"British MPs grill watchdog over Northern Rock crisis"

11/12/2007 - 07:01:34

The Financial Services Authority’s role in the Northern Rock crisis will come under fresh scrutiny today when heads of the City of London watchdog appear for a second round of questioning from MPs in the UK.

FSA chairman Callum McCarthy and chief executive Hector Sants will face MPs in the cross party Treasury Select Committee in what is set to be another grilling on Northern Rock and the credit crunch.

The FSA bosses received a mauling in October, which saw the regulator admit that it needed to improve its monitoring after Northern Rock’s high profile troubles.

Mr Sants and Mr McCarthy told MPs that “lessons needed to be learnt”.

The FSA revealed that the mortgage bank had not been due a full risk assessment until three years after its last one, conducted between December 2005 and February 2006, and had been deemed low risk.

Mr Sants added the FSA was reviewing its procedures in response to the fiasco.

But the FSA heads are thought to be in line for a further gruelling session today.

Some members of the Committee are said to believe that the FSA was largely responsible for the regulatory confusion leading up to Northern Rock’s move to call on the Bank of England as lender of last resort.

News of the emergency loan caused retail savers to panic and withdraw funds from Northern Rock in the first run on a UK bank in nearly 150 years.

Also due to appear before the Commons Committee today is Loretta Minghella, chief executive of the Financial Services Compensation Scheme – the scheme charged with protecting savers in the UK.

The scheme came under considerable fire amid the Northern Rock debacle when it was found not to offer savers enough reassurance and was thought to have further fuelled the bank run.

The Government had to step in and guarantee 100% of saver deposits to help ease the queues of savers lining up to withdraw money and the Treasury has since pledged to completely overhaul the scheme.

The FSA chiefs and Ms Minghella are being questioned as part of the Committee’s ongoing inquiry into financial stability and transparency, which is set to go into next year.

Last week, MPs quizzed bosses of investment banks UBS, Goldman Sachs, Citigroup and Deutsche Bank over their role in the credit crunch which led to Northern Rock’s funding woes.

Northern Rock’s accountants PricewaterhouseCoopers were also in the firing line, accused of failing to spot risks within the lender’s funding model.

http://www.breakingnews.ie/business/mheyauauqley/rss2/

THE NEW YORK DAILY NEWS DAILY POLITICS BLOG:

YES ....

YES ...

THE MORE I STUDY THIS MATTER OF SPITZER'S FINANCIAL SERVICES REGULATION-GUTTING COMMISSION ....

THE MORE CONVINCED I BECOME ....

THAT THIS HECTOR SANTS DUDE FROM ENGLAND ...

IS NOT THE ONE TO HELP US REFORM OUR FINANCIAL SERVICES TRADE DOWN HERE ON WALL STREET ....

NOR IS THE ENGLISH MODEL SOMETHING THAT WE NYS CITIZENS WOULD WANT TO TOUCH WITH A TEN-FOOT POLE ...

BUT HEY ...

ELIOT SPITZER IS FOR IT ....

AND HE IS PROBABLY THE SMARTEST MAN WITH THE BEST MIND IN ALL THE KNOWN WORLD ....

And so ....

http://www.nydailynews.com/blogs/dailypoli...d-ends-168.html

THE DAILY MAIL

"Government extends Northern Rock savings guarantee as FSA admits 'lessons must be learned'"

Last updated at 15:34pm on 9th October 2007

A guarantee put in place to protect customers of ailing banking group Northern Rock was extended today to cover all new deposits.

The Treasury said the new agreement would give the company breathing space as it continues to pursue "the full range of its strategic options".

Northern Rock's new guarantee will be paid for with an "appropriate fee" to ensure that it does not receive a commercial advantage.

A Northern Rock spokesperson said: "Accordingly, all retail savings - for both existing and new depositors - remain guaranteed, safe and secure."

Meanwhile the Financial Services Authority (FSA) admitted that "lessons had to be learned" to improve its monitoring following the crisis.

The City regulator told MPs on the Treasury Select Committee that Northern Rock had not been due a full risk assessment until three years after its last one, conducted between December 2005 and February 2006.

While specific issues were addressed with the bank on a more regular basis, chief executive Hector Sants said the FSA was reviewing its procedures in response to the fiasco.

"There are lessons to be learned here, with regard to our supervisory capacity, and I do think we need to look back over our engagement with this particular company," he told the committee.

Mr Sants went on to say that the FSA had predicted Northern Rock - before it ran into credit problems requiring financial support from the Bank of England - to have a "low" probability of getting into trouble.

"In terms of its probability of getting into difficulty, we had it as a low probability, and there's no question of course - the way that events transpired - that that probability analysis was proved to be inaccurate," he said.

"So we have some serious lessons to be learned."

The Treasury Select Committee later disclosed that it would be hauling Northern Rock chiefs before it next Tuesday.

The bank's chairman, Matt Ridley, and chief executive Adam Applegarth will be grilled as part of the committee's ongoing inquiry into financial stability and transparency.

The Treasury said the new Northern Rock guarantee would be extended to all new retail deposits made after September 19, including those made from today.

It added: "These arrangements will cover all retail deposits including future interest payments, movements of funds between accounts and term deposits for the duration of their term."

The arrangements will be complemented by additional facilities through the Bank of England.

Northern said it expected the process relating to the review of its strategic options to be completed by February.

It added that discussions continued with selected parties after it revealed last month that it had received a number of approaches regarding "a variety of potential transactions".

Reports last week said that New York-based private equity firm JC Flowers had raised £15 billion to bid for the bank.

The fund's head, Chris Flowers, is understood to have gained funding commitments from the likes of JP Morgan, Credit Suisse and Wachovia.

U.S. private equity firm Blackstone and its UK rival Apax are also rumoured to be looking at the bank.

Northern Rock said it had appointed banking groups Citi and Merrill Lynch to advise it on the range of options for the future of the company, as well as help with the discussions with interested parties.

The bank's shares continued their recent mini recovery today, climbing 9 per cent to 188.7p following the announcement of the new guarantee.

Its shares were £12.48 in February, but closed on Friday at 158.5p.

Northern Rock suffered the first run on a UK bank in 150 years last month, as the company struggled with soaring borrowing costs in the money markets where the firm raises most of its cash for mortgage lending.

The collapse of the sub-prime mortgage market in the U.S. has led to tighter credit conditions, with banks increasingly reluctant to lend to each other, pushing up the cost of borrowing.

Northern Rock normally relies on the wholesale markets for 75 per cent of its funding, and it was forced to turn to the Bank of England as lender of last resort when these markets dried up.

The bank has never disclosed how much it has borrowed from the Bank of England but analysts speculate it could be as much as £10.9 billion.

They have also predicted profits at the group will slump to a £120 million loss next year, well below the £647 million profit for this year expected by the market before the current crisis began.

http://www.dailymail.co.uk/pages/live/arti...in_page_id=1770

"FSA says Investors relied too much on credit ratings"

Tue Dec 11, 2007 5:10pm

LONDON (Reuters) - The financial watchdog told legislators that banks were not "reckless" in the run-up to the credit crisis, but warned some investors had relied too heavily on ratings agencies.

Credit ratings agencies have come under fire in recent months, accused of being too slow in warning about problems in the U.S. subprime mortgage sector and possible repercussions.

However, in a wide-ranging evidence session before parliament's Treasury Committee on Tuesday, the Financial Services Authority's (FSA) top executives said some institutional investors simply failed to do enough of their own research.

"One element of the problem is institutional investors using rating agencies as a shorthand way of measuring liquidity as well as credit (risk)," FSA Chief Executive Hector Sants said, in the watchdog's second appearance before legislators in two months.

"It is vitally important that people understand the limitations of the service that a credit agency delivers."

The instruments, he said, were transparent enough for those who had the "time and expertise" to unpick them.

"People have relied too heavily on the rating agencies rather than doing their own (research)," Callum McCarthy, the FSA's chairman, told the committee.

In a separate hearing last week, leading investment banks acknowledged that some investors in complex structured products were not sophisticated enough to understand what they bought.

Answering questions on Northern Rock, the country's highest-profile casualty in the credit crisis, the FSA confirmed it still expects a trading update from the battered lender this month and dismissed calls to suspend the bank's volatile shares.

The stock was down 5.5 percent in late trade on Tuesday.

Northern Rock said in September -- the day it turned to the Bank of England for cash and triggered a run on deposits -- that it expected a trading update in "early December" before the end of its financial year.

"It would be a pre-close statement, and then a (full) statement after the end of the year," Sants told legislators.

Answering repeated questions over whether the bank would publish a statement by mid-December, he added it would have to update the market in order to fulfil its listing conditions.

Northern Rock is widely expected to publish the statement in the coming days, but the bank declined to comment on Tuesday.

Until its near-collapse in September, Northern Rock was traditionally one of the first banks to update the market.

The period for trading updates typically runs to mid-December.

Northern Rock advisers are auctioning the bank after it was engulfed in a funding crisis in September and has since been forced to borrow 25 billion pounds from the Bank of England.

The FSA has come under fire over its role in the Northern Rock crisis, putting the watchdog through its toughest test since it was set up seven years ago.

McCarthy and Sants confirmed a key discussion paper on the regulation of liquidity was expected this month, with the results of a "forensic" look at its role in the Northern Rock debacle due by next spring.

The FSA has also made changes to the safety net for deposits in banks, and Sants reiterated on Tuesday that a stronger protection scheme could have "been a real help in preventing the retail run" at Northern Rock.

(Reporting by Clara Ferreira-Marques; Editing by David Holmes and Erica Billingham)

http://uk.reuters.com/article/companyOutlo...lBrandChannel=0

THE NEW YORK DAILY NEWS DAILY POLITICS BLOG:

"New York commission urges regulation of financial services to follow 'principles'"

By DAN SEYMOUR, Associated Press

Last updated: 5:53 p.m., Friday, January 18, 2008

NEW YORK -- A commission helping redraft the regulatory framework for New York's finance industry is considering placing greater emphasis on "principles" than on strictly defined rules, Gov. Eliot Spitzer said Friday.

The commission's members include the chief executives of investments banks Goldman Sachs, Morgan Stanley and Merrill Lynch; insurers MetLife and AIG; and the New York Stock Exchange and the Nasdaq.

end quotes

From Wikipedia:

Spitzer sued several investment banks for inflating stock prices, using affiliated brokerage firms to give biased investment advice and "spin" initial public offerings of stock by offering them to CEOs and other influential members of the business community.

In 2002, a settlement of these lawsuits was negotiated by Spitzer, federal regulatory bodies, stock exchanges, and the investment banks and brokerage houses in question.

The result was $1.4 billion in compensation and fines paid by the brokerages and investment banks, NEW RULES and enforcement bodies created to govern stock analysts and IPOs, and the insulation of brokerage firms from pressures by investment banks.

Ten firms paid fines to settle the case:

Bear Stearns,

Credit Suisse First Boston,

Deutsche Bank,

Goldman Sachs,

J.P. Morgan Chase,

Lehman Brothers,

Merrill Lynch,

Morgan Stanley,

Salomon Smith Barney,

UBS Warburg.

http://en.wikipedia.org/wiki/Eliot_Spitzer

Posted by John Galt on January 19, 2008 8:54 AM

http://www.nydailynews.com/blogs/dailypoli...d-ends-168.html

"PRIVATE ENTITY WITH A PUBLIC PURPOSE: Governance of the New York Stock Exchange - AN OVERVIEW"

The Council of Institutional Investors

©July 2003

BACKGROUND

The New York Stock Exchange (NYSE) is reviewing its own governance.

Enron and other corporate fiascos started a chain of governance dominoes that have, perhaps inevitably, reached the Exchange.

First reformers focused on changing companies themselves, then their professional service providers — accountants and lawyers, then companies’ bankers, and then the various quasi-governmental or self-regulatory bodies that were supposed to be market safety nets.

The sheer number and size of the corporate frauds demonstrated that self-regulatory bodies failed to be good safety nets.

Federal legislation attempted to improve some of these bodies.

Lawyers were given new rules, one accounting body was given more independent funding, and a second was created.

New rules for rating agencies are under consideration.

The New York Stock Exchange could hardly expect to escape re-evaluation in this climate.

Analysts, who are employed by the major investment banks that sit on the Exchange’s board, were shown to be conflicted.

These same investment banks provided services that seemed to enable bad behavior at Enron and elsewhere.

The frauds made the listing standards that the Exchange imposed on companies seem badly out of date.

These facts alone probably would have provoked a review.

But other events, which the Exchange arguably helped bring on itself, seemingly made governance review a certainty.

Another round of allegations of front-running-like behavior at the Exchange, including allegations of insufficient Exchange oversight, surfaced.

Individuals who were on, or had been on, the NYSE board, such as Martha Stewart, Linda Wachner, and Vivendi’s ousted CEO Jean-Marie Messier, suffered negative publicity in ways that threw their suitability as NYSE board members into question.

To top it off, the Exchange announced its intention to select a board candidate, Citigroup’s Sandy Weill, who was deemed by New York attorney general Eliot Spitzer and many investors to be extremely unsuitable.

Thus, it was no surprise that Securities and Exchange Commission (SEC) chairman William Donaldson asked the Exchange to undertake a governance review.

And it began.

The Council of Institutional Investors received a letter dated June 16, 2003, from the NYSE asking for comments as part of this review.

The letter indicated that the Exchange has formed a special committee to review its governance.

This monograph provides some background information on the Exchange and its governance.

It also offers opinions.

It is designed to assist members in formulating their comments to the Exchange.

The Council gave a draft of this monograph to the New York Stock Exchange for review.

It, most helpfully, offered many pages of feedback, some of which is incorporated here.

Since views legitimately differ, the Exchange’s entire response to the Council is posted on the Council’s web site.

When the Council’s board approves a letter to the Exchange on this subject, that letter will be similarly posted.

Self-regulation

The Exchange’s White Paper explains that the Exchange’s self-regulation works because of four factors: its professional staff, its political accountability, its market sensitivity, and its broker dealers’ interdependence.

This interdependence, it explains, means that all broker dealers are likely to be hurt if some of them behave badly—if brokers did not self-police, all
reputations would suffer.

Governance experts are skeptical about these suggestions.

The interdependence of broker dealers, like the interdependence of investment banks, has not provided much protection against bad behavior in the past.

Indeed, one might argue that interdependence makes it easier for poor behavior to go undetected and for unhealthy group dynamics to result.

It is certainly as easy to picture group collusion as group policing.

And there have, indeed, been somewhat regular allegations of improper conduct about these very broker dealers.

Commercial banks are fairly interdependent, and they do not argue that bank regulators are therefore unnecessary.

Looking at Wall Street’s recent record does not offer any reason to believe that interdependence among brokers removes the need for accountability or oversight from those whose money they handle and regulators whose job it is to protect the public.

Just as important, the possibility that broker dealers may have a self-interest in watching each other does not suggest that they have a self interest in protecting investors.

Indeed, they have a collective interest in profiting from investors.

The Exchange’s public purpose is to protect investors—but it is owned and operated by a profession that has its own needs to tend to.

The argument that political oversight justifies self-regulation is puzzling—after all, political oversight is oversight by an external body.

Saying that oversight is important, whether political or of some other type, makes the case against, rather than for self-regulation.

One could debate the merits of political (congressional) oversight, since broker dealers are better able to protect their interests politically than individual investors are, but that is different than a debate over the need for oversight.

It is reasonable to guess that the NYSE, like the Securities Industry Association (SIA), expends considerable energy lobbying in some form or other.

It would be useful for the special committee to insist on full public disclosure of Exchange lobbying expenses and charitable contributions.

The argument that the existence of professional staff justifies self-regulation is equally puzzling.

Presumably, most bodies believe they have professional staffs, but most people are wise enough to recognize that staffs are made up of human beings, and human beings tend to act in their self-interest and are therefore affected by pressures and conflicts of interest.

A body that suggests it can self-regulate because its staff, unlike all others, is immune to conflicts and pressures, is a body that seems to be begging for wiser oversight.

Market sensitivity may have some moderating effect on Exchange governance—after all, if investors lose confidence in corporations due to scandals and frauds, they will stop investing.

But that is a slow and drastic check on the system.

More important, this safeguard creates incentives for minimal standards not optimal ones: Market sensitivity ultimately means the Exchange will do what it needs to protect itself, but not necessarily what it needs to optimally protect investors.

Thus, none of the four reasons the Exchange offers for why it should be self-regulating seems sufficient to reach that conclusion.

The Exchange notes, quite rightly, that “self-regulation is an integral part of the federal statutory scheme for regulation of U.S. financial markets.”

The Exchange adds that self-regulation is just one layer of many for investors, and that the SEC plays an important oversight role.

However, as this monograph notes elsewhere, self-regulation is falling from favor (for example, both at the NASD and in the accounting profession) as its apparent failures have seemingly been highlighted by recent frauds and other disasters.

Thus, this may be the appropriate time for the Exchange’s special committee to revisit this principle in light of the recent changes in analogous regulatory settings.

Finally, the White Paper offers an analogy to democracy as a justification for self-regulation.

It quotes Churchill to the effect that democracies may not be perfect but they are better than anything else that has been tried.

It implies that this is the same conclusion one must draw concerning self-regulation.

But one could easily conclude precisely the opposite.

While experiences with democracy generally do turn out better for citizens than other forms of government, almost every experience with self-regulation in the U.S. has been a big disappointment — protection occurs, but not for the intended constituency.

(See the the Council’s June 2003 editorial on how many self-regulatory, quasi-governmental bodies have failed.)

Saying one is like Jack Kennedy doesn’t make it so, to quote a famous debate.

http://members.cii.org/dcwascii/web.nsf/fi...20Monograph.pdf

"State budget deficit grows, Bruno ready to deal"

By MICHAEL GORMLEY, Associated Press

Last updated: 6:43 p.m., Thursday, January 17, 2008

ALBANY -- Officials in Gov. Eliot Spitzer's administration said the state budget proposal on Tuesday will reveal a $4.4 billion deficit, slightly larger than predicted because of tumultuous months on Wall Street and Main Street.

Spitzer budget crafters on Thursday said the current gap between state spending and revenues had been projected at $4.3 billion, a figure that had grown through 2007.

But early economic forecasts also show no recession is expected at this point.

They said early predictors show New York's economy may start to turn around, if slowly, by the end of 2008.

Until then, Wall Street layoffs and losses and a dismal holiday for retailers continues to cut New York's projected tax revenues, said Laura L. Anglin, Spitzer's budget director.

She said revenues from Wall Street's year-end bonuses -- which were expected to grow by 14 percent over last year -- are now expected to be 5 percent less than last year.

State Comptroller Thomas DiNapoli said Thursday that the average bonus declined by nearly 5 percent to an average of $180,420.

And Wall Street bonuses account for about 20 percent of state revenues.

DiNapoli warned of "dark economic clouds rolling in."

The state budget affects New Yorkers in many ways.

The amount of state school aid directly affects local tax bills and student performance.

And state funding is the primary driver in highway and bridge repair as well as efforts to attract and retain employers.

While acknowledging tough times ahead, Senate Republican leader Joseph Bruno said Thursday that he's ready to work with Spitzer, and also to take him on to make sure state spending includes all areas of the state.

"We're going to have a challenging year," Bruno said to his local chamber of commerce, which gave him standing ovations in his first public policy speech since his wife's funeral on Monday.

Bruno said he sees hope for cooperation with the Democratic governor after conflict and scandal between the leaders gridlocked Albany after June.

"Historically, the governor has made very bad judgments in governing because he has favored the politics over governing, and that's what started the whole problem -- the governor wanted to be the only game in town," Bruno said.

But Spitzer and Bruno recently spoke by telephone, the first direct contact in months outside Spitzer's condolences for Bruno's loss.

"We have got to move forward and get things done," Bruno said.

"He says he wants to do it."

"I want to do it."

He told the Albany area chamber of commerce: "I really am in a frame of mind that I just want to be nice."

"I really want to be nice."

Spitzer's 2008-09 budget proposal for the fiscal year beginning April 1 is expected to grow by about 5.3 percent.

Although twice the inflation rate, 5.3 percent is the long-term personal income growth figure the administration uses as a gauge of responsible growth.

The current budget of about $120 billion, with $80 billion of state spending alone, grew by about 8 percent over the year before.

That's less than some previous budgets that grew by around 10 percent a year.

But Spitzer, who has called for billions of dollars in new spending for education, job creation and property tax relief, appears to not be leaving much room for the Legislature to add its spending priorities.

Most years, the Legislature adds about $1 billion to the governor's budget before it's adopted.

Spitzer's budget proposal won't have to use any funds from the state's $1.1 billion "rainy day fund" reserved for a true fiscal crisis and no hiring freeze is being ordered, budget director Anglin said.

THE NEW YORK DAILY NEWS DAILY POLITICS BLOG:

AND AS THE "PROFLIGATE SON" ELIOT SPITZER RUNS NEW YORK STATE SPENDING RIGHT ON UP AND OUT OF SIGHT BASED ON THE SPECIOUS ASSUMPTION THAT ALL OF US ARE MAKING AT LEAST 5.3% MORE THIS YEAR THAN WE MADE LAST YEAR ...

WE HAVE A DOSE OF THE REALITY THAT THE "PROFLIGATE SON" AND HIS LACKEY, PAUL FRANCIS CHOOSE TO TOTALLY IGNORE ...

"Gas, food spur inflation jump in 2007"

By MARTIN CRUTSINGER, Associated Press

Last updated: 5:53 p.m., Wednesday, January 16, 2008

Workers' wages failed to keep up with the higher inflation.

Average weekly earnings, after adjusting for inflation, dropped by 0.9 percent in 2007, the fourth decline in the past five years.

The lagging wage gains are cited as a chief reason many workers have growing anxiety about their economic futures.

Posted by John Galt on January 17, 2008 8:24 AM

http://www.nydailynews.com/blogs/dailypoli...r.html#comments

"Spitzer to add millions to budget for children's health care"

By VALERIE BAUMAN, Associated Press

Last updated: 4:02 p.m., Thursday, January 17, 2008

ALBANY -- Gov. Eliot Spitzer announced Thursday that he will include $37 million in his budget proposal next week to expand health care coverage to about 70,000 more children.

He made the move despite the Bush administration's refusal to match the expansion with federal funds.

New York is among several states suing the Bush administration over restrictions on health insurance coverage for children.

Spitzer said the federal government would have contributed $19 million if the Bush administration had agreed to help fund expansion of the State Children's Health Insurance Program.

But Spitzer says the additional expense is a moral imperative the state must take on.

"We have now gotten to the point where we believe in the state of New York we should act," Spitzer said.

"And even if Washington is unwilling, unable to understand how critically important it is that we expand this health care to our children, we will do so."

The system would expand health care coverage on a sliding scale to families with incomes between 250 percent and 400 percent of the federal poverty level.

Currently, children in families at 250 percent of the poverty level or below are entitled to coverage, but more than 300,000 eligible children are not enrolled.

The state is trying to find new ways to reach out to those families.

School health centers will make an effort to inform eligible families, and the state Health Department will attempt to make the enrollment process easier.

A family of four at 400 percent of the federal poverty level would make about $82,000 a year, and with the sliding scale would pay a $1,400 annual premium for coverage through the state.

"This is not a handout to those who are not working," Spitzer said.

"This is helping the working middle class, those who are struggling."

The state's Child Health Plus program now covers about 396,000 children.

The lawsuit against the federal Department of Health and Human Services challenges new rules governing the SCHIP.

The states are seeking an injunction against new federal restrictions on eligibility and against what amounts to a limit on covering children from middle-income families who lack health insurance.

The new rules forbid states from providing health care unless a child has been without coverage for a year.

The program covers 6.6 million children nationwide from modest-income families that aren't poor enough to qualify for Medicaid.

Congress passed a bill last year that would add $35 billion to the SCHIP over five years to expand health coverage for children in families that cannot afford to buy private health insurance.

A steep increase in cigarette taxes would pay for it.

President Bush vetoed the bill, arguing it was too costly.

In addition to the lawsuit filed last year by New York, Illinois, Maryland and Washington, the parents of five New York children filed a federal suit Thursday in the Southern District of New York.

They argue that the federal government's decision to reject New York's plan is based on unlawfully adopted federal rules that are inconsistent with the federal SCHIP statute.

The families also argue the administration violated the Administrative Procedures Act, which requires the government to adopt new rules only after public notice and comment.

I THINK THAT WE ARE LIVING IN A TIME OF ABSOLUTE MADNESS HERE IN AMERICA AND NEW YORK STATE ....

"State seeks deep sites to hold greenhouse gas - Old natural gas wells could hold key to permanent storage of carbon dioxide"

By BRIAN NEARING, Staff writer, Albany, New York Times Union

First published: Wednesday, January 16, 2008

ALBANY -- The state is joining the hunt for the holy grail of global warming -- a way to reach deep underground to permanently entomb fossil fuel-emitted carbon dioxide, a greenhouse gas that fuels rising temperatures.

This summer, geologists will study old natural gas wells and other subterranean features in the Southern Tier and western New York as potential resting places for pumped-in CO2 from power plants, under a $4 million, three-year program by the state Energy Research and Development Authority and a host of energy companies.

The storage method known as sequestration could give extended life to high-CO2 fuels like coal and oil, whose emissions are worsening global warming.

President Bush has been a powerful advocate for sequestration, which could help the fuel industry avoid potential CO2 emission limits that climate scientists say will be needed to to avoid catastrophic temperature increases.

"This is one of our efforts to mitigate climate change," said authority President and CEO Paul Tonko.

"We are going to scope out areas that might be suitable for this and address some of the geological uncertainties."

Nearly a dozen fossil-fuel-based companies are providing $2.3 million toward the state effort.

They include AES Eastern Energy, which owns coal-fired power plants near Buffalo, Johnson City in Broome County, and Cayuga and Seneca lakes in the Finger Lakes, and Nornew, a company that owns natural gas fields in the Southern Tier.

Tonko said preliminary field studies done last year identified areas with the porous geologic features necessary to hold large amounts of CO2 and prevent it from escaping into the atmosphere.

Field researchers will use seismic equipment to study sandstone, limestone and shale formations in the Southern Tier counties of Broome, Chenango, Cayuga, Steuben, Yates, Schuyler and Tompkins, and also in Erie, Chautauqua and Cattaraugus counties in the western edge of the state, Tonko said.

Geologists from the State Museum also will study storage potential of shale formations.

"Our target will be from 2,500 feet to 10,000 feet underground," said John Martin, a senior project manager with the authority.

Trucks outfitted with seismic frequency collectors and "thumpers" will vibrate the ground and collect reflected sound waves to build a three-dimensional underground map.

Areas of fractured sandstone or limestone -- sometimes mixed with salty water -- have the room needed to hold CO2.

Also, the state is joining the federal Midwest Regional Carbon Sequestration Partnership, one of seven state partnerships supported financially by the U.S. Department of Energy.

Today, the cost of carbon storage appears prohibitively expensive at up to $300 per ton, according to the U.S. Department of Energy.

That would greatly increase the cost of electricity generated by coal, which accounts for half of the nation's electricity.

The government's goal is to reduce that storage cost to less than $10 per ton by 2015.

DOE estimates underground saline formations could store up to 500 billion tons, according to the agency's Web page on the effort.

That's equivalent to 300 years of the U.S. total CO2 emissions of 1.6 billion tons in 2004.

More study needs to be done but the storage method does have risks.

One danger could be the sudden and unintended release of CO2 gases into the atmosphere if an underground storage area were to crack or rupture.

Coal accounts for more than a third of all U.S. fossil-fuel CO2 emissions, according to DOE's Carbon Dioxide Information Analysis Center.

Nearing can be reached at 454-5094 or by e-mail at bnearing@timesunion.com.

ELIOT SPITZER WOULD HAVE US BELIVE THAT HE IS POSSESSED OF A CRYSTAL BALL ....

HE ALONE KNOWS THE FUTURE ....

SO WE SHOULD GIVE HIM A BILLION DOLLARS TO GAMBLE WITH ....

ON THIS UPSTATE "REVIVAL" PIE-IN-THE-SKY THAT HE IS PEDDLING UP HERE ...

And so ....

"Spitzer details $1 billion plan for upstate revival"

By CAROLYN THOMPSON, Associated Press

Last updated: 5:22 p.m., Wednesday, January 16, 2008

BUFFALO, N.Y. -- Gov. Eliot Spitzer pledged $1 billion Wednesday toward restoring upstate by getting land ready for development, helping universities cash in on research, pushing farmers' goods to market and cleaning up parks.

In New York's first ever "state of upstate" speech, the governor detailed an agenda of programs and investments that he said grew from a year's worth of conversations in communities.

"While I realize that this is a large amount of money in tough fiscal times, I also know that it's at these very moments when investment matters most, when the urgency is so great that we simply cannot afford to wait," Spitzer told an audience of mayors, business leaders and elected officials at Buffalo State College.

The upstate economy has struggled for most of the past two decades against manufacturing and population losses despite gains in service sectors like health care and hospitality and a new focus on high-tech.

The $1 billion Upstate Revitalization Fund to be included in Spitzer's budget next week offers point-by-point solutions to the region's ills -- a dearth of shovel-ready sites, aging infrastructure, high energy costs and lack of broadband access in rural areas.

It also aims to capitalize on the region's strengths, funding business incubator programs at colleges and universities and tapping into nearby Canada for investment.

"It is a strategy that comes from us in the local communities, which is why it's such an exciting strategy," said Buffalo Mayor Byron Brown, whose city is in line for one of four new crime analysis centers and an expansion of the University at Buffalo into the downtown medical campus.

Spitzer will need the support of downstate legislators to make it all happen.

Assembly Speaker Sheldon Silver, a Manhattan Democrat and Spitzer ally, was an early supporter, traveling to Buffalo for what he called "a historic day."

"This is a necessity, investing in our economy is a necessity," the speaker said.

Senate Majority Leader Joseph Bruno, who missed the address because of his wife's death last week, said the governor is right to want to address upstate's ills -- but remained behind the Senate majority's own "Upstate Now" program of tax cuts, capital spending and energy subsidies.

"Upstate Now addresses the real, basic problems that upstate businesses face to help them grow and create new jobs," the Republican said in a statement.

Dan Gundersen, Spitzer's upstate development chief, said the governor's plan is all about fundamentals.

"So often, economic development has been about projects, it's been about the silver bullet, it's been about the scramble for resources," Gundersen said, "and what we are saying, what the governor has said today that is so very different, is that if we focus on the fundamentals and we create those programs that are going to address real needs, then we're going to see change."

How to pay for Spitzer's ambitious program remains a question.

Besides the upstate initiatives and spending he called for Wednesday, Spitzer last week proposed billions more in investments to create jobs and in property tax relief, all in the face of a projected deficit of at least $4.3 billion and declining state and national economies.

"Let's not think that only one year of investment will make a difference," cautioned Andrew Rudnick, president and chief executive of the business-oriented Buffalo Niagara Partnership.

"This needs to be repeated year in and year out for at least as many years as led to our decline."

Spitzer will detail what he promised to be "hard choices" in his budget proposal to the Legislature next week.

As a candidate for governor, Spitzer compared upstate west of Albany to Buffalo as similar to Appalachia.

He used Wednesday's speech to explain to potential downstate detractors his focus on the region.

"The truth is that we will never grow again, we will never prosper again, we will never become a beacon of hope and opportunity again if part of our state is thriving and another part is falling behind," he said.

"So we must come together and channel all of the passion, energy and determination that is within us toward one goal: restoring growth and prosperity to upstate New York."

------

Associated Press Writer Michael Gormley in Albany contributed to this report.

"Supreme Court upholds New York's system of choosing trial judges"

By MARK SHERMAN, Associated Press

Last updated: 3:04 p.m., Wednesday, January 16, 2008

WASHINGTON -- The Supreme Court unanimously upheld New York's unique system of choosing trial judges Wednesday, setting aside critics' concerns that political party bosses control the system.

"A political party has a First Amendment right to limit its membership as it wishes and to choose a candidate-selection process that will in its view produce the nominee who best represents its political platform," Justice Antonin Scalia wrote for the court.

In New York, primary voters elect convention delegates who choose candidates for the judgeships.

Once nominated, those candidates run on the general election ballot.

In practice, they frequently have no opposition.

Unsuccessful candidates for judgeships and a watchdog group filed a lawsuit challenging the system.

A federal district judge and the 2nd U.S. Circuit Court of Appeals agreed that it is very difficult for candidates to get on the ballot if they don't have support of the party leaders.

In striking down the system, the two federal courts said judgeship candidates who are not the choice of the party leaders are excluded from elections by an onerous process that violates their First Amendment rights.

The high court on Wednesday reversed the lower courts.

Scalia said there is nothing unconstitutional about the process.

The system's opponents "complain not of the state law, but of the voters' (and their elected delegates') preference for the choices of the party leadership," Scalia said.

He said the state legislature is free to return to a primary if it wishes.

Justice John Paul Stevens chimed in with a brief opinion distinguishing between a constitutional system and wise public policy, resorting to the words of former Justice Thurgood Marshall.

"The Constitution does not prohibit legislatures from enacting stupid laws," Stevens said, quoting Marshall.

New York Assemblywoman Helene Weinstein, the Democratic chair of the Judiciary Committee, said work on legislation to change the system stalled amid the court challenges.

The legislation would create independent panels that would screen political party judicial nominees, Weinstein said.

"The fact that this case was making its way through the courts has held back our ability to take measures to reform the system to make it more transparent and improve public confidence," Weinstein said.

New York City's top lawyer, Michael A. Cardozo, said the city will continue to press for adoption of a constitutional amendment to require the appointment of judges based on merit.

Critics have said the conventions are patronage-driven affairs in which allies of party leaders are rewarded with judgeships and all others are shut out.

The appeals court said that between 1990 and 2002, almost half the state's elections for Supreme Court justice -- trial judges in New York's judiciary -- were uncontested, calling them "little more than ceremony."

The appeals court ordered the state to dispense with the conventions and switch to primary elections until state lawmakers come up with a new plan.

Many legal and civics groups have come out in favor of appointing judges in New York.

The U.S. Supreme Court previously has ruled that states can decide whether to use conventions or primaries to nominate candidates.

States also can choose to have judges appointed rather than elected.

Margarita Lopez Torres became the lead plaintiff in the lawsuit after Democratic leaders in Brooklyn blocked her from getting the party's nomination for a Supreme Court judgeship.

She said the leaders turned against her shortly after her election as a civil court judge when she would not hire people they recommended.

Three years later, Lopez Torres said they offered her a second chance if she would hire a leader's daughter.

She refused.

The state, the Democratic and Republican parties and the elections board joined to ask the high court to reverse the appeals court ruling.

Former New York Mayor Ed Koch was among a diverse group of politicians and legal groups asking the court to uphold the lower court rulings.

"They're the final arbiter, and you have to accept the outcome."

"I just think they made a dreadful mistake."

"The county leaders will now continue to basically assure the appointment to the Supreme Court of their candidates," Koch said.

The state Legislature adopted the nominating conventions 86 years ago.

Lawmakers scrapped direct primaries for New York's Supreme Court justices because of the potentially corrupting influence of having prospective judges raising campaign money.

Other judges in New York are elected through primaries.

The plaintiffs have said the current system leads to cozy relationships among judges, lawyers and politicians.

The case is New York Board of Elections v. Torres, 06-766.

------

Associated Press Writer Richard Richtmyer in Albany, N.Y., contributed to this report.

NEW YORK STATE BOARD OF ELECTIONS et al. v. LOPEZ TORRES et al.

certiorari to the united states court of appeals for the second circuit

No. 06-766. Argued October 3, 2007--Decided January 16, 2008

Under New York's current Constitution, State Supreme Court Justices are elected in each of the State's judicial districts.

Since 1921, New York's election law has required parties to select their nominees by a convention composed of delegates elected by party members.

An individual running for delegate must submit a 500-signature petition collected within a specified time.

The convention's nominees appear automatically on the general-election ballot, along with any independent candidates who meet certain statutory requirements.

Respondents filed suit, seeking, inter alia, a declaration that New York's convention system violates the First Amendment rights of challengers running against candidates favored by party leaders and an injunction mandating a direct primary election to select Supreme Court nominees.

The Federal District Court issued a preliminary injunction, pending the enactment of a new state statutory scheme, and the Second Circuit affirmed.

Held: New York's system of choosing party nominees for the State Supreme Court does not violate the First Amendment. Pp. 5-12.

(a) Because a political party has a First Amendment right to limit its membership as it wishes, and to choose a candidate-selection process that will in its view produce the nominee who best represents its political platform, a State's power to prescribe party use of primaries or conventions to select nominees for the general election is not without limits.

California Democratic Party v. Jones, 530 U. S. 567, 577.

However, respondents, who claim their own associational right to join and have influence in the party, are in no position to rely on the right that the First Amendment confers on political parties. Pp. 5-7.

(b) Respondents' contention that New York's electoral system does not assure them a fair chance of prevailing in their parties' candidate-selection process finds no support in this Court's precedents.

Even if Kusper v. Pontikes, 414 U. S. 51, 57, which acknowledged an individual's associational right to vote in a party primary without undue state-imposed impediment, were extended to cover the right to run in a party primary, the New York law's signature and deadline requirements are entirely reasonable.

A State may demand a minimum degree of support for candidate access to a ballot, see Jenness v. Fortson, 403 U. S. 431, 442. P. 7.

© Respondents' real complaint is that the convention process following the delegate election does not give them a realistic chance to secure their party's nomination because the party leadership garners more votes for its delegate slate and effectively determines the nominees.

This says no more than that the party leadership has more widespread support than a candidate not supported by the leadership.

Cases invalidating ballot-access requirements have focused on the requirements themselves, and not on the manner in which political actors function under those requirements.

E.g., Bullock v. Carter, 405 U. S. 134.

Those cases do not establish an individual's constitutional right to have a "fair shot" at winning a party's nomination. Pp. 7-10.

(d) Respondents' argument that the existence of entrenched "one-party rule" in the State's general election demands that the First Amendment be used to impose additional competition in the parties' nominee-selection process is a novel and implausible reading of the First Amendment. Pp. 10-12.

462 F. 3d 161, reversed.

Scalia, J., delivered the opinion of the Court, in which Roberts, C. J., and Stevens, Souter, Thomas, Ginsburg, Breyer, and Alito, JJ., joined.

Stevens, J., filed a concurring opinion, in which Souter, J., joined.

Kennedy, J., filed an opinion concurring in the judgment, in which Breyer, J., joined as to Part II.

NEW YORK STATE BOARD OF ELECTIONS, et al., PETITIONERS v. MARGARITA LOPEZ TORRES et al.

on writ of certiorari to the united states court of appeals for the second circuit

[January 16, 2008]

Justice Scalia delivered the opinion of the Court.

The State of New York requires that political parties select their nominees for Supreme Court Justice at a convention of delegates chosen by party members in a primary election.

We consider whether this electoral system violates the First Amendment rights of prospective party candidates.

I

A

The Supreme Court of New York is the State's trial court of general jurisdiction, with an Appellate Division that hears appeals from certain lower courts.

See N. Y. Const., Art. VI, §§7, 8.

Under New York's current Constitution, the State is divided into 12 judicial districts, see Art. VI, §6(a); N. Y. Jud. Law Ann. §140 (West 2005), and Supreme Court Justices are elected to 14-year terms in each such district, see N. Y. Const., Art. VI, §6©.

The New York Legislature has provided for the election of a total of 328 Supreme Court Justices in this fashion.

See N. Y. Jud. Law Ann. §140-a (West Supp. 2007).

Over the years, New York has changed the method by which Supreme Court Justices are selected several times.

Under the New York Constitution of 1821, Art. IV, §7, all judicial officers, except Justices of the Peace, were appointed by the Governor with the consent of the Senate.

See 7 Sources and Documents of the U. S. Constitutions 181, 184 (W. Swindler ed. 1978).

In 1846, New York amended its Constitution to require popular election of the Justices of the Supreme Court (and also the Judges of the New York Court of Appeals).

Id., at 192, 200 (N. Y. Const. of 1846, Art. VI, §12).

In the early years under that regime, the State allowed political parties to choose their own method of selecting the judicial candidates who would bear their endorsements on the general-election ballot.

See, e.g., Report of Joint Committee of Senate and Assembly of New York, Appointed to Investigate Primary and Election Laws of This and Other States, S. Doc. No. 26, pp. 195-219 (1910).

The major parties opted for party conventions, the same method then employed to nominate candidates for other state offices.

Ibid.; see also P. Ray, An Introduction to Political Parties and Practical Politics 94 (1913).

In 1911, the New York Legislature enacted a law requiring political parties to select Supreme Court nominees (and most other nominees who did not run statewide) through direct primary elections.

Act of Oct. 18, 1911, ch. 891, §45(4), 1911 N. Y. Laws 2657, 2682.

The primary system came to be criticized as a "device capable of astute and successful manipulation by professionals," Editorial, The State Convention, N. Y. Times, May 1, 1917, p. 12, and the Republican candidate for Governor in 1920 campaigned against it as "a fraud" that "offered the opportunity for two things, for the demagogue and the man with money," Miller Declares Primary a Fraud, N. Y. Times, Oct. 23, 1920, p. 4.

A law enacted in 1921 required parties to select their candidates for the Supreme Court by a convention composed of delegates elected by party members.

Act of May 2, 1921, ch. 479, §§45(1), 110, 1921 N. Y. Laws 1451, 1454, 1471.

New York retains this system of choosing party nominees for Supreme Court Justice to this day.

Section 6-106 of New York's election law sets forth its basic operation:

"Party nominations for the office of justice of the supreme court shall be made by the judicial district convention."

N. Y. Elec. Law Ann. §6-106 (West 2007).

A "party" is any political organization whose candidate for Governor received 50,000 or more votes in the most recent election. §1-104(3).

In a September "delegate primary," party members elect delegates from each of New York's 150 assembly districts to attend the party's judicial convention for the judicial district in which the assembly district is located.

See N. Y. State Law Ann. §121 (West 2003); N. Y. Elec. Law Ann. §§6-124, 8-100(1)(a) (West 2007).

An individual may run for delegate by submitting to the Board of Elections a designating petition signed by 500 enrolled party members residing in the assembly district, or by five percent of such enrolled members, whichever is less. §§6-136(2)(i), (3).

These signatures must be gathered within a 37-day period preceding the filing deadline, which is approximately two months before the delegate primary.
§§6-134(4), 6-158(1).

The delegates elected in these primaries are uncommitted; the primary ballot does not specify the judicial nominee whom they will support. §7-114.

The nominating conventions take place one to two weeks after the delegate primary. §§6-126, 6-158(5).

Each of the 12 judicial districts has its own convention to nominate the party's Supreme Court candidate or candidates who will run at large in that district in the general election. §§6-124, 6-156.

The general election takes place in November. §8-100(1)©.

The nominees from the party conventions appear automatically on the general-election ballot. §7-104(5).

They may be joined on the general-election ballot by independent candidates and candidates of political organizations that fail to meet the 50,000 vote threshold for "party" status; these candidates gain access to the ballot by submitting timely nominating petitions with (depending on the judicial district) 3,500 or 4,000 signatures from voters in that district or signatures from five percent of the number of votes cast for Governor in that district in the prior election, whichever is less. §§6-138, 6-142(2).

B

Respondent López Torres was elected in 1992 to the civil court for Kings County--a court with more limited jurisdiction than the Supreme Court--having gained the nomination of the Democratic Party through a primary election.

She claims that soon after her election, party leaders began to demand that she make patronage hires, and that her consistent refusal to do so caused the local party to oppose her unsuccessful candidacy at the Supreme Court nominating conventions in 1997, 2002, and 2003.

The following year, López Torres--together with other candidates who had failed to secure the nominations of their parties, voters who claimed to have supported those candidates, and the New York branch of a public-interest organization called Common Cause--brought suit in federal court against the New York Board of Elections, which is responsible for administering and enforcing the New York election law. See §§3-102, 3-104.

They contended that New York's election law burdened the rights of challengers seeking to run against candidates favored by the party leadership, and deprived voters and candidates of their rights to gain access to the ballot and to associate in choosing their party's candidates.

As relevant here, they sought a declaration that New York's convention system for selecting Supreme Court Justices violates their First Amendment rights, and an injunction mandating the establishment of a direct primary election to select party nominees for Supreme Court Justice.

The District Court issued a preliminary injunction granting the relief requested, pending the New York Legislature's enactment of a new statutory scheme. 411 F. Supp. 2d 212, 256 (EDNY 2006).

A unanimous panel of the United States Court of Appeals for the Second Circuit affirmed. 462 F. 3d 161 (2006).

It held that voters and candidates possess a First Amendment right to a "realistic opportunity to participate in [a political party's] nominating process, and to do so free from burdens that are both severe and unnecessary." Id., at 187.

New York's electoral law violated that right because of the quantity of signatures and delegate recruits required to obtain a Supreme Court nomination at a judicial convention, see id., at 197, and because of the apparent reality that party leaders can control delegates, see id., at 198-200.

In the court's view, because "one-party rule" prevailed within New York's judicial districts, a candidate had a constitutional right to gain access to the party's convention, notwithstanding her ability to get on the general-election ballot by petition signatures. Id., at 193-195, 200.

The Second Circuit's holding effectively returned New York to the system of electing Supreme Court Justices that existed before the 1921 amendments to the election law.

We granted certiorari. 549 U. S. ___ (2007).

II

A

A political party has a First Amendment right to limit its membership as it wishes, and to choose a candidate-selection process that will in its view produce the nominee who best represents its political platform.

Democratic Party of United States v. Wisconsin ex rel. La Follette, 450 U. S. 107, 122 (1981); California Democratic Party v. Jones, 530 U. S. 567, 574-575 (2000).

These rights are circumscribed, however, when the State gives the party a role in the election process--as New York has done here by giving certain parties the right to have their candidates appear with party endorsement on the general-election ballot.

Then, for example, the party's racially discriminatory action may become state action that violates the Fifteenth Amendment. See id., at 573.

And then also the State acquires a legitimate governmental interest in assuring the fairness of the party's nominating process, enabling it to prescribe what that process must be. Id., at 572-573.

We have, for example, considered it to be "too plain for argument" that a State may prescribe party use of primaries or conventions to select nominees who appear on the general-election ballot.

American Party of Tex. v. White, 415 U. S. 767, 781 (1974).

That prescriptive power is not without limits.

In Jones, for example, we invalidated on First Amendment grounds California's blanket primary, reasoning that it permitted non-party members to determine the candidate bearing the party's standard in the general election. 530 U. S., at 577.

See also Eu v. San Francisco County Democratic Central Comm., 489 U. S. 214, 224 (1989); Tashjian v. Republican Party of Conn., 479 U. S. 208, 214-217 (1986).

In the present case, however, the party's associational rights are at issue (if at all) only as a shield and not as a sword.

Respondents are in no position to rely on the right that the First Amendment confers on political parties to structure their internal party processes and to select the candidate of the party's choosing.

Indeed, both the Republican and Democratic state parties have intervened from the very early stages of this litigation to defend New York's electoral law.

The weapon wielded by these plaintiffs is their own claimed associational right not only to join, but to have a certain degree of influence in, the party.

They contend that New York's electoral system does not go far enough--does not go as far as the Constitution demands--in assuring that they will have a fair chance of prevailing in their parties' candidate-selection process.

This contention finds no support in our precedents.

We have indeed acknowledged an individual's associational right to vote in a party primary without undue state-imposed impediment.

In Kusper v. Pontikes, 414 U. S. 51, 57 (1973), we invalidated an Illinois law that required a voter wishing to change his party registration so as to vote in the primary of a different party to do so almost two full years before the primary date.

But Kusper does not cast doubt on all state-imposed limitations upon primary voting.

In Rosario v. Rockefeller, 410 U. S. 752 (1973), we upheld a New York State requirement that a voter have enrolled in the party of his choice at least 30 days before the previous general election in order to vote in the next party primary.

In any event, respondents do not claim that they have been excluded from voting in the primary.

Moreover, even if we extended Kusper to cover not only the right to vote in the party primary but also the right to run, the requirements of the New York law (a 500-signature petition collected during a 37-day window in advance of the primary) are entirely reasonable.

Just as States may require persons to demonstrate "a significant modicum of support" before allowing them access to the general-election ballot, lest it become unmanageable, i]Jenness v. Fortson[/i], 403 U. S. 431, 442 (1971), they may similarly demand a minimum degree of support for candidate access to a primary ballot.

The signature requirement here is far from excessive.

See, e.g., Norman v. Reed, 502 U. S. 279, 295 (1992) (approving requirement of 25,000 signatures, or approximately two percent of the electorate); White, supra, at 783 (approving requirement of one percent of the vote cast for Governor in the preceding general election, which was about 22,000 signatures).

Respondents' real complaint is not that they cannot vote in the election for delegates, nor even that they cannot run in that election, but that the convention process that follows the delegate election does not give them a realistic chance to secure the party's nomination.

The party leadership, they say, inevitably garners more votes for its slate of delegates (delegates uncommitted to any judicial nominee) than the unsupported candidate can amass for himself.

And thus the leadership effectively determines the nominees.

But this says nothing more than that the party leadership has more widespread support than a candidate not supported by the leadership.

No New York law compels election of the leadership's slate--or, for that matter, compels the delegates elected on the leadership's slate to vote the way the leadership desires.

And no state law prohibits an unsupported candidate from attending the convention and seeking to persuade the delegates to support her.

Our cases invalidating ballot-access requirements have focused on the requirements themselves, and not on the manner in which political actors function under those requirements.

See, e.g., Bullock v. Carter, 405 U. S. 134 (1972) (Texas statute required exorbitant filing fees); Williams v. Rhodes, 393 U. S. 23 (1968) (Ohio statute required, inter alia, excessive number of petition signatures); Anderson v. Celebrezze, 460 U. S. 780 (1983) (Ohio statute established unreasonably early filing deadline).

Here respondents complain not of the state law, but of the voters' (and their elected delegates') preference for the choices of the party leadership.

To be sure, we have, as described above, permitted States to set their faces against "party bosses" by requiring party-candidate selection through processes more favorable to insurgents, such as primaries.

But to say that the State can require this is a far cry from saying that the Constitution demands it.

None of our cases establishes an individual's constitutional right to have a "fair shot" at winning the party's nomination.

And with good reason.

What constitutes a "fair shot" is a reasonable enough question for legislative judgment, which we will accept so long as it does not too much infringe upon the party's associational rights.

But it is hardly a manageable constitutional question for judges--especially for judges in our legal system, where traditional electoral practice gives no hint of even the existence, much less the content, of a constitutional requirement for a "fair shot" at party nomination.

Party conventions, with their attendant "smoke-filled rooms" and domination by party leaders, have long been an accepted manner of selecting party candidates.

"National party conventions prior to 1972 were generally under the control of state party leaders" who determined the votes of state delegates.

American Presidential Elections: Process, Policy, and Political Change 14 (H. Schantz ed. 1996).

Selection by convention has never been thought unconstitutional, even when the delegates were not selected by primary but by party caucuses. See ibid.

The Second Circuit's judgment finesses the difficulty of saying how much of a shot is a "fair shot" by simply mandating a primary until the New York Legislature acts.

This was, according to the Second Circuit, the New York election law's default manner of party-candidate selection for offices whose manner of selection is not otherwise prescribed.

Petitioners question the propriety of this mandate, but we need not pass upon that here.

Even conceding its propriety, there is good reason to believe that the elected members of the New York Legislature remain opposed to the primary, for the same reasons their predecessors abolished it 86 years ago: because it leaves judicial selection to voters uninformed about judicial qualifications, and places a high premium upon the ability to raise money.

Should the New York Legislature persist in that view, and adopt something different from a primary and closer to the system that the Second Circuit invalidated, the question whether that provides enough of a "fair shot" would be presented.

We are not inclined to open up this new and excitingly unpredictable theater of election jurisprudence.

Selection by convention has been a traditional means of choosing party nominees.

While a State may determine it is not desirable and replace it, it is not unconstitutional.

B

Respondents put forward, as a special factor which gives them a First Amendment right to revision of party processes in the present case, the assertion that party loyalty in New York's judicial districts renders the general-election ballot "uncompetitive."

They argue that the existence of entrenched "one-party rule" demands that the First Amendment be used to impose additional competition in the nominee-selection process of the parties.

(The asserted "one-party rule," we may observe, is that of the Democrats in some judicial districts, and of the Republicans in others. See 411 F. Supp. 2d, at 230.)

This is a novel and implausible reading of the First Amendment.

To begin with, it is hard to understand how the competitiveness of the general election has anything to do with respondents' associational rights in the party's selection process.

It makes no difference to the person who associates with a party and seeks its nomination whether the party is a contender in the general election, an underdog, or the favorite.

Competitiveness may be of interest to the voters in the general election, and to the candidates who choose to run against the dominant party.

But we have held that those interests are well enough protected so long as all candidates have an adequate opportunity to appear on the general-election ballot.

In Jenness we upheld a petition-signature requirement for inclusion on the general-election ballot of five percent of the eligible voters, see 403 U. S., at 442, and in Munro v. Socialist Workers Party, 479 U. S. 189, 199 (1986), we upheld a petition-signature requirement of one percent of the vote in the State's primary.

New York's general-election balloting procedures for Supreme Court Justice easily pass muster under this standard.

Candidates who fail to obtain a major party's nomination via convention can still get on the general-election ballot for the judicial district by providing the requisite number of signatures of voters resident in the district. N. Y. Elec. Law Ann. §6-142(2).

To our knowledge, outside of the Fourteenth and Fifteenth Amendment contexts, see Jones, 530 U. S., at 573, no court has ever made "one-party entrenchment" a basis for interfering with the candidate-selection processes of a party.

(Of course, the lack of one-party entrenchment will not cause free access to the general-election ballot to validate an otherwise unconstitutional restriction upon participation in a party's nominating process. See Bullock, 405 U. S., at 146-147.)

The reason one-party rule is entrenched may be (and usually is) that voters approve of the positions and candidates that the party regularly puts forward.

It is no function of the First Amendment to require revision of those positions or candidates.

The States can, within limits (that is, short of violating the parties' freedom of association), discourage party monopoly--for example, by refusing to show party endorsement on the election ballot.

But the Constitution provides no authority for federal courts to prescribe such a course.

The First Amendment creates an open marketplace where ideas, most especially political ideas, may compete without government interference.

See Abrams v. United States, 250 U. S. 616, 630 (1919) (Holmes, J., dissenting).

It does not call on the federal courts to manage the market by preventing too many buyers from settling upon a single product.

Limiting respondents' court-mandated "fair shot at party endorsement" to situations of one-party entrenchment merely multiplies the impracticable lines courts would be called upon to draw.

It would add to those alluded to earlier the line at which mere party popularity turns into "one-party dominance."

In the case of New York's election system for Supreme Court Justices, that line would have to be drawn separately for each of the 12 judicial districts--and in those districts that are "competitive" the current system would presumably remain valid.

But why limit the remedy to one-party dominance?

Does not the dominance of two parties similarly stifle competing opinions?

Once again, we decline to enter the morass.

*  *  *

New York State has thrice (in 1846, 1911, and 1921) displayed a willingness to reconsider its method of selecting Supreme Court Justices.

If it wishes to return to the primary system that it discarded in 1921, it is free to do so; but the First Amendment does not compel that.

We reverse the Second Circuit's contrary judgment.

It is so ordered.

NEW YORK STATE BOARD OF ELECTIONS, et al., PETITIONERS v. MARGARITA LOPEZ TORRES et al.

on writ of certiorari to the united states court of appeals for the second circuit

[January 16, 2008]

Justice Stevens, with whom Justice Souter joins, concurring.

While I join Justice Scalia's cogent resolution of the constitutional issues raised by this case, I think it appropriate to emphasize the distinction between constitutionality and wise policy.

Our holding with respect to the former should not be misread as endorsement of the electoral system under review, or disagreement with the findings of the District Court that describe glaring deficiencies in that system and even lend support to the broader proposition that the very practice of electing judges is unwise.

But as I recall my esteemed former colleague, Thurgood Marshall, remarking on numerous occasions:

"The Constitution does not prohibit legislatures from enacting stupid laws."

NEW YORK STATE BOARD OF ELECTIONS, et al., PETITIONERS v. MARGARITA LOPEZ TORRES et al.

on writ of certiorari to the united states court of appeals for the second circuit

[January 16, 2008]

Justice Kennedy, with whom Justice Breyer joins as to Part II, concurring in the judgment.

The Court's analysis, in my view, is correct in important respects; but my own understanding of the controlling principles counsels concurrence in the judgment and the expression of these additional observations.

I

When a state-mandated primary is used to select delegates to conventions or nominees for office, the State is bound not to design its ballot or election processes in ways that impose severe burdens on First Amendment rights of expression and political participation.

See Kusper v. Pontikes, 414 U. S. 51, 57-58 (1973); see also California Democratic Party v. Jones, 530 U. S. 567, 581-582 (2000); cf. Lubin v. Panish, 415 U. S. 709, 716 (1974); Bullock v. Carter, 405 U. S. 134, 144 (1972); Gray v. Sanders, 372 U. S. 368, 380 (1963).

Respondents' objection to New York's scheme of nomination by convention is that it is difficult for those who lack party connections or party backing to be chosen as a delegate or to become a nominee for office.

Were the state-mandated-and-designed nominating convention the sole means to attain access to the general election ballot there would be considerable force, in my view, to respondents' contention that the First Amendment prohibits the State from requiring a delegate selection mechanism with the rigidities and difficulties attendant upon this one.

The system then would be subject to scrutiny from the standpoint of a "reasonably diligent independent candidate," Storer v. Brown, 415 U. S. 724, 742 (1974).

The Second Circuit took this approach. 462 F. 3d 161, 196 (2006).

As the Court is careful to note, however, New York has a second mechanism for placement on the final election ballot. Ante, at 4.

One who seeks to be a Justice of the New York Supreme Court may qualify by a petition process.

The petition must be signed by the lesser of (1) 5 percent of the number of votes last cast for Governor in the judicial district or (2) either 3,500 or 4,000 voters (depending on the district).

This requirement has not been shown to be an unreasonable one, a point respondents appear to concede.

True, the candidate who gains ballot access by petition does not have a party designation; but the candidate is still considered by the voters.

The petition alternative changes the analysis.

Cf. Munro v. Socialist Workers Party, 479 U. S. 189, 199 (1986) ("It can hardly be said that Washington's voters are denied freedom of association because they must channel their expressive activity into a campaign at the primary as opposed to the general election").

This is not to say an alternative route to the general election exempts the delegate primary/nominating convention from all scrutiny.

For instance, the Court in Bullock, after determining that Texas' primary election filing fees were so "patently exclusionary" on the basis of wealth as to invoke strict scrutiny under the Equal Protection Clause, rejected the argument that candidate access to the general election without a fee saved the statute.

405 U. S., at 143-144, 146-147 ("[W]e can hardly accept as reasonable an alternative that requires candidates and voters to abandon their party affiliations in order to avoid the burdens of the filing fees").

But there is a dynamic relationship between, in this case, the convention system and the petition process; higher burdens at one stage are mitigated by lower burdens at the other.

See Burdick v. Takushi, 504 U. S. 428, 448 (1992) (Kennedy, J., dissenting) ("The liberality of a State's ballot access laws is one determinant of the extent of the burden imposed by the write-in ban; it is not, though, an automatic excuse for forbidding all write-in voting"); Persily, Candidates v. Parties: Constitutional Constraints on Primary Ballot Access Laws, 89 Geo. L. J. 2181, 2214-2216 (2001).

And, though the point does not apply here, there are certain injuries (as in Bullock) that are so severe they are unconstitutional no matter how minor the burdens at the other stage.

As the Court recognized in Kusper, moreover, there is an individual right to associate with the political party of one's choice and to have a voice in the selection of that party's candidate for public office. See 414 U. S., at 58.

On the particular facts and circumstances of this case, then, I reach the same conclusion the Court does.

II

It is understandable that the Court refrains from commenting upon the use of elections to select the judges of the State's courts of general jurisdiction, for New York has the authority to make that decision.

This closing observation, however, seems to be in order.

When one considers that elections require candidates to conduct campaigns and to raise funds in a system designed to allow for competition among interest groups and political parties, the persisting question is whether that process is consistent with the perception and the reality of judicial independence and judicial excellence.

The rule of law, which is a foundation of freedom, presupposes a functioning judiciary respected for its independence, its professional attainments, and the absolute probity of its judges.

And it may seem difficult to reconcile these aspirations with elections.

Still, though the Framers did not provide for elections of federal judges, most States have made the opposite choice, at least to some extent.

In light of this longstanding practice and tradition in the States, the appropriate practical response is not to reject judicial elections outright but to find ways to use elections to select judges with the highest qualifications.

A judicial election system presents the opportunity, indeed the civic obligation, for voters and the community as a whole to become engaged in the legal process.

Judicial elections, if fair and open, could be an essential forum for society to discuss and define the attributes of judicial excellence and to find ways to discern those qualities in the candidates.

The organized bar, the legal academy, public advocacy groups, a principled press, and all the other components of functioning democracy must engage in this process.

Even in flawed election systems there emerge brave and honorable judges who exemplify the law's ideals.

But it is unfair to them and to the concept of judicial independence if the State is indifferent to a selection process open to manipulation, criticism, and serious abuse.

Rule of law is secured only by the principled exercise of political will.

If New York statutes for nominating and electing judges do not produce both the perception and the reality of a system committed to the highest ideals of the law, they ought to be changed and to be changed now.

But, as the Court today holds, and for further reasons given in this separate opinion, the present suit does not permit us to invoke the Constitution in order to intervene.

III

With these observations, I concur in the judgment of the Court.

http://caselaw.lp.findlaw.com/cgi-bin/getc...mp;invol=06-766

"US recession fears sink global markets"

By CARL FREIRE, Associated Press

Last updated: 6:53 a.m., Monday, January 21, 2008

TOKYO -- Asian and European stock markets plunged Monday following declines on Wall Street last week amid investor pessimism over the U.S. government's stimulus plan to prevent a recession.

India's benchmark stock index tumbled 7.4 percent, while Hong Kong's blue-chip Hang Seng index plummeted 5.5 percent to 23,818.86, its biggest percentage drop since the Sept. 11, 2001, terror attacks.

Investors dumped shares because they were skeptical that an economic stimulus plan President Bush announced Friday would shore up the economy, which has been battered by housing and credit problems.

The plan, which requires approval by Congress, calls for about $145 billion worth of tax relief to encourage consumer spending.

Concerns about the outlook for the U.S. economy, a major export market for Asian companies, has sent the region's markets sliding in 2008.

Just last Wednesday, the Hang Seng index sank 5.4 percent.

"It's another horrible day," said Francis Lun, a general manager at Fulbright Securities in Hong Kong.

"Today it's because of disappointment that the U.S. stimulus (package) is too little, too late and investors feel it won't help the economy recover."

Japan's benchmark Nikkei 225 index slid 3.9 percent to 13,325.94 points, its lowest close in more than 2 years.

China's Shanghai Composite index plunged 5.1 percent.

The sell-off continued in Europe.

Germany's DAX was down 4.2 percent in morning trading, France's CAC 40 slid 4.7 percent, while Britain's FTSE 100 dropped 3.6 percent.

"People are certainly nervous about a potential recession in the U.S. spilling over to the rest of the world," said David Cohen, Director of Asian Economic Forecasting at Action Economics in Singapore.

"Maybe there's still some wariness about politicians are able to come up with a compromise and act sufficiently quickly" on a stimulus package, Cohen said.

"I think the impact would be marginal anyway."

Investors took cues from the negative reaction to the president's plan on Wall Street on Friday, when the Dow Jones industrial average slid 0.5 percent to 12,099.30, bringing its loss for the year so far to nearly 9 percent.

Traders also have shrugged assurances from Federal Reserve Chairman Ben Bernanke that the U.S. central bank is ready to act aggressively -- which means a likely big interest rate cut later this month -- to help the sagging economy.

Some analysts predict that Asia won't suffer dramatically from a possible U.S. recession because increased trade and investment within Asia has made the region less reliant on the United States than in the past.

Excluding Japan, 43 percent of Asia's exports go to other nations in the region, Lehman Brothers calculates, up from 37 percent in 1995.

But on Monday, uncertainty and pessimism reigned.

In Tokyo trading, exporters got hit hard, partly because of the yen's recent strength against the dollar.

Toyota Motor Corp. lost 3.3 percent and Honda Motor Co. sank 3.4 percent.

In Hong Kong, Bank of China dropped 6.39 percent and China Construction Bank slid 7.83 percent.

In Mumbai, India, the benchmark Sensex index fell 1,353 points, or 7.4 percent -- its second-biggest percentage drop ever -- to 17,605.35.

At one point, it was down nearly 11 percent.

The decline hit companies across the board, with power utility Reliance Energy Ltd. falling 16.4 percent.

Major software company Tata Consultancy Services Ltd. slid 7.6 percent

"A gloomy U.S. climate has affected the global markets."

"Even if those markets recover, it will take sometime for the recovery to reach India because today's fall has been so drastic," said Jayant Pai, of the Mumbai investment company IL&FS Ltd.

Still, Pai and others suggested that the declines could lead to a buying opportunity.

"The sell-off today takes us close to the bottom," she said.

Since the start of the year, Japan's Nikkei index has declined 13 percent, while Hong Kong's blue-chip index is down more than 14 percent.

Even China's Shanghai index -- which nearly doubled last year -- has fallen 6.6 percent since the beginning of the year and nearly 20 percent from its all-time closing high on Oct. 16.

------

Associated Press writer Cassie Biggs in Hong Kong, Ramola Talwar Badam in Mumbai and Elaine Kurtenbach in Shanghai contributed to this report.

"Stock markets plunge worldwide"

By TOBY ANDERSON, Associated Press

Last updated: 12:52 p.m., Monday, January 21, 2008

LONDON -- Stocks fell sharply worldwide Monday following declines on Wall Street last week amid investor pessimism over the U.S. government's stimulus plan to prevent a recession.

U.S. markets were closed for Martin Luther King Jr. Day, but the downbeat mood from last week's market declines there circled through Europe, Asia and the Americas.

Britain's benchmark FTSE-100 slumped 5.5 percent to 5,578.20, France's CAC-40 Index tumbled 6.8 percent to 4,744.15, and Germany's blue-chip DAX 30 plunged 7.2 percent to 6,790.19.

In Asia, India's benchmark stock index tumbled 7.4 percent, while Hong Kong's blue-chip Hang Seng index plummeted 5.5 percent to 23,818.86, its biggest percentage drop since the Sept. 11, 2001, terror attacks.

Canadian stocks fell as well, with the S&P/TSX composite index on the Toronto Stock Exchange down 4 percent in early afternoon trading.

In Brazil, stocks plunged 6.9 percent on the main index of Sao Paulo's Bovespa exchange.

Investors dumped shares because they were skeptical that an economic stimulus plan President Bush announced Friday would shore up the economy that has been battered by problems in its housing and credit markets.

The plan, which requires approval by Congress, calls for about $145 billion worth of tax relief to encourage consumer spending.

"We've taken our lead from the Asian markets who have not been impressed by the U.S."

"There's debate if there's going to be a recession in the U.S."

"I don't think there's much chance of that though," said Richard Hunter an analyst at Hargreaves Lansdown Stockbrokers Ltd. in London.

Concerns about the outlook for the U.S. economy, a major export market for Asian companies, has sent the region's markets sliding in 2008.

Just last Wednesday, the Hang Seng index sank 5.4 percent.

"It's another horrible day," said Francis Lun, a general manager at Fulbright Securities in Hong Kong.

"Today it's because of disappointment that the U.S. stimulus (package) is too little, too late and investors feel it won't help the economy recover."

Japan's benchmark Nikkei 225 index slid 3.9 percent to close at 13,325.94 points, its lowest close in more than two years.

China's Shanghai Composite index plunged 5.1 percent, partly on worries about mainland Chinese banks' exposure to risky U.S. mortgage investments.

"People are certainly nervous about a potential recession in the U.S. spilling over to the rest of the world," said David Cohen, Director of Asian Economic Forecasting at Action Economics in Singapore.

"Maybe there's still some wariness about politicians are able to come up with a compromise and act sufficiently quickly" on a stimulus package, Cohen said.

"I think the impact would be marginal anyway."

Investors took cues from the negative reaction to the president's plan on Wall Street on Friday, when the Dow Jones industrial average slid 0.5 percent to 12,099.30, bringing its loss for the year so far to nearly 9 percent.

Traders also have shrugged off assurances from Federal Reserve Chairman Ben Bernanke that the U.S. central bank is ready to act aggressively -- which means a likely big interest rate cut later this month -- to help the sagging economy.

Some analysts predict that Asia won't suffer dramatically from a U.S. recession because increased trade and investment within Asia has made the region less reliant on the United States than in the past.

Excluding Japan, 43 percent of Asia's exports go to other nations in the region, Lehman Brothers calculates, up from 37 percent in 1995.

But on Monday, uncertainty and pessimism reigned.

In Tokyo trading, exporters got hit hard, partly because of the yen's recent strength against the dollar.

Toyota Motor Corp. lost 3.3 percent and Honda Motor Co. sank 3.4 percent.

Shares of Bank of China dropped 6.4 percent in Hong Kong after the South China Morning Post newspaper reported that the bank is expected to announce a "significant write-down" in U.S. subprime mortgage securities, citing unidentified sources.

In Shanghai, the bank's stock declined 4.1 percent.

India's the benchmark Sensex index fell 1,353 points, or 7.4 percent -- its second-biggest percentage drop ever -- to 17,605.35 points.

At one point, it was down nearly 11 percent.

The decline hit companies across the board, with power utility Reliance Energy Ltd. falling 16.4 percent.

Major software company Tata Consultancy Services Ltd. slid 7.6 percent

"A gloomy U.S. climate has affected the global markets."

"Even if those markets recover, it will take sometime for the recovery to reach India because today's fall has been so drastic," said Jayant Pai, of the Mumbai investment company IL&FS Ltd.

Still, Pai and others suggested that the declines could lead to a buying opportunity.

"The sell-off today takes us close to the bottom," she said.

Since the start of the year, Japan's Nikkei index has declined 13 percent, while Hong Kong's blue-chip index is down more than 14 percent.

Even China's Shanghai index -- which nearly doubled last year -- has fallen 6.6 percent over the same period and nearly 20 percent from its all-time closing high on Oct. 16.

------

Associated Press writers Cassie Biggs in Hong Kong, Ramola Talwar Badam in Mumbai and Elaine Kurtenbach in Shanghai Carl Freire in Tokyo contributed to this report.

THE "BEST MINDS" IN THE STATE?

YEAH, RIGHT, ELIOT ....

TELL US ALL ABOUT IT ....

THE "SCAM MASTER" SPEAKETH ....

And so ......

"Asian markets tumble on US worries"

By YURI KAGEYAMA, Associated Press

Last updated: 6:03 a.m., Tuesday, January 22, 2008

TOKYO -- Global stock markets extended their slide for a second day Tuesday, plunging amid fears that a possible U.S. recession will cause a worldwide economic slowdown.

The dramatic declines in Asia and Europe so far this week were expected to spread to Wall Street, where stock index futures were already down sharply hours before the trading day began.

Japan's Nikkei 225 index nose-dived 5.7 percent -- its biggest percentage drop in nearly 10 years -- to 12,573.05, a day after falling 3.9 percent.

Australia's benchmark index sank 7.1 percent, the market's steepest one-day slide in nearly 20 years.

Hong Kong's Hang Seng index, which slumped 5.5 percent Monday, finished down 8.7 percent.

In China, the Shanghai Composite index lost 7.2 percent to 4,559.75, its lowest close since August.

Indian Finance Minister P. Chidambaram urged investors to remain calm after trading in Mumbai was halted for an hour when the stock market there fell 10 percent within minutes of opening.

The Sensex rebounded some later to finish down 4.6 percent.

"There is no reason at all to allow the worries of the Western world to overwhelm us," Chidambaram said.

European markets, which fell sharply Monday, were volatile Tuesday.

By midmorning the U.K.'s FTSE 100 had slipped 1 percent, Germany's DAX dropped 2.9 percent, while France's CAC 40 declined 1.1 percent.

Investors have dumped shares in frenetic trading the last two days on worries that the U.S. economy, battered by a credit crisis and housing slump, will shrink in coming months, weakening demand for exports.

There is also skepticism that American authorities will be able to prevent a recession.

The Federal Reserve has indicated it will lower interest rates further, and President Bush has proposed an economic stimulus package that includes $145 billion in tax cuts, but investors around the world are doubtful that the measures will lift the economy quickly.

"Unless we get some positive 'shock effects,' such as drastic measures from the U.S. government, there is almost no hope for a recovery in stocks," said Koji Takeuchi, senior economist at Mizuho Research Institute in Tokyo.

Oil and gold prices also fell.

Light, sweet crude for February delivery fell to $87.72 a barrel on expectations that slower U.S. growth will lead to less demand for crude.

Spot gold, which usually benefits from market uncertainty, fell to a two-week low of $855.20 per troy ounce.

U.S. markets were closed Monday for a holiday commemorating civil rights leader Martin Luther King Jr.

But Wall Street future prices were down sharply, portending a plunge when trading begins at 9:30 a.m. Eastern time.

Dow Jones industrial average futures were down 523 points, or 4.3 percent, to 11,583, while Standard & Poor's 500 futures were down 64.4 points, or 4.8 percent, at 1,260.

Noritsugu Hirakawa, who monitors stock trading at Okasan Securities Co. in Tokyo, said investors were spooked by the drastic falls on Chinese and Indian markets -- the two emerging economies that are viewed as sustaining global growth even as the U.S. economy sputters.

"The end to the slides in Asian stocks is nowhere in sight," he said.

"There is even speculation that China may be exposed to the U.S. subprime mortgage crisis."

Indonesia's benchmark index closed the day down 7.7 percent, Singapore's Straits Times index sank 6 percent and Taiwan's market fell 6.5 percent.

Asian markets have been in a downward spiral for most of January.

Since the start of the year, Japan's Nikkei index has tumbled nearly 18 percent, while the Hang Seng is down a stunning 22 percent.

Even the usually upbeat Japanese Economy Minister Hiroko Ota acknowledged that threats were growing.

"We must take the approach of working together with other nations on this," she said on nationally televised news.

------

Associated Press writers Ramola Talwar Badam in Mumbai and Cassie Biggs in Hong Kong contributed to this report.

"U.S. stock futures fall sharply"

By TIM PARADIS, Associated Press

Last updated: 8:02 a.m., Tuesday, January 22, 2008

NEW YORK -- Wall Street was expected to plunge at the opening of trading Tuesday, extending its huge losses from last week and taking more cues from heavy selling that has spread throughout the world.

Indicators showed the Dow Jones industrial average was set to fall by more than 500 points when trading begins.

Fears of a recession in the United States that could pull down the global economy as well have infected markets around the world, and those declines further unnerved U.S. investors who were unable to trade Monday, when Wall Street was closed for Martin Luther King Jr. Day.

Dow futures fell 553, or 4.57 percent, to 11,553.

Standard & Poor's 500 index futures fell 67.20, or 5.07 percent, to 1,258.10.

Nasdaq 100 index futures dropped 86.50, or 4.68 percent, to 1,763.00.

In Asia, Japan's Nikkei stock average closed down 5.65 percent -- its biggest percentage drop in nearly a decade.

Hong Kong's Hang Seng index lost 8.65 percent a day after showing its biggest losses since the Sept. 11, 2001, terrorist attacks.

In afternoon trading, Britain's FTSE 100 fell 0.69 percent, Germany's DAX index lost 2.55 percent and, France's CAC-40 fell 1.39 percent.

Some of the more modest moves in major global indexes Tuesday belie the huge drops many saw Monday.

A big question on investors' minds is whether the Federal Reserve, scheduled to meet next week, will make an emergency interest rate cut before then.

Traders outside the U.S. were pondering whether other central banks would step in with interest-rate cuts to help shore up market sentiment.

Last week, each of the major U.S. indexes fell more than 4 percent as investors grew skeptical late in the week that plans by U.S. lawmakers and President Bush to stimulate the U.S. economy will keep the U.S. from tipping into recession.

The plan Bush announced Friday, which requires the OK of Congress, outlines $145 billion in tax relief to help spur consumer spending.

Bond prices rose sharply as investors searched for safety amid the global stock pullback.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.49 percent from 3.63 percent late Friday.

The dollar was mixed against other major currencies.

Corporate news weighed on stocks as well as concerns about the widespread pullback in stocks.

Bank of America Corp. said its fourth-quarter earnings fell sharply amid credit losses and weak investment banking results.

Profits at the bank declined to $268 million, or 5 cents per share, from $5.26 billion, or $1.16 per share, a year earlier.

Meanwhile, Wachovia Corp. said its fourth-quarter earnings fell 98 percent after the bank wrote down $1.7 billion in the value of certain portfolios and set aside $1.5 billion to cover bad loans.

Earnings fell to $51 million, or 3 cents per share, from $2.3 billion, or $1.20 per share, a year earlier.

There was some good news.

DuPont, one of the 30 stocks that make up the Dow industrials, said its fourth-quarter profits fell 37 percent from a year ago when earnings benefited from one-time items.

Earnings fell to $545 million, or 60 cents per share, from $871 million, or 94 cents per share, in the year-ago period.

But excluding items, results topped Wall Street's expectations amid strength in its international business.

------

On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

"Poll: Spitzer `turning corner' just in time for budget proposal"

By MICHAEL GORMLEY, Associated Press

Last updated: 10:22 a.m., Monday, January 21, 2008

ALBANY -- Democratic Gov. Eliot Spitzer is reclaiming some popularity with New Yorkers after a dramatic slide in the last half of 2007, according to a poll released Monday.

The Siena College poll showed Spitzer was viewed favorably by 44 percent of New Yorkers, compared to 41 percent with an unfavorable view.

That's up from 36 percent in December and was the first time since a Siena poll in October that a majority of those polled had a favorable view of Spitzer.

But 64 percent still consider his job performance as fair or poor, a slight improvement from December's poll.

And Monday's poll finds just 27 percent would vote to re-elect Spitzer, compared to 46 percent who would prefer someone else.

"For the moment, Gov. Spitzer's meteoric fall with voters has stopped," said Siena poll spokesman Steven Greenberg.

"It would be an overstatement to say he has turned the ugly poll numbers around, however, it may be fair to say he is turning a corner."

After winning the governor's office in 2006 with a historic share of the vote -- 69 percent -- Spitzer started a slide in popularity during the late spring as a political scandal and conflicts with the Legislature over spending dogged him the last half of his freshman year.

Two Spitzer aides have been accused of misusing state police to compile embarrassing records of Senate Republican leader Joseph's Bruno's use of state aircraft to attend GOP fundraisers.

Investigations continue, but the state attorney general and the Albany County district attorney said no crimes were committed.

The uptick in popularity comes as Spitzer needs it.

He will present his state budget proposal to the Legislature on Tuesday.

The poll released Monday shows strong support for his unconventional proposal to cap local property taxes, which is already drawing opposition in the Legislature.

Spitzer's tax cap proposal comes as he determined $5 billion a year in state subsidies to reduce local school taxes -- most sent directly to school districts -- have failed to stem average annual increases of about 7 percent in the tax bills.

Spitzer, who opposed a cap while running for governor, said taxpayers can't sustain the continued spending by schools.

He created a commission to study ways to make school spending more efficient and affordable, including reducing unfunded state mandates.

A state-imposed cap has long been opposed in Albany, where teachers' unions and other school interest groups wield considerable power through lobbying and campaign contributions.

The Senate's Republican majority came closest with its measure to allow local voters to force a cap on their district if they organize and pass a referendum.

Siena called 625 registered voters from January 14-17 for the poll, which has a margin of error of plus or minus 3.9 percentage points.

SURE, ELIOT ....

WHATEVER YOU SAY ....

YOU ARE ONE OF THE BEST MINDS IN THE WORLD, ELIOT ....

Sooooooo .....

HOW DO YOU "FUNDAMENTAL" YOUR WAY AROUND THIS REALITY, EH?

THINK A BILLION DOLLARS WILL DO IT?

And so ....

"Lake-effect snowstorm buries Oswego County in 3 feet of snow"

Associated Press

Last updated: 3:02 p.m., Monday, January 21, 2008

FULTON, N.Y. -- A state of emergency was declared in this central New York city after lake-effect storms dumped up to 3 feet of snow on the region and collapsed the roof of the public works garage early Monday.

Fulton officials said none of the four city workers inside the building were injured when the roof came down shortly before 5:30 a.m. Several pieces of snow-removal equipment remained inside the building, officials said.

Mayor Ron Woodward said the city was working out arrangements for mutual aid with the Oswego County Highway Department.

Motorists were advised to stay off the roads in Fulton.

The storms that began Sunday dumped 2 to 3 feet of snow across the county on Lake Ontario's eastern end.

The snow was expected to taper off Monday evening, National Weather Service meteorologist Mike Pukajlo said.

The weather service reported 37 inches in Fulton, 36 in the town of Mexico and 34 in the lakeside city of Oswego.

"We're digging out," said Sgt. Edwin Croucher, a state police trooper in Fulton who reported multiple accidents caused by the storm but no serious injuries.

Schools, government offices and some businesses were closed because of the Martin Luther King Day holiday.

"It's not as bad as it would have been with a regular business day," Croucher said of the traffic conditions.

Interstate 81 north of Syracuse was open on Monday, a day after being shut down for 9 hours because of whiteouts caused by blowing snow.

Meteorologists said parts of Oswego County would get another 3 to 6 inches before the lake-effect bands moved north into neighboring Jefferson County during the afternoon.

In western New York, Buffalo and other areas east of Lake Erie could get about 2 inches of snowfall through Monday night.

THE NEW YORK DAILY NEWS DAILY POLITICS BLOG:

And it's my bet that neither this PORKMEISTER dude Gunderson nor "SHOWBOAT" Spitzer have a clue about snow ....

And what havoc it can raise for someone trying to run a competitive business ....

Because neither of them have that kind of real-world experience ....

And so ....

I used to have to travel out to Buffalo for work in the winter, as well as traveling through the Mohawk Valley ...

And based on that experience, I wouldn't live or work in Buffalo or Oswego for any kind of money, myself ...

I was in Oswego one time when there was over six feet of snow on the ground, and the wind was howling and the temperature was way down below zero, during the day ....

Nobody could get their car started ....

It was too cold outside to try and walk anywhere ....

Finally, I put a bunch of blankets on the hood of my car, and I put a Bernz-O-Matic camp stove under the oil pan of the car to heat up the engine oil ...

And even then, I barely got started ....

And when the engine was running, I left that God-forsaken place and never went back ....

And so ....

But Gunderson and Spitzer are going to change all of that with their "FUNDAMENTALS" .....

Why, I bet it will be just like Burbank, California when they get done with the place ....

Sunny all the time ....

Balmy temperatures ....

No snow ....

Hang out at the beach all year round ...

Young professionals will be flocking there in droves ...

And so ...

Posted by John Galt on January 22, 2008 7:41 PM

http://www.nydailynews.com/blogs/dailypoli...d-ends-170.html

"DEC weighs bid to build water line - Saratoga County Water Authority seeks transfer of permit to run project"

Albany, New York Times Union

First published: Friday, January 18, 2008

SARATOGA SPRINGS -- The Saratoga County Water Authority is one step closer to gaining control of a project to build a water pipeline from Moreau to Malta.

The authority has completed its application and is awaiting state approval to transfer a permit already issued to the Saratoga County Board of Supervisors that would let them build the 28-mile pipeline.

As part of the request, regulators from the state Department of Environmental Conservation had asked for an updated list of potential customers for the project.

Previously, the only listed customers were the towns of Wilton and Ballston and the Luther Forest Technology Campus Economic Development Corporation, which is hoping to attract chip-manufacturer Advanced Micro Devices to its Malta Site.

All have signed contracts to buy water.

Since then, Clifton Park, Stillwater, Saratoga Springs and Moreau all have expressed an interest in having a connection installed in their community, but none has offered to sign a contract for water.

Yancey Roy, a spokesman for the DEC, said a notice saying the application is complete was sent Wednesday, and the DEC will make a decision within 45 days whether to approve the switch.

Without DEC approval, the authority is unable to borrow the money it needs to finish the pipeline, eight miles of which has already been laid.

-- Jimmy Vielkind

THE NEW YORK POST

"SPITZ SUSPECTED GRASSO AFFAIR"

November 6, 2007 -- FORMER New York Stock Exchange Chairman Dick Grasso was secretly grilled by investigators about whether he'd had an extramarital affair and fathered a love child, a new book reveals.

In "King of the Club - Richard Grasso and the Survival of the New York Stock Exchange," out today from Collins, CNBC correspondent Charles Gasparino writes that the questions were posed last year during a grueling deposition as part of a 2004 lawsuit filed by then-State Attorney General Eliot Spitzer.

The suit, which is still unresolved, seeks the return of more than half of the $190 million compensation given Grasso during his eight-year tenure as chairman on the grounds that it violated state laws governing not-for-profit organizations.

While much of the testimony was eventually made public, some was not - including a tense back-and-forth in which Avi Schick, then Spitzer's head of nonprofit investigations, suddenly got personal.

Gasparino writes that Schick asked the long-married Grasso about his relationship with "a woman named Karen Ross, the sister of someone Grasso described as his 'best friend growing up.'"

Ross had sent Grasso . . . e-mails that made Schick believe that she and Grasso were more than childhood friends, that they'd had an affair, according to Grasso's attorneys and others involved in the case.

"Adding to Schick's suspicion about their relationship were documents that Spitzer's investigators discovered showing that Grasso had paid part of the college tuition of Ross' daughter," the book says.

Schick then asked Grasso "point-blank whether Ross' daughter was related to him 'in any way' - in other words, whether she was a love child.

Grasso's attorney exploded:

"'I just don't think it's an appropriate subject of examination.'"

"'It has nothing to do with the case.'"

"'And it's private information!' "

Gasparino writes, "Schick asked again."

"This time, Grasso looked at his attorney, who nodded that he should answer."

"Grasso then flashed Schick that famous Grasso death stare and answered, 'No.'"

"Grasso was exhausted but happy that he had survived the ordeal."

Grasso's lawyer, Gerson Zweifach, did not return our call for comment.

http://www.nypost.com/seven/11062007/gossi...six/pagesix.htm

The principles guide the regulator to focus on outcomes, rather than the rules in and of themselves.

"Court refuses Enron investor's appeal"

By PETE YOST, Associated Press

Last updated: 7:24 a.m., Wednesday, January 23, 2008

WASHINGTON -- The Supreme Court dealt a probable fatal blow Tuesday to Enron Corp. investors' efforts to recover $40 billion from Wall Street banks in the 2001 collapse of the Texas energy company.

Without comment, the justices refused to hear arguments in the Enron case.

Attorneys for shareholders immediately vowed to return to federal court in Houston in an attempt to prove that the investment banks misled the public and helped conceal Enron's true financial condition.

"It's an uphill battle and we'll keep fighting," Patrick Coughlin, the lead lawyer for the stockholders, said.

Attorney Greg Markel, a lawyer not connected with the case who represents corporate clients in securities fraud lawsuits, said shareholders' "chances of succeeding ... are nearly zero."

Enron's demise wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans at what had been the seventh-largest company in the country.

The Supreme Court's refusal to hear the Enron appeal was anticipated following last week's ruling in another securities fraud case in which the justices ruled that a company's investors must show they relied on deceptive acts committed by third parties before they can be sued.

In the case a week ago, the third parties were suppliers to one of the nation's largest cable TV companies.

In the case of Enron, the third parties are Merrill Lynch & Co., Credit Suisse First Boston and Barclays Bank PLC.

In the Enron lawsuit, the 5th U.S. Circuit Court of Appeals in New Orleans already has ruled that the banks did not act directly in the market for Enron securities.

Coughlin says the legal team for Enron investors has evidence that "the analysts knew what was going on" and that the lawyers for the Enron investors can show that the banks "buoyed the market for Enron securities."

In an earlier ruling, the federal judge in the Enron case threw out the glowing statements of the research analysts praising Enron, saying lawyers for the investors had not alleged that the analysts knew their statements about the company's financial health were misleading.

To date, Enron plaintiffs have settled for $7.3 billion with several financial institutions, including JPMorgan Chase & Co., Citigroup and Canadian Imperial Bank of Commerce.

Under the settlements, the payout to investors would be $6.79 per share of common stock and $168.50 per share of Enron's stock-like preferred shares, according to a mailing sent to Enron investors, who have until April 30 to decide whether they want to participate in the settlement.

Coughlin said lawyers for the investors spent $127 million in time and $50 million in out-of-pocket expenses on behalf of Enron investors.

The judge in the Enron case had said Enron shareholders could sue as a class, but the appeals court reversed that and Enron investors now will have to overcome that.

The issue of certifying a class is a critical one.

Once the courts allow huge numbers of investors to pursue a securities fraud lawsuit, the defendants almost always settle rather than exposing their corporations to potentially catastrophic liability.

The appeals court decision in the Enron case meant that shareholders and investors could not pool their resources to sue as a group.

Lawyers for Enron investors estimate the class size at more than 1 million shareholders.

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On the Net:

Supreme Court: http://www.supremecourtus.gov

"Spending up 5 percent in Spitzer budget"

By JAMES M. ODATO, Capitol bureau, Albany, New York Times Union

Last updated: 12:50 p.m., Tuesday, January 22, 2008

ALBANY -- Gov. Eliot Spitzer laid out a plan for $124.3 billion in spending in the upcoming fiscal year, up 5.1 percent from this year's $118.3 billion budget.

The governor said he had to shave $2.3 billion in projected spending and dipped into reserves by $337 million to cover for potential union contracts, but found ways to raise $2.2 billion in extra funds.

He would spare the treasury $169 million, he said, by scaling back a promised 17 percent increase in the STAR property tax rebate program.

He said spending for STAR, which targets relief to the middle class, will total $1.25 billion.

Senior citizens will get a 40 percent increase under the STAR program.

Spitzer would rake in one-time revenues of $1.1 billion.

One way would be by capturing $250 million by selling development rights to a video lottery terminal franchise holder for Belmont Park, which has not been approved.

Another gambling plan involves permanent long-term funding from easing restrictions on the keno-like lottery game Quick Draw.

He would eliminate tax loopholes to bring in $434 million, part of $1.9 billion in revenue changes.

On the long list of these loophole closures is a plan to subject out-of-state credit card companies to bank taxes on the revenues collected on New York consumers, adding $95 million.

In all, he cleared a $4.4 billion budget gap at a time when a weakened economy has resulted in lower than projected tax revenues.

The governor committed $1.46 billion to education, which allows him to meet a commitment of raising funds for schools to $21 billion, although the composition of the spending is redefined and could be considered a cut.

The school cut is primarily from reducing his plan to pump $1.25 billion into extra aid for all districts, particularly those having the toughest time improving test scores, through the "foundation aid formula'' he developed last year.

That stream of funding will be about $900 million, or $350 million lighter than planned.

"Spitzer budget banks on $250 million from Belmont video lottery"

By RICHARD RICHTMYER, Associated Press

Last updated: 4:43 p.m., Tuesday, January 22, 2008

ALBANY -- Gov. Eliot Spitzer has proposed raising $250 million by selling the rights to operate video lottery machines at Belmont Park as he and lawmakers continue closed-door negotiations over who will run thoroughbred horse racing in the state.

The proposal -- included in a $124.3 billion state budget proposal Tuesday -- is the latest turn in the drawn out process of selecting a contractor to operate the Belmont, Aqueduct and Saratoga tracks for as long as the next 30 years.

Senate Majority Leader Joseph Bruno favors adding the slot machine-like devices at Belmont, with the revenue helping to support the state's schools.

But Assembly Speaker Sheldon Silver has publicly opposed video lottery at Belmont, a position he repeated Tuesday.

The New York Racing Association has held the franchise since 1955.

Its deal expired Dec. 31, and Spitzer and legislative leaders haven't been able to agree on whether to keep NYRA or choose a successor.

Spitzer has a tentative agreement with NYRA to operate racing for the next 30 years, but the Legislature hasn't approved it.

On Monday, the state extended NYRA's temporary operation until Feb. 13.

The video lottery issue has been one of the sticking points in the negotiations, although the machines are already scheduled for Aqueduct race track in Queens.

Bruno said he was glad to see the proposal in Spitzer's budget, but he's not sure if it will spur an overall agreement.

The deal with NYRA that Spitzer laid out in September included $75 million of state money to bail NYRA out of bankruptcy court and pay off local taxes and agreement to forgive $136 million in debt NYRA owes the state.

In exchange, NYRA would abandon its claim that it owns the tracks, which are worth as much as $2 billion.

"His original proposal calls for a $200 million bailout for NYRA, and I don't know where that shows in the budget," Bruno said Tuesday.

"It doesn't show, does it?"

"I don't know how that happens."

Silver said Tuesday the video lottery machines should be limited to Aqueduct.

"I am concerned by the social role that expansion of gambling brings," Silver said.

"Working men and women have a hard enough time making ends meet."

The Belmont deal would make up more than one-fifth of the $1.1 billion in "one-shot" revenues in Spitzer's budget, items that aren't expected to be available in future years.

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Associated Press Writer Valerie Bauman contributed to this report from Albany.

"New effort against illegal Adirondack subdivisions"

By MICHAEL VIRTANEN, Associated Press

Last updated: 2:53 p.m., Tuesday, January 22, 2008

ALBANY -- The Adirondack Park Agency has launched a new computerized enforcement initiative against illegal subdivisions that identified 55 probable violators last year, the agency said.

Charged with regulating development of the 6 million acre park, about half of it privately owned, the APA added two officers and an attorney in 2007 for an enforcement staff of eight, more than double its manpower less than a decade earlier.

The computer program checks real-estate transaction data, required to show new subdivisions, against land-use restrictions to determine whether an APA permit was required and issued.

Enforcement officers plan to check property transactions monthly.

"This approach allows staff to identify potential subdivision violations before any inappropriate development is undertaken," APA Chairman Curtis Stiles said.

The agency said it will promptly pursue potential violators to prevent environmental harm.

A settlement typically will require the land buyer and seller to undo the subdivision by merging the new lots back into one, according to a memo from APA enforcement staff.

The program showed 173 new subdivisions in the park last year, 55 with potential violations ranging from lot size to wetlands encroachment, the agency said.

All 55 landowners are getting letters.

In the past, APA staff often learned about problems only when an innocent buyer queried them before trying to resell.

At that point, the previous owner and violator was gone.

The agency said it has about 600 older cases, including 400 closed administratively and now inactive.

Roughly half the private land in the Adirondacks, 1.54 million acres, is classified "resource management" by the APA, where most development requires a permit, an average lot size of 42.7 acres and only 15 principal buildings within a square mile.

"Rural use" accounts for another 1 million acres, requiring average lot size of 8.5 acres.

Only 53,730 acres are classified as hamlet, another 12,567 acres industrial, both without APA restrictions on lot size or building density.

In between is land categorized moderate and low intensity use, 371,558 acres requiring average lots of 1.3 or 3.2 acres.

Municipal zoning rules also apply.

The state holds conservation easements generally prohibiting development on another 553,166 acres of the privately owned land in the park, much of it timberlands.

The Department of Environmental Conservation is working to complete easements on another 89,891 acres, agency spokeswoman Maureen Wren said.

"Spitzer proposes trim $124 billion budget in hard times"

By MICHAEL GORMLEY, Associated Press

Last updated: 6:02 p.m., Tuesday, January 22, 2008

ALBANY -- Gov. Eliot Spitzer proposed a $124.3 billion budget to the Legislature on Tuesday that would hold spending growth to about 5 percent, the lowest increase since the mid-1990s.

The proposal would close a $4.4 billion deficit and address declining growth in revenues caused by a slowing economy.

Spitzer's address came on a day Wall Street and world markets were taking hard hits amid growing fear of a national recession.

"These challenging economic times require us to make tough, but necessary choices and set clear priorities for state spending," Spitzer said.

He said that if the state can stick to increases of about 5.3 percent in spending long term, the revenues from good times will pay for the deficits in the bad times.

To do it, Spitzer proposes a combination of reducing spending increases for education, $1 billion in health care cuts, delaying part of promised property tax relief, and increasing various fees.

He also proposed unconventional measures such as redefining "little cigars" and malt liquor to generate more tax revenue and creating a "tax stamp" on illegal drugs, to be paid after convictions.

Spitzer, however, insists actions like these and a proposal to force Internet giants like Amazon.com to collect state sales taxes on purchases aren't tax increases.

Instead, he called them loophole closers and fee increases because they don't touch "broad-based taxes" like those on income and retail sales.

His spending increases would include $400 million more to pay for upstate economic programs and to provide health care for 400,000 uninsured children; free public college tuition for combat veterans returning from Iraq and Afghanistan; statewide broadband Internet service; and affordable housing credits in the New York City area.

"We will be more efficient," Spitzer said in proposing $2.3 billion in savings.

"We will examine our own house, the way businesses do."

Spitzer's proposed 2008-09 budget would include $81.8 billion in state spending alone, before federal aid is included.

The current budget increased spending nearly 8 percent over the 2006-07 budget and recent years' budgets, by the time they were adopted by the Legislature, swelled to about 10 percent annually.

For New York City, Spitzer proposes a 7.3 percent increase in school aid worth $547 million; a 1.4 percent decrease in property tax aid worth $18.7 million; a huge increase in municipal aid to $143 million; and $40 million to improve and repair parks.

The city will also get millions less than the $1.25 billion promised in a multiyear plan.

Spitzer says the shortfall will be made up in subsequent years.

Statewide, school districts would receive an average increase of 7.5 percent as part of a $1.46 billion increase statewide, to $21 billion in school aid.

Long Island schools, most represented by members of the Senate's Republican majority, will see an annual increase in aid of about 8 percent, less than the 12 percent they expected.

The school aid and reduced spending proposals are expected to set up fights this election year with the Senate and the Democrat-controlled Assembly.

Spitzer said he told lawmakers he expects them to balance any additional spending with equal cuts or revenue, but the he won't draw "a line in the sand" by threatening vetoes now.

"It's kind of a disappointment, generally, that we don't see major changes," Senate Republican leader Joseph Bruno said of Spitzer's overall plan.

"I believe the governor has missed addressing the real priorities of the people of New York state."

"The overburdened taxpayer wants relief."

"The governor doesn't address that."

"We have clearly concerns about the executive budget," said Democratic Assembly Speaker Sheldon Silver.

He said he is concerned about Spitzer's plan to delay some promised increases in school aid and for public universities.

In most years, the Legislature adds about $1 billion to the governor's proposal.

The deadline for the Legislature's adoption of a budget is the April 1 start of the fiscal year.

Lawmakers will have support from the powerful public employees unions.

"In tough economic times, there's an understandable inclination to cut back on investment," said New York State United Teachers union President Richard C. Iannuzzi.

"But that's precisely when we need to move steadily forward, investing in education as the engine to the state's economy and our children's future."

Spitzer's budget would:

--Delay some of the subsidy to relieve local property taxes.

Spitzer and the Legislature had promised to provide $1.8 billion in subsidies to schools, local governments and in rebate checks to taxpayers.

But on Tuesday, Spitzer proposed $1.25 billion, with 40 percent more directed to senior citizens.

The state now subsidizes local school and government taxes with about $5 billion a year, but Spitzer is calling for a cap on local taxes because he's dissatisfied with local efforts to curb spending.

--Exact a 2.5 percent cut in the growth of funding for state agencies, the State University of New York and the City University of New York.

The reduction isn't a true cut, but a lower rate of increase.

--Close facilities such as underused prisons, and reduce energy costs.

--Save $980 million in health care by encouraging more preventive care and primary care through the state reimbursement system, and reducing reimbursement for avoidable treatment now done in hospital emergency rooms.

--Raise $304.5 million by increasing 46 fees, including those on insurance policies to help pay for state police.

--Close $434 million worth of corporate tax loopholes, including requiring big Internet firms like Amazon.com to withhold sales tax on purchases by customers who are now on the honor system to pay state sales tax.

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Associated Press writers Richard Richtmyer and Valerie Bauman contributed to this report from Albany.

------

On the Net:

http://www.budget.state.ny.us

"State budget highlights"

Associated Press

Last updated: 6:42 p.m., Tuesday, January 22, 2008

The 2008-09 state budget proposed Tuesday by Gov. Eliot Spitzer included:

OVERALL SIZE:

--$124.3 billion is the estimate from Spitzer's budget division.

STATE SPENDING ALONE:

--The "state operating funds," which some analysts consider a better measure of state spending, is estimated to be $81.8 billion -- a 5 percent increase from $77.9 billion in the 2007-08 fiscal year.

ADDED SPENDING:

Spitzer proposed spending an additional $1.46 billion in schools, tying large portions of funding to "Contracts for Excellence" to ensure the resources improve academic achievement.

Spitzer also calls for a $1.2 billion increase in Medicaid spending and a $1 billion investment in the state economy.

SAVINGS:

--Spitzer says his plan would save New York $2.3 billion, including $1.35 billion through streamlining government efficiency.

This would include closing underused facilities, cutting 5 percent of non-personnel services and lowering energy costs, among other changes.

Another change would find $980 million in health care savings by changing methods of reimbursing health care providers.

It's part of an initiative to promote primary and preventive care over long-term and emergency room care.

INCREASED REVENUES:

--Spitzer plans to increase the state's recurring revenues by $1.1 billion by eliminating tax loopholes.

He also plans to bring in another $1.1 million through one-shot deals.

One idea would be to sell the development rights for video slot machines at the Belmont Park racetrack.

HEALTH CARE:

--Spitzer wants to expand health care to the 400,000 children in New York who aren't covered, which will add $37 million to the budget.

Medicaid spending will increase 2.7 percent to $46.3 billion under his plan.

Spitzer wants to generate savings by hiring 75 additional employees to help prevent fraud.

Combined with new technologies, Spitzer expects this to save the state $590 million -- $160 million more than was anticipated in last year's budget.

The governor is also eyeing $172 million in savings by controlling the cost of prescription drugs.

Altogether, he wants $980 million in health savings.

TAX CUTS:

--The governor wants to create a commission to come up with a property tax cap proposal.

New Yorkers will also get $4.8 billion in tax rebates through the state's School Tax Relief program, with more than $1 billion of that directed to middle class homeowners.

Seniors will get a 40 percent increase in their rebate, increasing their average property tax relief to $1,700.

Spitzer delayed a 17 percent increase in the basic middle class STAR rebate for at least a year to save money.

Eligible homeowners would have received an extra $65 if the increase went through.

A New York City resident with income more than $250,000 won't qualify for a STAR credit.

SCHOOLS:

--Spitzer proposes increasing spending on school aid by about 7.5 percent to $21 billion.

School aid is now distributed on a "foundation" formula based on school districts' need, rather than broken down under a longtime political deal based on the share of state enrollment in different regions.

New York City schools and other districts will get less than they expected, particularly on Long Island, where schools will see an annual increase in aid of about 8 percent rather than the 12 percent they expected.

HIGHER ED:

--Spitzer proposed a higher education endowment fund to help pay for state colleges and universities.

He wants to leverage the state lottery system to pay for it.

Tuition at the State University of New York and the City University of New York would not increase this year.

SUNY and CUNY would have to improve efficiency and cut spending, which should achieve $50.9 million in savings for the state.

Under Spitzer's plan, SUNY would receive $3.41 billion for its operating budget, an increase of 1.2 percent.

CUNY would get $1.7 billion, a 3.2 percent increase.

The executive budget would also cut base operating aid for community colleges by $50 per student -- to $2,625 from $2,675.

State aid for SUNY's 30 community colleges will total $451.1 million -- a $77,000 net decrease.

CUNY's six community colleges would get $174.5 million -- a $1.7 million increase.

The budget proposal would also reduce state aid to private colleges and universities by 2.5 percent, or $1.05 million.

That would leave the so-called Bundy Aid program with $41 million in the 2008-2009 school year.

NEW DEFINITIONS:

--The budget proposal would also reclassify certain malt liquor drinks so they would be taxed at the "low liquor" rate instead of the beer rate.

Spitzer expects the change to generate $15 million in 2008-2009.

Little cigars would also be shifted into a new category.

The little cigars would be taxed as cigarettes, which is expected to generate $3.6 million more.

PARKS AND RECREATION:

--The executive budget will add $110 million to the budget to support state parks, campgrounds, fairgrounds, historic sites and other facilities.

That will include $8 million for the "Walkway over the Hudson River."

"How New York's state budget has grown"

Associated Press

Last updated: 10:12 a.m., Tuesday, January 22, 2008

A look at the growth of the New York state budget since Democrat Mario Cuomo took office in 1983 as governor, Republican George Pataki took over in 1995 and Democrat Eliot Spitzer became governor in 2007:

Fiscal Year - Total Budget - Increase

1982-83 -- $25.9 billion --

1983-84 -- $28.4 billion -- 9.5 percent.

1984-85 -- $31.6 billion -- 11.3 percent.

1985-86 -- $34.7 billion -- 10.0 percent.

1986-87 -- $37.4 billion -- 7.8 percent.

1987-88 -- $39.9 billion -- 6.6 percent.

1988-89 -- $43.4 billion -- 8.9 percent.

1989-90 -- $46.4 billion -- 6.7 percent.

1990-91 -- $48.9 billion -- 5.5 percent.

1991-92 -- $52.3 billion -- 7.0 percent.

1992-93 -- $54.8 billion -- 4.8 percent.

1993-94 -- $57.91 billion -- 5.7 percent.

1994-95 -- $61.90 billion -- 6.9 percent.

1995-96 -- $63.23 billion -- 2.2 percent.

1996-97 -- $62.95 billion -- (minus 0.4 percent).

1997-98 -- $66.16 billion -- 5.1 percent.

1998-99 -- $70.70 billion -- 6.9 percent.

1999-00 -- $73.27 billion -- 3.6 percent.

2000-01 -- $79.75 billion -- 8.9 percent.

2001-02 -- $85.04 billion -- 6.6 percent.

2002-03 -- $89.12 billion -- 4.8 percent.

2003-04 -- $97.33 billion -- 9.2 percent.

2004-05 -- $100.67 billion -- 3.4 percent.

2005-06 -- $104.34 billion -- 3.6 percent.

2006-07 -- $112.8 billion -- 8.1 percent

2007-08 -- $118.3 billion -- 4.9 percent (projected)

2008-09 -- $124.3 billion -- 5 percent (proposed)

Fiscal Year - State Funds - Increase

1982-83 -- $19.2 billion --

1983-84 -- $21.0 billion -- 9.6 percent.

1984-85 -- $23.6 billion -- 12.2 percent.

1985-86 -- $25.9 billion -- 9.7 percent.

1986-87 -- $28.1 billion -- 8.7 percent.

1987-88 -- $30.4 billion -- 8.4 percent.

1988-89 -- $33.3 billion -- 9.4 percent.

1989-90 -- $35.4 billion -- 6.2 percent.

1990-91 -- $36.2 billion -- 2.5 percent.

1991-92 -- $37.1 billion -- 2.5 percent.

1992-93 -- $38.1 billion -- 2.7 percent.

1993-94 -- $39.65 billion -- 4.2 percent.

1994-95 -- $42.56 billion -- 7.3 percent.

1995-96 -- $42.74 billion -- 0.4 percent.

1996-97 -- $42.78 billion -- 0.1 percent.

1997-98 -- $44.40 billion -- 3.8 percent.

1998-99 -- $48.08 billion -- 8.3 percent.

1999-00 -- $49.80 billion -- 3.6 percent.

2000-01 -- $54.18 billion -- 8.8 percent.

2001-02 -- $56.98 billion -- 5.2 percent.

2002-03 -- $55.82 billion -- (minus 2.0 percent).

2003-04 -- $61.33 billion -- 9.9 percent.

2004-05 -- $63.97 billion -- 4.3 percent.

2005-06 -- $69.72 billion -- 9.0 percent.

2006-07 -- $73.5 billion -- 5.4 percent.

2007-08 -- $77.9 billion -- 6 percent. (projected)

2008-09 -- $81.8 billion -- 5 percent. (proposed)

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Source: State Division of the Budget.

"Business leader blasts Spitzer budget"

By MICHAEL GORMLEY, Associated Press

Last updated: 6:05 p.m., Wednesday, January 23, 2008

ALBANY -- The head of the state's biggest business lobby said Gov. Eliot Spitzer's 2008-09 budget proposal cuts too little and adds too much in fees and taxes in uncertain economic times.

"It's almost as if they used a butter knife when they needed a chain saw," Kenneth Adams, president of The Business Council of New York State, said on Wednesday.

He criticized Spitzer's spending increase -- held to about 5 percent -- and his proposal to increase state revenue by $1.7 billion by raising fees and closing what the governor calls business tax loopholes.

Corporations call such closures tax increases.

Spitzer's $124.3 billion budget proposal reduces planned increases in education and other spending while filling a $4.4 billion deficit.

Spitzer says the budget cuts the growth in overall spending while continuing essential spending in education and elsewhere that will help the economy grow.

He said it includes no increases in "broad-based taxes."

Adams said the budget proposal doesn't do enough to cut companies' taxes and other costs of doing business in New York.

Senate Majority Leader Joseph Bruno said the Senate GOP majority will again try to pass into law its $1.1 billion Upstate Now package of bills with business tax cuts, a venture capital fund, and money to improve rail, roads and bridges as well as state parks.

Many of the issues are the same broad topics as Spitzer proposes in his $1 billion upstate economic package.

Bruno said agreement could be reached on some elements.

For example, the Senate GOP proposes a $50 million agribusiness fund, and Spitzer proposes a $50 million AG-Jobs NY initiative to serve farmers.

Adams' comment came the same day that Spitzer appointed academics, a former Republican county executive, a Democratic Assembly leader turned lobbyist, and a Wall Street financier to commission that will consider ways to cap local property taxes.

Spitzer said the fact that one member is a president of a public college dependent on state funding, another is on the Board of Regents that seeks increases in school aid each year, and another is a lobbyist with clients in Albany, won't hurt the commission's ability to find ways to reduce local school and government spending and taxes.

He said the diversity of the group will yield a thoughtful solution to a complex problem, which must not only serve taxpayers but ensure adequate funding for services such as education.

"We need to explore new approaches, including reducing unfunded mandates and placing a cap on the growth of school property taxes," Spitzer said.

"The creation of this commission is the first step."

Fourteen states have some type of cap on taxes, said the commission's head, Nassau County Executive Tom Suozzi.

There are no state lawmakers on the commission, but the Legislature would have to approve any proposed measures before they became law.

Although the commission isn't required to recommend a tax cap, Spitzer said he expects one.

Bruno said he wasn't bothered by the lack of lawmakers on Spitzer's commission.

He said if the commission's recommendations make sense, "That's the way to go."

The Senate has proposed allowing local residents to vote for a cap by referendum, but the measure didn't make it through the Democrat-led Assembly.

Later in his news conference, Bruno criticized Spitzer's call for study of the issue, which will delay any action for at last a year.

"What we need is not to study, but to get action," Bruno said.

The tax commission headed by Suozzi will include Stony Brook University President Shirley Strum Kenny; former Secretary of State Basil Paterson; former Onondaga County Executive Nicholas Pirro, a Republican; Michael Solomon of Merrill Lynch & Co.; state Regent Meryl Tisch of Manhattan, who has donated thousands of dollars to Democratic campaigns including $10,000 to the Spitzer 2010 campaign in May; and former Assembly Majority Leader Paul Tokasz, now a lobbyist with one of Albany's biggest firms.

Spitzer said all of Tokasz's clients weren't vetted before he was appointed.

A cap, subject to Legislature approval, wouldn't take effect until at least 2009.

Chosen to advise the commission were Lisa Donner of the Center for Working Families and former organizer for a major Albany union; and Karen Sharff of Citizens Action of New York and co-founder of the Alliance for Quality Education that has pushed the state to historic increases in school aid.

Also appointed as special advisers were Elizabeth Lynam of the nonpartisan Citizens Budget Commission and Robert B. Ward of the Rockefeller Institute of Government and author of books that dissect how state government has driven up taxes.

"Bloomberg criticizes federal stimulus package"

By DEVLIN BARRETT, Associated Press

Last updated: 3:54 p.m., Wednesday, January 23, 2008

WASHINGTON -- New York Mayor Michael Bloomberg castigated the White House and Congress on Wednesday for what he said was a shortsighted economic stimulus package and years of lousy financial management.

"We can't borrow our way out of this."

"The jig is up," Bloomberg said in prepared remarks to be delivered Wednesday evening before the U.S. Conference of Mayors, which is honoring his environmental efforts.

The billionaire mayor, who is said to be considering an independent presidential bid yet denies that he is a candidate, said the $150 billion stimulus package being hammered out between Democratic and Republican leaders won't be enough.

"There's just one problem: It's not going to make much of a difference because we've already been running huge deficits," Bloomberg said.

Some of those urging Bloomberg to run for president say his record as a CEO is his biggest selling point in a time of economic turmoil.

Despite his public denials, Bloomberg is conducting an analysis of voter data in all 50 states to better understand his chances as a third-party candidate.

Aides have said he would delay a decision until after the major parties produce clear front-runners.

The metropolitan mayor used a farming analogy to heap scorn on the current crop of Washington leaders.

"They spent most of this decade running up bills with reckless abandon and when the economy started heading for the ditch, the special interest giveaways got even bigger."

"They ate the seed corn without worrying about the next year's harvest."

"Well, the next year is here, and the seed corn is gone."

"All we've got is a barn full of IOU's," he said.

Details of the stimulus package are still being negotiated, but the centerpiece of the measure is expected to be a tax rebate similar to the $300-$600 checks sent out in the summer of 2001.

The emergency measure would more than double last year's deficit spending of $163 billion, according to new congressional budget estimates.

Bloomberg argued that the government's first goal should be to stop the bleeding in the housing sector.

"What good is a rebate going to do for a family who's about to lose their home?" he argued.

"Regulators meet banks on bond insurance plan"

Associated Press

Last updated: 5:43 p.m., Wednesday, January 23, 2008

ALBANY -- State officials met with large investment banks on Wednesday as part of a previously announced series of measures to prop up the bond insurance industry.

David Neustadt, a spokesman for the state Insurance Department, confirmed the meetings but he would not name the banks or provide details about what was discussed.

Bond insurers -- which pay principal and interest payments on debt when an issuer defaults -- have been under scrutiny amid concerns that securities backed by shaky mortgages would lead to a spike in insurance claims.

The Insurance Department -- which regulates bond insurers -- this week said it is working with the industry to increase the capital available to them, developing measures to stabilize the market and developing new rules and regulations to oversee the bond insurance market.

Bond insurance company stocks surged amid a broader stock market rally Wednesday.

Shares of Ambac ended 72 percent higher at $13.70.

MBIA closed up 33 percent at $16.61.

Security Capital Assurance shares finished 76 percent higher at $3.79.

"NY regulators say bond insurance plan will take time"

Associated Press

Last updated: 11:14 a.m., Thursday, January 24, 2008

ALBANY -- New York's top insurance regulator says it's going to take time to develop a series of measures to prop up the bond insurance industry and his agency won't comment on widely reported details of any plan.

"Clearly it is important to resolve issues related to the bond insurers as soon as possible," Insurance Superintendent Eric Dinallo said in a statement Thursday.

"However, it must be understood that these are complicated issues involving a number of parties and any effective plan will take some time to finalize."

State insurance regulators are working on a potential bailout for bond insurers amid concerns that the collapse of securities backed by shaky mortgages will lead to a spike in insurance claims.

On Wednesday, they met with major investment banks to discuss the potential for a bailout, but are declining to discuss the details.

News reports and analysts have said the plan could include investment banks providing as much as $15 billion to help struggling companies.

Dinallo said he won't respond to "rumors" about the measures being discussed.

"Fed data show NYC, Long Island stung most by subprime woes"

By RICHARD RICHTMYER, Associated Press

Last updated: 5:52 p.m., Friday, January 25, 2008

ALBANY -- The subprime mortgage meltdown is taking a toll in New York, with New York City and Long Island feeling the brunt, according to data released Friday.

Overall, the average rate of subprime mortgage foreclosures throughout the state is 9.7 percent, according to figures from the Federal Reserve Bank of New York.

That's about 2 percentage points above the national average, said Richard Deitz, a senior economist at the bank's Buffalo branch.

However, with the exception of certain pockets -- including the mid-Hudson Valley and the Capital District -- the foreclosure rate in upstate has generally been about 2 percentage points below the national average.

That includes the major metropolitan areas of Buffalo, Rochester and Syracuse, Deitz said.

"Upstate just didn't have much of a housing boom," Deitz said.

"It didn't catch much of the upside and probably isn't catching as much of the downside."

Subprime mortgages are a class of loans for borrowers with low credit ratings that became popular during the torrid housing market of the early 2000s.

They typically have higher interest rates or rates that start low and then adjust to a higher rate after a fixed period of time.

Lately there has been a growing number of subprime mortgage defaults amid a cooling market that is leaving some buyers stuck with balances exceeding the worth of their home and others who had low introductory interest rates now facing higher rates they can't afford.

The figures released Friday show that there are 141,934 subprime loans for owner occupied houses statewide.

The zip code with the highest number of subprime loans covers parts of Canarsie and Flatlands in Brooklyn.

Of the 1,930 subprime mortgages sold for homes there, 12.2 percent are in foreclosure, according to the bank's figures.

Brentwood on Long Island has the second highest number, with 1,782 loans and a 12.5 percent foreclosure rate.

Bay Shore is third, with 1,484 loans and a 13.4 percent foreclosure rate.

Walker Valley in Ulster County shows the highest foreclosure rate, 57.1 percent, but that only accounts for seven mortgages.

Other upstate communities show high foreclosure rates -- including Ashland in Greene County at 50 percent -- on relatively small numbers of loans.

Gene Tricozzi, president of the New York Association of Mortgage Brokers, said New York and Long Island have been harder hit because housing values there rose much more sharply than the rest of the state.

"We just didn't see that kind of appreciation in most other parts of the state," he said.

Lenders also have been tightening their standards, making it more difficult for borrowers who might be in over their heads to find buyers -- particularly on Long Island, where most lenders now require 10 percent down payments rather than the 5 percent they previously had accepted, Tricozzi said.

That's making it difficult for homeowners who want to get out of their mortgages to find buyers, he said.

The bank also released subprime mortgage default figures for New Jersey and Connecticut on Friday.

They show an average foreclosure rate of about 8 percent in New Jersey and about 7 percent in Connecticut.

------

Online:

Federal Reserve Bank of New York: http://www.newyorkfed.org

THE NEW YORK POST

"TO THE MOON, ELIOT SPITZER KEEPS SPENDING"

January 24, 2008 -- Ralph: "The bills will get bigger and bigger, and I'll get less to eat."

"I'll start losing weight."

"Then you know what I'll look like?"

Alice: "Yeah, a human being."

- "The Honeymooners"

THE officially announced spending growth rate of 5 per cent in Gov. Spitzer's latest state budget proposal was greeted in some quarters as evidence of belt-tightening by New York's second-year chief executive.

Eat more and shrink your waistline?

Sounds like the diet of Ralph Kramden's dreams.

Of course, Alice would have seen right through it.

In fact, Spitzer has not discovered a way to make New York state government slimmer while adding billions to its bottom line.

The increase proposed in his 2008-09 budget is modest only by comparison to the 7.8 percent hike he proposed last year in his first budget - which, in turn, justified the governor's claims of "spending control" only in the wake of an 11 percent hike in Gov. George Pataki's last year in office.

By any standard, the state's budget is growing faster than its economy - despite Wall Street jitters and what Spitzer himself called "a dramatic degree of uncertainty" about economic conditions in the near future.

Indeed, the core general fund would already be in the red if it weren't for reserve funds and one-shot revenues.

An historic four-year boom in compensation, real-estate values and corporate profits brought New York state an enormous surge in tax revenues.

But now it's experiencing what may be just the start of a prolonged and painful fiscal hangover.

So vast was the surge that Pataki, despite the massive spending hikes of his final term, still left a cash surplus of $1.2 billion.

Spitzer's long-term financial plan indicates that most of that will be spent by the end of the decade.

Meanwhile, the budget holds fresh news of how dependent the state has grown on taxes from the sort of wealthier households most likely to be directly affected by turmoil in the financial markets.

The share of all state income taxes paid by the highest-earning 1 percent of filers (whose incomes now begin just below $1 million) rose to 39 percent last year, up from 34 percent a decade earlier.

Thus, the economy could sidestep a recession - and the treasury would still be hit hard by a continuing decline in six- and seven-figure bonuses for corporate officers, fund managers and brokers, and by a softening in the real-estate market.

Spitzer's budget would cut the number of corrections officers to reflect a falling inmate population, but still plans to expand the state workforce by another 1,846 employees.

His Medicaid savings program is less ambitious than the one he proposed last year.

And even after trimming some promised increases, his $1.4 billion jump in school aid is the largest ever proposed by a New York governor.

While Spitzer largely spares any pain for state employee unions, urban public schools and health-care providers, he'd shift more costs to motorists (through higher fees and fuel taxes), homeowners (through an increase in mortgage-recording fees and postponement of a state-funded school-tax rebate) and the for-profit HMO industry (which he'd hit with a whopping $247 million tax hike).

The governor insists he wants to expand affordable health care, yet his budget also calls for a 16 percent jump in what already amounts to $850 million in state "assessments" on private health-insurance policies.

He also says he wants to lift the burden of state mandates on localities - yet the budget would also stick New York City and county governments with a bigger share of costs for both welfare and juvenile detention.

Even in an economic slowdown, state lawmakers in both parties will find plenty of ways to add more spending to the budget - while pushing another year down the road any effort to cope with the state's snowballing structural deficit.

And, judging from last year, Spitzer is not spoiling for the sort of prolonged budget fight that would be needed to resist in the Legislature's demands.

A permanent solution to the state's persistent fiscal problems and massive tax burden can't be put off indefinitely.

As Ralph Kramden's buddy Ed Norton once put it, "Like we say in the sewer, time and tide wait for no man."

E.J. McMahon is director of the Manhattan Institute's Empire Center for New York State Policy.

ejm@empirecenter.org

http://www.nypost.com/seven/01242008/posto...2316.htm?page=0

"Bond insurer plan key to market calm"

By STEPHEN BERNARD, Associated Press

Last updated: 5:22 a.m., Saturday, January 26, 2008

NEW YORK -- If the struggling bond market is saved by a potential bailout, turbulence in the stock market could ease -- but without a bailout, cities across the country could have difficulty building everything from sewers to schools.

A string of gains in the stock market this week came in part from the Federal Reserve's cut of a key interest rate, but news of a potential bailout of the bond insurance industry also sparked hope that credit markets could return to a more normal environment.

Hope for a bailout has "kept the Titanic from going straight down, and now we have a listing ship that needs to be righted," said Joseph Battipaglia, a market strategist for the private client group at Stifel Nicolaus.

"The insurance iceberg was probably a sinker."

Over the past few months, ratings agencies have downgraded or threatened to downgrade bond insurers' vital financial strength ratings, saying the insurers do not have enough extra cash to cover a potential spike in claims.

Bond insurers pay principal and interest on bonds when the issuer is unable to make payments.

A downgrade from a "AAA" rating would likely end the insurer's ability to book new business.

That in turn reduces the options for municipalities looking for insurance.

"A lot of municipalities have good reason to go to market," said Donald Light, a senior analyst at Celent LLC, but he added it would be more expensive for to issue bonds without insurance.

Most municipalities do not have pristine "AAA" ratings, so they go to bond insurers and pay to use their ratings.

That in turns makes the interest rates on the bonds lower, saving the group money.

Those added costs are likely to lead some municipalities to delay or cancel certain projects, or at least scale them back, Light said.

A collapse of the bond insurance market could lead to a 10 percent to 25 percent decline in new issuance, he added.

A continued plunge in ratings for the bond insurers not only hurts municipalities, but it also puts already struggling banks in a precarious position.

Investment banks -- which are still trying to sort of the mess from the subprime mortgage market -- have already reduced portfolio values by nearly $140 billion during the second half of 2007 because of bad bets on troubled loans.

Now they could face a fresh round of losses tied to the bond insurers.

Investments held by banks and insured by companies like Ambac or Security Capital or insurance contracts banks hold on the bond insurers themselves would all likely lose value if bond insurers ratings continue to fall.

That means more uncertainty surrounding banks' future earnings, which could drag down the stock market further.

But bailing out the bond insurers is very complicated with trillions of dollars in insurance coverage at stake, Battipaglia said, echoing sentiments a deal might take a while to finalize.

On Wednesday, the New York State Insurance Department met with banks about trying to determine a plan to help the beleaguered insurers and essentially save a flailing industry.

The insurance superintendent cautioned that any plan could take some time to develop because of the number of groups working on the project.

Speculation is also growing that billionaire investor Wilbur Ross could be negotiating to acquire Ambac outright, providing another avenue to help the industry.

Since reports of a potential bailout were raised earlier this week, shares of bond insurers rose considerably, reversing a steady march to record lows in recent months.

Shares of Ambac Financial Group Inc. which fell as low as $4.50 in trading on Jan. 17, are now at $11.55.

MBIA Inc. shares, which bottomed out at $6.75, now trade at $13.80.

Even Security Capital Assurance Ltd., which fell as low as $1.50 on Jan. 17, is trading at $3.05.

"NY expands suit against Countrywide"

Associated Press

Last updated: 6:13 p.m., Friday, January 25, 2008

NEW YORK -- New York authorities are suing 26 banks and two accounting firms that did business with Countrywide Financial Corp., saying the companies failed to ensure the beleaguered mortgage company was being honest with investors.

The banks and accounting firms were added as defendants Friday in a class action lawsuit already pending against Countrywide in California.

Two of the lead plaintiffs, New York State Comptroller Thomas P. DiNapoli and City Comptroller William C. Thompson Jr., oversee several huge government pension funds that invested in Countrywide securites.

The long list of new defendants in the case includes underwriters and accounting firms that participated in the marketing of Countrywide securities.

The suit claims that the company made misstatements about its lending practices, artificially inflating the price of its securities.

"Countrywide's underwriters had a duty to investigate whether Countrywide was acting honestly," DiNapoli said.

"Investors lost millions, and New Yorkers lost their homes."

"We can't sit idly by."

Thompson and DiNapoli said they had also filed new complaints against several Countrywide officers and directors who hadn't been named as defendants in the previous court action.

A spokesman for Countrywide did not immediately respond to a phone message and an e-mail Friday.

California-based Countrywide rose to become the nation's largest mortgage lender but has been struggling amid rising mortgage defaults, particularly subprime loans to borrowers with questionable credit histories.

"Loan crisis hits home - Subprime mortgages pose a threat to region's housing stability as lending rates revealed"

By CHRIS CHURCHILL, Business writer, Albany, New York Times Union

First published: Saturday, January 26, 2008

TROY -- A ZIP code that includes much of Troy has the area's highest total of subprime mortgages, leading to fears of rising foreclosures and destabilized neighborhoods.

ZIP code 12180, which also includes the town of Brunswick, has the Capital Region's highest number of subprime loans held by borrowers who occupy the buildings, according to a statewide analysis released Friday by the Federal Reserve Bank of New York.

And 12180 has the state's highest number of subprime mortgages held by borrowers who don't live in the buildings.

"The absentee landlord issue is a big one here," said South Troy resident Meisha Rosenberg.

"And it had been long before the subprime mortgage problem."

Subprime mortgages are high-cost loans typically given to borrowers who have shaky credit, relatively low incomes or little money for a deposit.

Rising default rates among holders of the loans have rocked the nation's financial institutions, leading to a credit crisis that some believe is pushing the economy toward recession.

Most reports have suggested that the Capital Region, along with upstate New York, has mostly avoided the subprime crisis, as mortgage default rates are generally lower here than in much of the country.

But the Fed statistics, which took stock of loans existing as of October, show cause for concern:

In the 12180 ZIP code, 10 percent of subprime loans borrowers were in foreclosure, while more than 20 percent had fallen at least 30 days behind on payments.

Subprime loans frequently have adjustable payment rates.

Some borrowers can pay the introductory rate, but struggle to make the higher payments that come one or two years into the mortgage.

The Fed statistics show that 24.2 percent of the subprime mortgages in ZIP code 12180 will reset after April, suggesting the potential for a new wave of foreclosures.

ZIP code boundaries can appear arbitrary, and some codes have higher populations than others.

Therefore, ZIP code 12180 may have the highest number of subprime mortgages only because its boundaries are expansive and include densely populated neighborhoods.

While most of Troy falls into 12180, cities like Albany and Schenectady are divided by several ZIP codes and share the codes with suburban neighbors, leaving the possibility that the two cities have more subprime mortgages than Troy.

Several ZIP codes that included parts of Schenectady had high numbers of subprime mortgages, with varying rates of default.

Subprime mortgages problems are not confined to cities or areas considered relatively poor.

The Fed said ZIP code 12020 in Ballston Spa, for example, had 217 subprime mortgages, and 26.8 percent of the loan holders were either in default or behind on payments.

On Friday, some Capital Region housing counselors welcomed the release of the Fed numbers, because they have wanted statistics outlining the scale of the subprime mortgage problem.

"We haven't had that," said Ellie Pepper, assistant director of Better Neighborhoods Inc. in Schenectady.

"We've only had our own anecdotal evidence."

The Fed said the statistics were compiled to help governments prepare for subprime problems.

In ZIP code 12180, the number of subprime mortgages held by borrowers who did not live in their buildings raised particular concern.

To some, it suggested landlords who either had poor credit histories, evaded even the investment required by a down payment, or took an adjustable rate mortgage because they didn't intend to own the property for long.

A ZIP code including the West Hill section of Albany, 12206, had the state's third highest number of subprime mortgages held by non-occupying borrowers.

The Fed did not detail foreclosure rates among those borrowers.

Officials in Albany have targeted blight and abandoned buildings in recent months.

The problem extends beyond the city borders and could be exacerbated if borrowers are unable to repay subprime mortgages.

"What worries me is the result of the foreclosures," said South Troy resident Sidney Fleisher.

"If the building sits vacant or is abandoned, that becomes a real problem."

"It has a destabilizing effect," he said.

Lynn Kopka, a former Troy director of planning who continues to live in the city, said Friday she hadn't noticed an increase in foreclosed properties.

The office of Mayor Harry Tutunjian declined to comment on the statistics, citing the need to review them.

To some in Troy, foreclosures have been a ongoing concern.

Rosenberg said the house next to her Second Street home went into foreclosure after its owner died.

The vacant building eventually became an eyesore, she said, leading her to buy it at auction for $99.

The building at 319 Second St. has since been demolished.

"We had to take matters into our own hands," she said.

Churchill can be reached at 454-5442 or by e-mail at cchurchill@timesunion.com.

"Easing homeowners' pain - Gillibrand joins effort to loosen IRS rules for deducting property taxes"

By JENNIFER A. DLOUHY, Washington bureau, Albany, New York Times Union

First published: Sunday, January 27, 2008

WASHINGTON -- Homeowners fed up with rising property taxes could get a big break under a proposal in Congress that would make it easier for them to deduct real estate taxes on their federal income tax returns.

Current federal tax law allows property taxes to be deducted -- but only by those who itemize their deductions on federal tax returns.

Many taxpayers don't itemize their deductions but instead take the standard deductions when filling out their annual returns.

According to data from the National Association of Realtors, more than 40 percent of homeowners do not itemize.

Legislation being pushed by a bipartisan group of lawmakers, including Reps. Baron Hill, D-Ind.; Mike Pence, R-Ind.; and Kirsten Gillibrand, D-Greenport, would allow homeowners to claim a property tax deduction even if they don't itemize.

The property tax deduction would be on top of any standard deduction they already receive.

Sen. Evan Bayh, D-Ind., has sponsored a similar bill in the Senate.

Gillibrand, one of the lead cosponsors of the House bill, said the legislation responds to a complaint she hears from constituents in her upstate New York district who say that property taxes are out of control.

Gillibrand said property taxes are "the number one issue throughout the district."

Rising tax rates -- coupled with increased assessments of the value of a homeowner's property -- have "priced families out of their homes," she says.

The standard deduction that taxpayers can claim on their annual returns has not kept up with the rising cost of property taxes, she said in an interview.

For tax returns due April 15, a single person or a married person filing separately would get a standard deduction of $5,350.

Married couples filing jointly would qualify for a standard deduction of $10,700.

The issue is a big one for New York homeowners, who had the fourth-highest average property tax in 2006 -- $3,301 -- in the nation.

Property taxes account for roughly 4.7 percent of the average income in the state.

The problem is so acute that Gov. Eliot Spitzer recently convened a panel to come up with ideas for revamping New York's property tax structure.

Property taxes are fundamentally a local issue; the tax rates generally are set by elected city and county officials, and periodic assessments are done locally.

The amount homeowners could stand to gain in slashed federal taxes varies, depending on their household income and the size of their annual property tax bill.

But lawmakers who support the legislation say it could easily amount to hundreds of dollars for homeowners who do not itemize.

Lower-income taxpayers would benefit especially because most of them take the standard income tax deduction.

The percent of taxpayers who itemize increases along with their income.

For instance, according to data from the nonpartisan Congressional Research Service, 36 percent of people with annual incomes of $30,000 to $50,000 itemize their tax returns, compared to 77 percent of those making $75,000 to $100,000 each year.

"The folks who don't itemize will typically be middle-income and lower-income families and the elderly," Gillibrand said.

"So this is really, in my view, a targeted middle-class tax cut -- something that will really put money back in the pockets of the families (in) my district and in the country that really need it."

Like many of the bill's supporters, Gillibrand is a member of the Blue Dog Coalition -- a group of fiscally moderate and conservative Democrats.

The proposal also would help the U.S. economy, Gillibrand said, because it would "get dollars back in the hands of our families."

A more limited version of the legislation passed the House last year as part of a broader package of tax measures.

But the property tax provision was dropped by the Senate.

This year, lawmakers behind the measure say they will push for it to be part of a package of economic proposals Congress could tackle in several months.

That would follow a short-term stimulus bill Congress is expected to move immediately.

On Thursday, congressional leaders and the White House reached agreement on the scope of that short-term stimulus bill that would authorize tax rebates.

"Report: Cuomo gets cooperation in probe"

Associated Press

Last updated: 6:23 a.m., Sunday, January 27, 2008

ALBANY -- A company that analyzed the quality of subprime mortgages for investment banks has agreed to provide the New York attorney general with information for an investigation, a newspaper reported Saturday.

The agreement involves Clayton Holdings, of Shelton, Conn., a publicly held company that is a major provider of mortgage due diligence services to investment banks, The New York Times reported.

Clayton was provided immunity from civil and criminal prosecution although there was no evidence of its wrongdoing, according to the newspaper.

Calls to New York Attorney General Andrew Cuomo's office and Clayton by The Associated Press were not immediately returned Saturday.

Both Cuomo and Connecticut Attorney General Richard Blumenthal are investigating whether Wall Street banks hid crucial information about high-risk loans bundled into securities sold to investors.

About a quarter of all subprime mortgages are in default, resulting in billions of dollars in losses for buyers of securities backed by them.

Investment banks have said that they provided adequate disclosures, while also taking more than $100 billion in their own write-downs.

In a statement Saturday, Clayton chairman and chief executive Frank Filipps acknowledged a cooperation agreement.

"We have complied with a subpoena to produce due diligence reports on various pools of loans that we had reviewed for clients and on loans that had exceptions to lenders/seller guidelines and were eventually purchased," he said.

"This information that we provided to the attorney general is the same information that we provided to our clients."

The mortgage business boomed from 2002 to 2006, generating lucrative fees for mortgage brokers, lenders, credit rating firms, investment banks and many investors.

Investment banks hired companies like Clayton to evaluate samples of loans to determine whether they complied with the law and met the lending standards that mortgage companies said they were using.

Loans that did not were classified as exceptions.

Banks pooled the mortgages into securities, often by blending loans from different lenders.

Information on those mixed pools was then delivered to the rating agencies, which assigned the securities a score.

Pension funds and other big investors bought them because they had triple-A ratings.

Clayton has told the prosecutors that starting in 2005 it saw a significant deterioration of lending standards and a parallel jump in lending exceptions.

At issue is what information about the quality and risk of the loans was given to the investment banks and what was given to the rating agencies.

"Bloomberg says Spitzer budget shortchanges New York City"

By MICHAEL GORMLEY, Associated Press

Last updated: 5:42 p.m., Monday, January 28, 2008

ALBANY -- New York City Mayor Michael Bloomberg on Monday said Gov. Eliot Spitzer's proposed state budget shortchanges the city by about $500 million and breaks funding promises in education and social services.

"Talk about chutzpah," Bloomberg told state legislators at a budget hearing.

He referred to a revenue raiser in Spitzer's budget, which would charge the city $10 million more to handle mailed income tax returns from city residents despite raising the fee a year ago and despite an increase in city taxpayers filing electronically.

"When someone's gouging you on price because he thinks he has you over a barrel, it's time to find a competitor at a better price," Bloomberg said.

He added that the city may seek a cheaper private service to handle the work.

The cost was part of Bloomberg's criticism of the budget by his ally and neighbor.

Bloomberg said Spitzer's budget proposal hurts New York City, even though the city sends $11 billion more back to Albany than it receives in state aid.

He is calling on the powerful New York City coalition in the Democrat-led Assembly and the Senate's Republican majority -- which has long been close to the former Republican -- to restore the aid.

Spitzer's plan includes less aid that has already been calculated in the city's current budget.

The city fiscal year starts three months after the state's fiscal year, which begins April 1.

In a parting shot, Bloomberg noted the city's budget has filled a $500 million deficit this year and a projected $1.3 billion next year because he cut 2.5 percent of spending in his agencies and set aside billions of dollars in better economic times.

He said the state could likely find the same efficiencies if it tried.

Spitzer's $124 billion budget proposal also includes economic development aid for the upstate economy, which is faring far worse than the New York City economy fueled by Wall Street.

In his State of the State speech, Spitzer noted that former Gov. Hugh Carey and the state bailed the city out of its fiscal crisis in the 1970s and now it's time for a similar "investment" upstate.

Spitzer proposes spending $1 billion for upstate revitalization, much of which would be borrowed.

"The '70s were an awfully long time ago," Bloomberg said.

He added that he hadn't heard Spitzer present that argument.

"I'm sympathetic with the governor, you read about upstate having problems that aren't the same problems we have."

"A lot of New York City's problems are problems of success: Not enough infrastructure, too many people, overcrowded schools, no land to build on."

"You go elsewhere," he said, "they have vacant land and deserted buildings and a lot schools with nobody in them and no tax base, and that's a different kind of problem."

"I'd rather have our kind of problem than their problems, and I understand that.

"New York City has to help the rest of the state," Bloomberg said.

"The question is, 'How much?'"

"If you go and try to get too much out of the parts that are doing well, all you are really going to do is destroy the parts that are doing well."

Democratic Assembly members and Republican senators at the hearing said they would seek to help Bloomberg.

On Tuesday, another big effort to restore New York City education funding is planned.

The powerful United Federation of Teachers union plans to lobby state lawmakers, said union spokesman Ron Davis.

He said the UFT will seek to restore the increase in state school aid to New York City to the $1.24 billion level projected a year ago.

Davis said the union will fight to restore $350 million of the increase reduced by Spitzer.

"The economic storm clouds that hang over our nation and this state call for hard choices and shared sacrifice," Spitzer said Monday.

"Economists I spoke to just this morning are forecasting a sustained economic downturn, which demands fiscal restraint from leaders across the country."

"I understand the City did not get everything it wanted, but rocky economic times mean that every recipient of state funds must share the responsibility of across-the-board belt tightening," Spitzer said.

Spitzer's budget would hold spending to a 5-percent increase, twice the inflation rate but less than recent years' increases of 7 percent to 10 percent by the time the Legislature approved the budgets.

Spitzer said New York City would receive a net increase of $1.2 billion in school aid, property tax relief, Medicaid savings and other measures.

But Bloomberg said some of those are benefits from agreements years ago, and that too much of the school aid is restricted to uses other than paying for operations.

"IRS plans to slash claim against NYRA by $1.58 billion"

By JACQUELINE PALANK, Associated Press

Last updated: 2:52 p.m., Monday, January 28, 2008

WASHINGTON -- The Internal Revenue Service announced plans to reduce its tax claim against the New York Racing Association to $15.2 million from $1.6 billion, but an attorney for the horse-racing association said negotiations continue over the disputed claim.

In an interview Monday, attorney Brian S. Rosen said "$15.2 million is a far cry from $1.6 billion," but "we reserve our right to object to that proof of claim."

"The parties are continuing to discuss the issues associated with it and hope to reach an agreement soon."

Back in November, NYRA said the IRS agreed to withdraw the $1.6 billion claim and to file a new claim that was $25 million or less.

The two parties said in documents filed with the U.S. Bankruptcy Court in Manhattan this month that the IRS will file a new claim for $15.2 million, subject to further changes.

The IRS filed its claim amid an ongoing audit of NYRA for the years 2000 through 2005, pointing out 16 adjustments to NYRA's tax returns.

The new agreement resolves issues with all but two of the adjustments, which the IRS values at about $23 million and which NYRA disputes.

NYRA, which filed for Chapter 11 protection in November 2006, will try to resolve disputes with some of its major creditors as the clock ticks on its exclusive right to file a bankruptcy exit plan.

NYRA has until Feb. 11 before other parties can offer competing plans for reorganizing the company and repaying its creditors.

NYRA said it plans to present the stipulation with the IRS to the bankruptcy court on Feb. 4.

Ten days later, it will face off with the federal government's private pension insurer, the Pension Benefit Guaranty Corp., at a hearing to work out disputes over at least $100 million in claims that the PBGC says it's owed.

NYRA runs the three largest thoroughbred racing tracks in the state of New York -- Aqueduct, Belmont Park and Saratoga.

"Cash-strapped states resort to taxing narcotics, sports stars"

By MICHAEL GORMLEY, Associated Press

Last updated: 7:42 p.m., Monday, January 28, 2008

ALBANY -- It's the perfect tax: Government exacts a big payment without having to fend off lobbyists or wage a political fight.

And in most cases, the taxpayer doesn't even have a say.

That's the allure of New York's proposal to tax illegal drugs, just one of the innovative -- and sometimes odd -- ways states are trying to raise revenue in these increasingly gloomy economic times.

Politicians love to use such methods because they don't have to raise income taxes.

But critics say that's also the danger, if long-term problems never get fixed and essentials such as health care and education go wanting.

Need a few million dollars to fill a budget deficit?

Lease a toll highway, like Indiana and Virginia did, or cash in on future lottery profits as a half-dozen states are considering.

You could slap a tax on pornography as six states already have, or tax strip joints like they do in Texas, where they call it a "pole tax."

Some states take a slice out of pumpkin sales at Halloween.

And most states tax Shaquille O'Neal and Barry Bonds when they visit, using a "jock tax" on professional athletic events.

Amused?

That will cost you, too.

Many states collect an amusement tax for live performances.

"They range from the outright crazy to the absolutely insane," said Nate Bailey, of the nonpartisan Tax Foundation based in Washington.

"People at the local level already feel overtaxed and politicians, in a somewhat spineless way, look for a hidden way to increase revenue without raising taxes."

In New York, Gov. Eliot Spitzer last week proposed redefining little cigars as cigarettes and "hard" lemonade and other flavored alcohol drinks as liquor instead of beer, all of which would increase tax revenue.

More than a half-dozen states have a tax on narcotics and other controlled substances.

Theoretically, a drug dealer in North Carolina can go to the state revenue office and get a tax stamp for $50 per gram for cocaine over 7 grams (the first 6 grams are tax-free).

A moonshiner could get a stamp for $1.28 per gallon of mash.

Then the dealer or the moonshiner can walk away -- the law prohibits snitching on anyone who buys the stamps -- with proof he paid his debt to the tax department.

The idea is that a peddler, even one who sells illegal substances, should pay taxes.

But in reality the revenue is only collected after arrests, when dealers are slapped with a tax bill.

"The only folks we have buying those stamps are stamp collectors," said Kim Brooks, spokeswoman for the North Carolina Department of Revenue.

In New York, which faces a $4.4 billion deficit, Gov. Spitzer likes the idea.

In his budget proposal to the Legislature last week, he promised $17 million in revenue from it.

He also wants to require Internet giants such as Amazon.com to collect tax on an estimated $47 million in sales to New Yorkers, who are currently on an honor system to report on their tax returns how much they spend online.

Three recent reports predicted states will feel the pinch of the economic downturn.

Nearly half are projecting a budget shortfall within the next two years.

A few states such as Maryland still raise money the old-fashioned way -- by increasing broad-based taxes.

Maryland raised taxes by $1.4 billion in November, but it is also considering legalizing slot machines to pay for health care.

New York's fiscal year starts April 1, and typically deals with such problems ahead of most states, where the budget goes into effect on July 1.

New York also has a tradition of some of the most outlandish schemes.

In 1991, the Legislature famously approved the "sale" of Attica prison to a state authority for $242 million that was then used to help balance the budget.

state was left with a total mortgage of more than $450 million including some of the original debt on a prison it had already paid to build.

Now another idea is for New York to lease its lottery, presumably to a Wall Street investor, in return for an upfront payment of $4 billion, $200 million a year in interest and a continuation of the $2.1 billion the lottery now generates for education.

"It's the idea that you can get away with raising taxes as long as you don't say the word 'tax,'" said New York Assemblyman Richard Brodsky, a Democrat who represents affluent suburbs north of New York City.

"And the consequences are disastrous for the average middle class or poor people, and a boon to big business and the wealthy."

In New Jersey, officials are weighing reforms to the highway system that could allow a nonprofit corporation to operate toll roads.

The agency could also raise money by putting solar panels on sound barriers, erecting windmills along the roadways and selling naming rights for rest stops.

That could mean New Jersey Turnpike rest stops now named for famous residents such as Thomas Edison, Walt Whitman and Red Cross founder Clara Barton could be renamed for corporations.

"There's an incredible desire to avoid general sales and income taxes," said Scott Pattison of the National Association of State Budget Officers.

"And when you think about it, states own a lot of assets."

"So if you are turning them over to private companies to lease and manage for a while, and get upfront money, you have a lot of options."

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On the Net:

Tax Foundation: http://www.taxfoundation.org/

"Counties claim Spitzer budget would raise taxes"

By MICHAEL GORMLEY, Associated Press

Last updated: 6:43 p.m., Tuesday, January 29, 2008

ALBANY -- County executives blasted Gov. Eliot Spitzer's proposed budget on Tuesday, saying it would actually force higher local property taxes by shifting $80 million of state costs to counties.

But Spitzer shot back that his budget adds $500 million in funding to counties.

A Spitzer aide said that should be enough for county executives to protect their already overtaxed residents.

"County executives who are threatening to raise taxes will be doing so because of their own choices, not because of the New York state budget," said Spitzer spokesman Errol Cockfield.

"They are threatening tax increases at a time when the public is feeling squeezed, despite increased state aid that makes doing so unnecessary ..."

"So it strains belief for any county executive to say that they might be forced to raise taxes because of this budget."

The county officials at the New York State Association of Counties annual meeting, however, said Spitzer's budget will transfer the full cost of jailing juvenile delinquents and some social service spending.

Republican Rensselaer County Executive Kathleen Jimino said that if Spitzer's $124 billion budget is enacted without change, her county's taxpayers would face an 8.5 percent property tax increase.

"We have nowhere else to go but property taxes," said Jimino, a close ally of state Senate Republican leader Joseph Bruno.

"It's a net loss for us," said Suffolk County Executive Steve Levy, a Democrat.

Levy also said there were some positive aspects to the budget, including Spitzer's effort to reduce the number of small taxing jurisdictions.

Albany County Executive Michael Breslin, a Democrat and ally of Spitzer, says the counties' concerns span political divisions and include large and small counties.

Breslin said his review of Spitzer's budget shows the county would lose a couple of million dollars in state aid.

"The governor is trying to do a lot of good things," Breslin added.

"We're early in the process and the governor is listening and I hope he hears us."

Spitzer's proposal to the Legislature seeks to hold spending to about 5 percent to reflect a declining economy and reduced growth in revenues while closing a $4.4 billion deficit.

On Tuesday, Spitzer told reporters annual state spending should grow by no more than 5.3 percent, including in the 2008-09 budget he is proposing now.

That opened what appeared to be an allowance for some added spending by the Legislature.

The governor and the counties appear to be counting differently.

Spitzer includes continuing measures that avoid or cut costs for the counties in his calculation.

County officials said those measures shouldn't be used to distract from the reduced aid, some of which is less than anticipated in their current budgets.

The Legislature must approve the budget, which is due by the start of the new fiscal year on April 1.

"It's not easy to thread the needle," Spitzer told the county executives.

"We have to build for our economic future," he said, referring proposed increases in education, higher education and health care spending, although at lower levels than expected.

"But simultaneously we have to control the cost of government."

Spitzer gained some support for his proposed cap on local property taxes.

The executives, however, wouldn't be subject to the cap.

Any cap, which could begin in 2009, would be aimed mostly at school districts.

The county executives quickly drew the support of the Senate's Republican majority.

"When (Spitzer) withdraws from you, where is it going to land?"

"On the property tax," Bruno told the county officials.

"We're going to deal with that in the budget."

Democratic Assembly Speaker Sheldon Silver emphasized that Spitzer wants to negotiate with the Legislature on his budget.

Silver also said he expects pork-barrel spending, which lawmakers prefer to call "member items," will be added to the budget this legislative election year.

The spending is directed by lawmakers to programs, projects and groups back in their home districts.

Silver notes many of the grants are for widely supported health, education and social service goals.

Critics say they are used by lawmakers to attract votes and campaign contributions.

Spitzer didn't include the spending in his proposal, but adding it could add $170 million or more to the budget.

Member items had been $200 million a year, but Spitzer dropped the governor's piece -- $30 million -- in the current budget.

The spending often ends up in budgets late in closed-door negotiations.

"I think we can always afford member items," Silver said.

Silver also said Spitzer told him he's "not adverse" to a long proposed raise for lawmakers, which has been part of negotiations involving several issues since last year.

Democratic Senate leader Malcolm Smith, a Queens Democrat, said his conference is looking for "efficiencies" to cut spending in the budget.

"I think we're spending much too much," he said.

"Comptroller says removing Canal Corp. is no quick Thruway fix"

By RICHARD RICHTMYER, Associated Press

Last updated: 5:13 p.m., Tuesday, January 29, 2008

ALBANY -- Separating the state Canal Corp. from the Thruway Authority to cut costs could take years, state Comptroller Thomas DiNapoli said Tuesday.

"It's not something that's going to be done tomorrow," DiNapoli told a legislative panel looking into the Thruway Authority's plan to hike tolls and his proposals to reduce its expenses.

"Some of the options I've identified ... might even require changing the state constitution, so you're talking about something that may be many years off," he said.

The Assembly Transportation Committee called DiNapoli and Thruway Authority officials to testify at a public hearing after DiNapoli on Sunday released his review of the authority's proposal to raise tolls to generate roughly $520 million to cover cash shortfalls projected over the next five years.

DiNapoli's audit found that the agency should not raise the tolls but instead focus on better financial management and cost cutting.

Removing the Canal Corp. -- which the state Legislature folded into the Thruway Authority in 1992 -- would save the authority about $395 million through 2012, according to the audit.

David Gantt, a Monroe County Democrat who chairs the transportation committee, said separating the Canal Corp. from the Thruway Authority is unlikely this year because lawmakers already are trying to close a $4.4 billion budget deficit amid slowing state revenue growth.

"We're in the hole this year, and no matter where you put (the Canal Corp.) someone's going to have to pay for it," Gantt said.

"I don't think we're going to be able to do it this year."

DiNapoli said the Thruway Authority could avert the toll hikes by following his other recommendations, including using a collection agency to recover unpaid E-Z Pass tolls, deferring some capital projects and including a "reasonable estimate" for future Federal highway funding in financial projections.

Thruway Authority Executive Director Michael Fleischer said the authority is already working on getting a collection agency and is considering delaying some projects such as noise barriers and trails along the canal system.

As for the federal funding: "It's a basic disagreement on whether we should bank on federal aid that we have no commitment to get," Fleischer said.

Gantt also repeated calls for the Thruway Authority's board of directors -- most appointed by former Gov. George Pataki -- to resign in order to allow Spitzer to name members who are more aligned with his policies.

He also said he might subpoena authority chairman John Buono -- who did not appear at Tuesday's hearing but instead provided a written statement -- to testify.

Fleischer said the board members weren't asked to testify until late Thursday, and Buono is out of the state.

"I think he's on vacation," he said.

Senate Majority Leader Joseph Bruno said there's no need for toll increases right now, and he'll address the issue through legislation if he gets the opportunity.

The Legislature currently has no role in the way the Thruway Authority operates.

Spitzer said he is looking at whether to move the Canal Corp. out of the Thruway, but noted it will still have to be a cost paid by the state.

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Associated Press Writer Michael Gormley in Albany contributed to this report.

"State troopers to be moved from NY schools and racinos"

By MICHAEL HILL, Associated Press

Last updated: 3:03 p.m., Tuesday, January 29, 2008

ALBANY -- Gov. Eliot Spitzer plans to redeploy almost 200 state troopers from schools and "racinos" around New York to high-crime areas -- a politically sensitive move that worries some local police and school officials.

Spitzer in his budget proposal last week said the redeployment would put state police where they are most needed in tough fiscal times.

While local officials said the move could stretch their own resources, state police stressed Tuesday they are not abandoning the eight race tracks in New York with video lottery terminals or the 118 school districts with troopers working as school resource officers.

"We're not totally ceasing our responsibilities to provide service to those areas," said Sgt. Kern Swoboda, a state police spokesman.

"We're just not having dedicated personnel assigned to those locations."

There are 92 troopers and investigators posted at racinos from Yonkers to the Buffalo area that perform employee background checks and handle complaints.

Another 96 troopers are stationed at school districts to help maintain order.

A minority of New York's roughly 700 school districts use troopers for their school resource officers.

Districts can rely on local police or choose not to have one.

Spitzer wants to reassign those officers to Operation Impact, a law enforcement program targeting the 17 counties that report 80 percent of the crimes outside of New York City.

Given the state's fiscal constraints, Spitzer in his budget said state police will have to be moved from "lower-priority posts" to keep state crime rates decreasing.

Swoboda said the troopers would stay in schools through the end of this school year and that there was no timetable for moving officers from the racinos.

State police are working to make sure there are no gaps in public safety during the transition, he said.

Local police who would likely have to take up the slack are concerned, though.

Saratoga Springs Police Chief Ed Moore said he does not have the staff to replace the entire trooper contingent at Saratoga Racing and Gaming, a worry echoed by sheriffs with racinos in their counties.

"I have no one to put there, actually," said Tioga County Sheriff Gary Howard, who would have to take up the slack at Tioga Downs, west of Binghamton.

"We're stretched as far as we can go right now."

School officials also are worried about losing troopers, saying the officers handle issues ranging from harassment to education to cyber-bullying.

"It would be a huge loss for us," said Kelly DeFeciani, a spokeswoman for the Shenendehowa school district in suburban Saratoga County.

The schools could seek replacements from local police forces.

But Christy Multer of the Burnt Hills-Ballston Lake district near Albany said that would be difficult since the district spans two counties and four towns.

That means multiple police jurisdictions, she said.

"Could we get a local police officer to assist?" Multer asked.

"Sometimes yes and sometimes no."

"It depends what school it is."

"FBI probes 14 companies over home loans"

By ALAN ZIBEL, Associated Press

Last updated: 7:02 a.m., Wednesday, January 30, 2008

WASHINGTON -- The FBI on Tuesday said it is investigating 14 companies for possible accounting fraud, insider trading or other violations in connection with home loans made to risky borrowers.

Agency officials did not identify the companies under investigation but said the wide-ranging probe, which began in spring 2007, involves companies across the financial services industry, from mortgage lenders to investment banks that bundle home loans into securities sold to investors.

The Federal Bureau of Investigation is working in conjunction with the Securities and Exchange Commission on the corporate-fraud probe, said Neil Power, chief of the FBI's economic crimes unit in Washington.

As the nation's housing crisis worsens, there has been a dramatic spike in the number of mortgage fraud cases under investigation.

An agency spokesman said 1,210 such cases are open, up from roughly 800 a year ago.

The announcement comes weeks after authorities in New York and Connecticut said they are investigating whether Wall Street banks hid crucial information about high-risk loans bundled into securities sold to investors.

Power said the FBI is looking into the practices of so-called subprime lenders, as well as potential accounting fraud committed by financial firms that hold these loans on their books or securitize them and sell them to other investors.

Referring to certain unnamed bankrupt subprime lenders, Power said there are "some irregularities there that we're looking into," including the timing of stock sales by executives.

Dozens of subprime lenders have filed for bankruptcy in the past year, most prominently New Century Financial Corp.

"We're looking at the executives to see if they were committing insider trading," Power said.

Power also said law enforcement officials are looking at whether homebuilders manipulated financial statements to inflate revenues.

An SEC spokesman declined to comment.

The agency has said about three dozen investigations related to the mortgage market meltdown are ongoing.

Defaults on subprime loans have risen over the past 12 months and are primarily responsible for the credit crunch that has disrupted global financial markets.

Morgan Stanley, Goldman Sachs Group Inc. and Bear Stearns Cos. all disclosed in regulatory filings Tuesday that they are cooperating with requests for information from various, but unspecified, regulatory and government agencies.

Officials at the companies either declined to comment, or could not immediately be reached.

FBI officials also highlighted what they called a growing pattern of suspected mortgage loan fraud potentially committed when loans were made to shaky borrowers.

They cited a surge in "suspicious activity reports" that banks are required to file with the government.

The number of those reports is projected to rise to 60,000 this year after hitting 48,000 last year, up from about 7,000 in 2003.

"We're going to have to take a hard look at these things," said Assistant FBI Director Ken Kaiser.

Earlier this month, Connecticut Attorney General Richard Blumenthal said he and New York Attorney General Andrew Cuomo were looking whether banks properly disclosed the high risk of default on so-called "exception" loans -- considered even risker than subprime loans -- when selling those securities to investors.

In November, Cuomo said he issued subpoenas to government-sponsored mortgage companies Fannie Mae and Freddie Mac in his investigation into what he claims are conflicts of interest in the mortgage industry.

He said he wanted to know about billions of dollars of home loans they bought from banks, including the largest U.S. savings and loan, Washington Mutual Inc., and how appraisals were handled.

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Associated Press Writers Lara Jakes Jordan in Washington and Joe Bel Bruno in New York contributed to this report.