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Here are the Ten Most-Read Posts during the past month, and following that, the Ten Most-Read during the life of this blog.

PAST MONTH

MONEY | 10 Ways to Cut Cable Bills (Updated Feb. 1... Feb 6, 2016

DEATH | April 7–Lazăr Edeleanu, 75 Years Ago (Upda... Feb 13, 2016

PENSION FUNDS | Beaver Award to TSP Feb 10, 2016

JOBS | Retail Continues Strong in January 2016 Feb 5, 2016

CREDIT CARD | Curb Recurring Charges! (Updated Feb... Feb 1, 2016

JAPAN | Video History Feb 14, 2016

NYC COMPTROLLER | Eric Wollman of FOCEA Jan 31, 2016

BANKS | Why Their Shares Fell Feb 3, 2016

WW2 | BOISSEVAINS Links (Updated Feb. 23, 2016) Jan 26, 2015

RETIREMENT | Planning and Saving Feb 21, 2016

SINCE THE BLOG WAS CREATED

MED BIZ | How the Clinton Plan Was Killed, 1993 Jan 31, 2009

DEPRESSION | Cause–the Fed? Or Real-Estate Specula... Feb 23, 2009

NYC | More Catholic, Jewish, Muslim Feb 15, 2008

JOBS | Brazil #1 in Workplace Innovation (Updated ... Jul 29, 2014

JOBS | Low Labor Participation Puzzle - I (Demogra... Oct 10, 2014

JOBS | Which David Brooks Should We Listen To? Oct 24, 2014

JOBS | What Keynes Said, What Bush 43 Did Jun 23, 2012

MED BIZ | BBC Panorama on U.S. Jan 25, 2009

NYC | In the Eye of the Storm, OMB's Mark Page Mar 22, 2009

BANKS | New Regs after 2008 (Superseded) Mar 22, 2008

STATE AND LOCAL FINANCE | Critical Federal Reforms Needed

Whether Obama or McCain gets elected on Tuesday, an early issue for the new president is the fiscal crisis facing state and local governments. Beleaguered officials have watched July-September revenues come in lower than expected while financial markets have become more risk-averse. They have been trooping to the Congress already - expect them to start pressing the President-elect after the election.

The fact is, the Federal Government is the only one of America's 87,500 governmental units that can print money. A Federal response could be to provide short-term fiscal assistance in exchange for commitment for structural changes that will bring state and local revenues and expenses into balance and will bring debt service below a reasonable ratio to a multi-year average of tax revenues.

It's not just that states and localities have seen revenues decline. Many pension funds that have invested heavily in equities and appeared to have adequate funds to pay pension obligations now look grossly underfunded. The loss in value of pension-fund assets invites further questions about pension-fund accounting. In many cases the answers to these questions will distress pensioners, taxayers and investors in municipal debt. When sorrows come, they come not single spies, but in battalions.

In New York State, Gov. David Paterson has a clear understanding of New York State's fiscal outlook. He has just raised his forecast of the budget gap facing the state this fiscal year to $1.5 billion from the $1.2 billion the state projected weeks ago. States and localities are not permitted to run deficits, so Gov. Paterson has asked the state legislature to meet Nov. 18 to close the budget with decisions that will raise more revenue and cut spending. He says nothing will be off the table and he sounds as though he means it.

New York State's problem is huge and gets worse next year and the year after. Borrowing to fund current deficits faces (appropriate) legal obstacles and would be a hard sell. Muni markets are opening up again, but with the loss of credibility of the mni bond insurers, rates are higher.

The only options seem to be to cut budgeted expenses or raise taxes. California is in a similar bind and, despite budget cuts made earlier this year, more than 20 states have identified budget gaps that combine to exceed $11 billion.

The U.S. Treasury is an attractive option for budget-closing loans. States and localities cannot run deficits but Washington can. State and local officials and their Congressional allies can argue that their problems stem from failures of Federal regulation of financial markets and that if banks can be bailed out, why shouldn't Washington provide short-term help to state and local governments?

I imagine the National Governors Association and the U.S. Conference of Mayors are working hard on this question right now.

Washington's challenge - Obama's or McCain's challenge - will be to respond in such a way that the short-term pain of state and local fiscal adjustments is reduced while changes in long-term fiscal practices are made. Federal crisis assistance to state and local governments should come with conditions that are as thought-through and as tough as new regulations being prepared for the financial sector.

Take More Risk to Cover Losses?

Yesterday's NY Times story reports that the NY State Comptroller is worried about two stresses on the state pension fund - more state workers are retiring as the baby boomer cohort gets to their 60s, and the fund took a 6.4 percent loss on its domestic equity investments. The fund fell by $600 million in nominal dollars for an overall 2.6 percent return (after adjustment for payouts), which is well below the 8 percent return that is built into the pension fund's projections. The NY State fiscal year ends March 31, so the equity loss was before the steep drop in June.

The bright spots in the Comptroller's report are high reported returns of 24.8 percent in private equity and a 14.8 percent return in real estate. The Comptroller is asking the State Legislature to let him raise his bets in this area, the riskier "alternative investments" that also include commodities and hedge funds. Comptroller Thomas P. DiNapoli is now allowed to invest 25 percent of the state pension fund assets in these riskier areas - an increase of 10 percentage points was agreed to by the Legislature in 2006.

DiNapoli is essentially saying that the 8 percent target will be hard to meet in traditional debt and equity investments and is saying that he will need to take more risk.

But there are two problems with raising the allocation again:

1. Alternative investments are notoriously less liquid and are harder to value than listed equities.
2. As yesterday's NY Sun notes, alternative investments "increase opportunities for investment managers to make politically motivated decisions," because lobbying can be fierce over these types of investments, both by managers of alternative investments and beneficiaries of the investments.

In considering the request to raise the allocation, the Legislature might pay heed to investment adviser Daniel R. Solin, who describes as a dumb money move "Taking Extra Risk With Your Investments to Make Up for Recent Losses." He says: "Many investors are tempted to take more risk with their portfolios to make up for their losses. This is a bad idea. The fact that you may have lost money in the current markets does not mean that you are able to take more risk. In fact, it may mean the opposite: Your ability to withstand market losses has diminished." More on Dumb Money Move No. 11.

NYC BUDGET | Cuts to Meet Emergency

In connection with the fiscal emergency announcement by NY State Governor David Paterson, who has called for a $600 million cut in State spending, the following article from ten months ago is worth resurrecting. It is reprinted in full from the NY Sun.

NY State's budget problems are especially acute because the State does not receive property-tax revenues, which act as a fiscal stabilizer for the City. However, NYC will be affected by NY State budget cuts and by the shortfall in investment returns for the NYC pension funds below the required return of 8 percent – which means another hit to the City's budget because the City makes up the shortfall.

City Council To Oppose Any Midyear Budget Cuts
By GRACE RAUH, Staff Reporter of the Sun October 29, 2007

If Mayor Bloomberg proposes midyear budget cuts to soften the blow of lower than expected tax revenues, he may face stiff opposition in the City Council. The chair of the council's Finance Committee, David Weprin, said yesterday that he would object to layoffs or midyear cuts now, but he added that individual agencies should always be looking for ways to be more efficient. "I think we should be looking at ways to save money, but I don't think we should be looking at any kind of panic scenarios," he said. "At this point, I would just sit back and just look for savings, but not look for any midyear budget cuts of layoffs." In September, Mr. Bloomberg sent a memo to top city officials saying the city's budget director, Mark Page, would be in charge of closely scrutinizing all future hires to ensure that the only positions filled were those deemed "critically necessary." The mayor noted that the city's economy depends on the profitability and success of Wall Street and said "recent events in the financial markets are, therefore, a subject of deep concern."

A report in the New York Post yesterday, citing an unnamed source, said Mr. Bloomberg is instructing city agencies to list potential budget cuts and that a public announcement is expected this week.

On Friday, Mr. Page reported to the state's Financial Control Board that tax revenues for the current fiscal year and future ones are less than had been anticipated in June. Tax revenues are down $238 million for the current fiscal year and predicted to be down $577 million in fiscal year 2009 and down $638 million in fiscal year 2010.

A former chief economist in the city comptroller's office until 2006, John Tepper Marlin, said that if he were at City Hall, he would act quickly to address the lower tax revenue projections by holding a press conference today to announce an official hiring freeze.

"There is absolutely no point in waiting. You want to act immediately," he said. Mr. Marlin said he agreed with Mr. Page's projections and added that if anything, "it could be worse." Unlike past mayors, Mr. Bloomberg is not afraid to deliver bad news, he said.

A spokesman for the mayor, Stuart Loeser, wrote in an e-mail message that when Mr. Bloomberg has a budget announcement to make, he will make it.

"We don't announce that we're announcing them and then announce them at a later date," he said.