody's, Fitchs , Standard and Poors 

Rating Agencies Informed As Cuomo's Budget's Imagined $ 4.3 Billion In Revenue Increases Disappears

Charles Dickens advises Andrew Cuomo:  Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.


     Poor Andrew Cuomo praised Obama's economic policies this month, but Cuomo does not have Obama's ability to print money to accommodate revenue shortfalls.   When Cuomo's budget doesn't get enough revenue, he must borrow or increase taxes and those nasty bond purchasers will demand higher interest rates.

      First, The Cuomo Business Friendly Bubble Burst, when NY was ranked 49th out of 50 States as Business Friendly.   While the Cuomo stooge at the NY Economic Development Agency described his own policy as "anyone proposing nano-scale technology in Syracuse should be taken out to the woodshed."  Then, Cuomo's expected tax revenues took another dive into red ink with latest report.  "A gauge of manufacturing in New York State showed the sector unexpectedly contracted for the second month in a row as new orders worsened, while core inflation rose at its highest pace in three years."

       This business contraction affects the revenue increases which finance Cuomo's spending in his budget.  The Comptroller in his "Report on the State Fiscal Year 2011-2012" says a "structural imbalance" exists because general fund spending growth is still more than double projected revenue growth.  Cuomo had balanced his budget with imagined revenue increases and Cuomo used temporary sources for 14.7% of his budget revenue, such as, Federal stimulus money (threatened in present federal debt debate), "voluntary contributions" from NY Power Authority and other authorities (they'll charge you higher rates) and delaying paying NY State Income Tax refunds.  Cuomo's unrealized revenue fantasies reported by the Comptroller include:
1. Personal Income tax receipts in 2011-2012 will increase $2.9 billion or 7.9% (but, see decreased employment reported above)
2. User taxes and fees (sales and tobacco taxes)will increase $467 million or 3.3 % (but, see tobacco tax increase will fail link 1  link 2 and workers earning less or unemployed spend less)
3. Business taxes will increase $894 million or 12.3% (but, see above business results)
4. Payroll Tax will increase $63 million or 4.6%  (but, rising unemployment including State layoffs decrease payrolls)
The total fantasy budget's revenue increases of $4.3 billion dollars will not materialize.  A budget shortfall of $4.3 billion dollars must be borrowed this year.

     When Cuomo borrows this $4.3 billion, will the bond rating agencies downgrade NY debt and force up borrowing costs in the Cuomo budget, or will they understand that Cuomo meant well?  What will happen when those other things that Cuomo forgot to fund in his budget need borrowing to fund them, such as:
1.  New York Pension Books are Cooked
2  The Cuomo 2011-2012 Budget proposes to "eliminate a $10 billion dollar deficit without raising taxes or borrowing" and then is borrowing $5.6 Billion dollars.
3. Cuomo has a "funds shift [that] would result in the use of state bond proceeds for payment of a portion of debt service on MTA revenue bonds."
4. Cuomo's budget used the "Madoff-like" assumption of a 7.5% safe return on pension investments. and continues to allow borrowing to fund contributions.
5. Cuomo failed to budget in the required repaying of the federal government for Medicaid frauds. This is minimally estimated at $6.4 billion.
6. Cuomo forgot what happens when New York's bond rate rises and NY's borrowing costs  move up from $5.6 Billion $18.8 Billion. 

     All of the above ignores the Medicaid fraud by NY State, which Cuomo defended as NY Attorney General, and which, if Congress block grants Medicaid, Cuomo could immediately end.   See letters to Congress on this blog.  link 1     link 2

    The following letters were sent to the ratings agencies:
Letters by registered mail:  CuomoTARP.blogspot.com   July 18, 2011

To: Moody's Investors Service Inc.
101 Federal Street, Suite 1900
Boston, MA 02110

Standard And Poors
55 Water Street
New York, New York 10041

Fitch's
One State Street Plaza
New York, NY 10004

Re: protecting buyers of NY bonds and your potential liability.

Dear Sirs:
    Attached is a copy of the latest 7/18/2011 post on CuomoTarp.blogspot.com.    The Financial Crisis Inquiry Commission established  by Congress had reported on page 25: "We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction." You realize your potential liability, if this occurs with NY State Bonds.    There will be lots of angry NY State Bond Holders who will look for compensation for your scienter (knowing) neglect and/or malfeasance, if you fail to act appropriately.        
         NY Debt per person including local debt for a family of four is about $97,000 (the highest in the USA).    Bob Brinker already recommended seniors leave the high tax States.   You need to protect NY State Bondholders with truthful ratings

      Also consider the Letters to Congress on this blog dated July 12, 2011 and May 23, 2011 which show a proven moral hazard and criminality in NY State Government and the likelihood of financial fraud.

Sincerely yours,
CuomoTARP.blogspot.com

Note: all links are available on the CuomoTARP.blogspot.com website where a copy of this letter is posted.
Attached: Blog post dated July 18, 2011

P.S. Tomorrow's 7/19 post will concern more lack of fiscal irresponsibility by NY Government and its committees and the costs thereof which must be borrowed in this fiscal year.

New York Bonds Are Down Rated Based On Cuomo's Executive Budget

Rating the Cuomo Executive Budget for Bond Purchasers

  The Cuomo 2011-2012 Executive Budget is like fancy curtains placed in the window hiding a burnt out interior in the house.   First,  there is the new folly presented by Cuomo:
1. Cuomo expects government bureaucrats and committees could design programs to save money. (SAGE Spending and Government Efficiency, Medicaid Redesign Team, 10 regional Economic Development Councils, Right-sized Youth Detention into community-based programs, Mandate Relief Resign Team) Link to Committees.  Grade D

2. Cuomo in his first sentence proposes to "eliminate a $10 billion dollar deficit without raising taxes or borrowing" and then he is borrowing $5.6 Billion dollars.    Grade F

3. Cuomo says, "New York is number one in education spending and number 34 in results and number one in healthcare spending and number 21 in results."  Cuomo expects the same State workers running these programs will change their stripes, now that Cuomo is Governor?    Grade -Delusional/Incomplete

4. Cuomo has a creative "funds shift [that] would result in the use of state bond proceeds for payment of a portion of debt service on MTA revenue bonds."   Grade F

Then there is the Cuomo folly reported yesterday on this blog:

 5. Cuomo's budget will fail to deal with the elephant in the room and will not follow eight other State's models for laws and regulations which could produce at least  $29 billion in savings per year.  And Cuomo and his Medicaid Redesign Team  is filled with trough feeders.  Grade-Delusional/Incomplete

6. Cuomo's budget  used the "Madoff-like" pension assumptions of 7.5% safe return on pension investments. and continue to allow borrowing to fund contributions.     Grade F
 
7. Cuomo will fail to budget in the required repaying of the federal government for Medicaid frauds tolerated by New York.  This is minimally estimated at $6.4 billion needed to added to deficit or be funded.    Grade F

8. Cuomo reducing Medicaid waste and fraud is a joke, since Cuomo recovered only 0.6% of medicaid fraud while he was Attorney General.    Grade -Delusional/Incomplete

9. Cuomo forgot what happens when New York's bond rate rises?  and NY's borrowing costs will move up from $5.6 Billion to $18.8 Billion.       Grade D

10. Cuomo forgot about repaying the Unemployment Insurance: State Trust Fund Loans of  $3.1 billion.   Cuomo must pass this on in higher unemployment contributions by New York Employers and watch the Cuomo Business Friendly New York fizzle.     Grade F

11. Cuomo claims a $10 billion dollar deficit, when if he could add correctly he'd get $22.1 billion deficit,  without even counting the pension shortfall from the phony 7.5% safe return and the "Build America" funding losses.     Grade F


New York State Bonds will be rated overall Grade D- and the multiple delusional/incompletes show an impossibility of improvement.

     The good News is Moody's acts slowly on bonds.  Their downgrade of Egyptian Bonds reported on Monday, many days after any sane person would have.

      In further regard of Bond Rating Firms:  The Financial Crisis Inquiry Commission established  by Congress and signed by the President Obama in May 2009 reported on page 25: "We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction. The three credit rating agencies were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval. Investors relied on them, often blindly. In some cases, they were obligated to use them, or regulatory capital standards were hinged on them. This crisis could not have happened without the rating agencies." [link to full report 600+ pages]
You still have time to sell your New York Bonds before they are devalued.  Or, you can hold on to your bonds and then later join the class action suit against rating agencies to recover losses. 

While New York Pension Books Cook ,The Finger Points At New Jersey

NY's Warlocks Cooking the books in NY:
Double, double toil and trouble
Fire burn, and cauldron bubble. ~Shakespeare's MacBeth

 NY Comptroller, DiNapoli said, "Unlike New Jersey, we don’t ignore our pension fund obligations. While New York still faces significant fiscal challenges, our management of the pension fund has left us in a much better position than other states that have continuously neglected their pension fund obligations."

The Good News:   "Moody’s found that the states with the biggest total indebtedness included Connecticut, Hawaii, Illinois, Kentucky, Massachusetts, Mississippi, New Jersey and Rhode Island."  "Other big states that have had trouble balancing their budgets lately, like New York and California, tended to fare better in the new rankings. That is because Moody’s counted only the unfunded portion of states’ pension obligations. New York and California have tended to put more money into their state pension funds over the years, so they have somewhat smaller shortfalls."

Now, the but:  "Pensions were considered “soft debt” and were considered separately from the bonds, using a different method.  'A more standard analysis would view both of these as liabilities that need to be paid and put stress on your operating budgets,' said Robert Kurtter, managing director for public finance at Moody’s."

Now, more buts and oh, gee:  "Moody’s is using the pension values reported by the states. The shortfalls reported by the states greatly understate the scale of the problem... The government method allows public pension funds to credit themselves for the investment income, and the contributions, that they expect to receive in the future. It has come under intense criticism since 2008 because the expected investment returns have not materialized."

Now, from this blog in November 2010: 

From Ponzi to Madoff to Hevesi to DiNapoli; New York Learns Anew About Bond Losses And A Phony Safe 7.5% Pension Return

      Madoff had promised safe returns of 10% before the economic recession began.
The SEC warns in its Ponzi Schemes – Frequently Asked Questions that Ponzi schemes share common characteristics:
          High investment returns with little or no risk
          Overly consistent returns.
    Link for Comptroller Di Napoli will reduce his hope to earn 8% percent a year to 7.5%.  Except for Madoff, who guarantees a 7.5 percent safe rate of return?  Or 7 percent?  Or 6 percent?  No junk bonds allowed.   NY's real rate of return was less than 4% for ten years.
Even worse, NY's return for past 5 years was 01.1%.   Link.

  Now more wild accounting:  Comptroller Thomas DiNapoli proposes for the state government and local governments a  pension “amortization” (i.e., borrowing) plan where the 7.5% rate won’t necessarily affect annual pension fund contributions, because they can borrow their higher payments from the pension fund. Only the Government could imagine being able to use your credit card to charge your credit card payment.
     And it gets better, "after a decade in which the New York State pension fund’s annual return on assets averaged less than half its [8%]target rate, the fund will need to jack up its taxpayer-funded contribution rates next year, Comptroller Thomas DiNapoli announced today."
That's you, the taxpayer, paying a 42% rise in your share (11.5% to 16.3%) 

Now what do you think Moody's reevaluation of NY debt will be when real world accounting is used?

Thank to Bernie Madoff for the recipes to cook the books.

Thanks for showing us how garbage budget data in means garbage budget data out.

The True Believers Chorus is readying its refrain, "If only Andrew Cuomo knew."

 C.C. Moody's, Fitch's, Standard & Poors

CuomoTARP Gives A Christmas Present To New York Bondholders

In God's schekels we trust, all others' schekels we weigh.  From a sign in an ancient Babylon Bazaar

  Trust in Cuomo's charisma?  CuomoTARP updates Financial data relevant to NY Finances and the value of New York State and New York Municipal Bonds. 
1.New York Unemployment rises to 8.3%.
2  Less employment means less taxes

   Trust in Obama/Geithner/Federal Reserve Bank?  Are you fooled by phony low inflation numbers, or do you know gas prices have risen since Obama took office from $1.80 per gallon to $3.31 per gallon (no link needed go to your local gas station).  This cost goes through to all other costs by raising the prices of any goods transported to stores.  
3. Food prices to increase 5% in December.
4. Treasuries rise and therefore NY Bond rates rise. 

  Did you miss the Handwriting on the Wall for NY Bondholders at Thanksgiving?
Mene:  Count your bond values now
 Mene:  Count your bond values after the credit rate rises, inflation increases and bond desirability decreases
  Tekel: Same as shekel or watch your money
   U-Pharsin;  Your bond values will be cut in half
Did you miss the Words of the Prophet to bondholders:
  Sell now and not cry later 

DO You think the Chinese stupid? 

What should you do with rising interest rates and holding bond funds or bonds?
   or what happens if federal rates rise on municipal or State bonds?

      Here's CuomoTARP's Christmas Gift to New York bondholders:

       Sell now and re-buy(?) after the NY interest rate doubles or goes even  higher; otherwise, you lose at least 50% of your bond fund's value.  

New York Cannot Fund Its Government's Debt

“Three groups spend other people's money: children, thieves, politicians. All three need supervision.”~ Armey

New York's budget cannot be sustained in the New Year.   Numerical data for NY State below is taken from "Comptroller 2010 Report on Financial Condition of NY State.*" prepared in March 2009.  In the State Fiscal Year 2009-2010 spending reached $126.9 billion*, or $6,493* per person according to NY Comptroller.  But 4.5* million NY residents receive Medicaid(which is free and whose recipients pay no taxes) or 23% of the total 19,541,453 NY residents, thus raising the taxpaying share of NY expenditures per tax-payer resident and their dependents to $6,493 divided by 0.76 = $8,543 per tax paying resident and all dependents on that tax paying resident ) 

      As of 3/31/2010, 16% or $9.8 billion* of NY's debt was issued as budget relief.  This number was corrected by DiNapoli in an Albany Follies Sideshow by adding another billion dollars to this budget relief in Dec. 2010, thus $10.8 billion is claimed as required, but not funded in 2010, for budget relief.  These chickens will come home to roost and greet Andrew Cuomo at the beginning of the New Year.  

       Moody's predicted federal treasury bonds will be downgraded if only $200 billion was added to federal debt, but Harry Reid added $1 trillion to the debt in pending Senate Bill today.   Guess, if Treasury securities are downgraded and rates raised, will States borrowing rates rise?   Usually, when federal interest rates rise, state rates rise at least proportionally or in the case of NY,CA,IL and MI even more.

       Now back to NY where, "NY was 2nd most indebted state behind California and had twice as much debt as the 3rd most indebted state.*"  
NY's State's funded debt is $60.5 billion*, or as of 3/212010 of $3,105* per NY person.

  item #1 Debt Service Expenditure in NY in 2010 was $5.6*billion in interest payments (due immediately, see link).

     Now what happens if debt service rises from 3.337%  by an additional 4% added due to federal policy and Chinese reaction   and Moody's devaluation of NY and federal debt as described above.

     Or that increases of  #1 above from $5.6* billion will be to more than a double $11.2 billion.
Now, where from will the governor and legislature take that additional $5.6 billion dollars?

Ignoring the spending budgeted for the sacred cows of education and medicaid from where do you take the $5.6 billion dollars from the remaining categories below:
From the $4.2* billion spent for public welfare
   or the $4.8* billion spent for public safety
   or the $5*billion spent for transportation
   or the $0.8* billion spent for Environment and Recreation
   or the $0.2* billion spent for business regulation
   or the $6.4* billion spent for General government

or $5.6* billion from their above total of $21.4*billion  or 26% from each of the above requiring dismissing (26%?) state work force in each of the above categories.

And if you think that 26% reduction is bad,  look at all the other additional cuts required when other factors are included

The handwriting is on the wall


New York must and will pay the piper

*all data from Comptroller 2010 Report on Financial Condition of NY State.

NY Bankruptcy, NY Bonds, NY Constitution, NY Pensions; The Resolution

Debt, n.  An ingenious substitute for the chain and whip of the slavedriver.  ~Ambrose Bierce

Neither a borrower, nor a lender be. ~Shakespeare

     We look to the NY Constitution to see why New York must chose bankruptcy if it's available under Federal Law.   Would the federal government refuse to loan or give NY Money, because "Federal loans to States would so increase federal debt so as to lower the federal bond ratings?"   Yes, because there'll be no love lost in the new Congress for bailing out New York's or other States' proliferate spending when the Congress has its own problems.  "The Treasury Department, in its regular budget monthly statement, said the government spent $150.4 billion more than it collected in the second month of fiscal 2011."  New York's deficit is pegged at $15.8 Billion , but if NY gets money, California, Illinois and Michigan will also want bailout money.
Simple question: Will Congress bailout States or create a new Bankruptcy Chapter?
 
        When New York State runs out of money, (technically bankrupt or bankrupt if the new Chapter 10 is adopted), the NY Constitution requires the Comptroller "shall set apart from the first revenues thereafter received ...a sum sufficient to pay such interest, installments of principal. ... at the suit of any holder of such bonds."   The applicable part of NY Constitution is copied below: (note word in red, "may" or it's up to the whim of a New York judge or a federal judge if the bondholder is not a resident of New York )


NY Constitution § 16. The legislature shall annually provide by appropriation for the payment of the interest upon and installments of principal of all debts or refunding debts .... If at any time the legislature shall fail to make any such appropriation, the comptroller shall set apart from the first revenues thereafter received, applicable to the general fund of the state, a sum sufficient to pay such interest, installments of principal, or contributions to such sinking fund, as the case may be,and shall so apply the moneys thus set apart. The comptroller may be required to set aside and apply such revenues as aforesaid, at the suit of any holder of such bonds.

    Supposedly NY Pension Benefits are protected in this article of NY Constitution § 7. ...membership in any pension or retirement system of the state or of a civil division thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired.

       No way out except for New York to limit its payments to NY bondholders in federal bankruptcy action.

A Moody's Downgrade Means Inevitable State Bankruptcies Need A New Bankruptcy Chapter 10 For States

"Take the bull by the horns"
          Federal debt for States' bailout will dry up after, "Moody's warned Monday that it could move a step closer to cutting the U.S. Aaa rating if President Obama's tax and unemployment benefit package becomes law."     There is no hope for NY or California or Illinois or Michigan except for a Federal Bailout or bankruptcy. But there's no Federal bankruptcy law applicable to the States. (See this link for more details)

      Since Congress will be reluctant to bailout States (where would it end?), we need a new Bankruptcy Chapter for State Bankruptcy to be called Chapter 10. Since States are sovereign entities and as such retain sovereign powers, Congress can simply make modifications to the present Chapter 9 for municipalities to create a United States Code Title 11 Bankruptcy Chapter 10 for States.

I've copied sections of the Federal Bankruptcy law for Chapter 9 and would remove text in blue and insert the red text.  Other parts of this Chapter 9 would remain unchanged and be renumbered from  §§901-906  to §§1001 to 1046

TITLE 11 CHAPTER 9 10
  CHAPTER 9  10—ADJUSTMENT OF DEBTS OF A MUNICIPALITY  STATE
SUBCHAPTER I—GENERAL PROVISIONS (§§901-904 1001-1004)
SUBCHAPTER II—ADMINISTRATION (§§921—930  1021-1030)
SUBCHAPTER III—THE PLAN (§§941—946  1041-1046)

903. 1003. Reservation of State power to control municipalities Sovereign power

This chapter does not limit or impair the power of a State to control, by legislation or otherwise, a municipality of or in such State in the exercise of the political or governmental powers of such municipality, including expenditures for such exercise, but— such State, a State law prescribing a method of composition of indebtedness of such municipality of such State may not bind any creditor that does not consent to such composition; and (2)a judgment entered under such a law may not bind a creditor that does not consent to such composition.

904. 1004. Limitation on jurisdiction and powers of court
Notwithstanding any power of the court, unless the debtor consents or the plan so provides, the court may not, by any stay, order, or decree, in the case or otherwise, interfere with—any of the political or governmental powers of the debtor State; the debtor’s use or enjoyment of any income-producing property; the sovereign immunity of such debtor State.

921. 1021. Petition and proceedings relating to petition 109(d) and 301 of this title, a case under this chapter concerning an unincorporated tax or special assessment district that does not have such district’s own officials is commenced by the filing under section of this title of a petition under this chapter by such district’s governing authority or the board or body having authority to levy taxes or assessments to meet the obligations of such district.  State.
(b)The chief judge of the court of appeals for the circuit embracing the district State in which the case is commenced shall designate the bankruptcy judge to conduct the case. After any objection to the petition, the court, after notice and a hearing, may dismiss the petition if the debtor did not file the petition in good faith or if the petition does not meet the requirements of this title.
If the petition is not dismissed under subsection (c) of this section, the court shall order relief under this chapter notwithstanding section (b)The court may not, on account of an appeal from an order for relief, delay any proceeding under this chapter in the case in which the appeal is being taken; nor shall any court order a stay of such proceeding pending such appeal. The reversal on appeal of a finding of jurisdiction does not affect the validity of any debt incurred that is authorized by the court under section (c)or (d)

927. 1027. Limitation on recourse
The holder of a claim payable solely from special revenues of the debtor State under applicable nonbankruptcy law shall not be treated as having recourse against the debtor on account of such claim pursuant to section (b) of this title.

Do, or do not. There is no 'try.' by Jedi Master Yoda

To be sent to various Congressmen, Senators, Moody's and others who may be interested in a non-bailout of States.