CBA Publications >> Members' Only Publications >> Current Events

Current Events - 11/26/2001

California’s State Fiscal Forecast is Stormy

California’s Legislative Analyst issued its forecast for the California State Budget on November 14th. (For a copy of the full report visit www.lao.ca.gov.) The report does not paint a pretty picture. It portends serious pressure on the legislature and governor to not only make drastic budget cuts but also to seek additional revenue sources (translation: consider raising taxes).

The Legislative Analyst Elizabeth Hill projects that California will end the current fiscal year (2001-02) with a deficit of $4.5 billion, compared to a $2.6 billion surplus assumed in this year’s budget. In other words, before consideration of next year’s budget, the state’s current fiscal assumptions are off by $7.1 billion. For 2002-03 the prospects are dimmer still. The forecast anticipates a deficit of $12.4 billion and this assumes, somewhat optimistically, that a fiscal recovery begins next spring. If recovery is delayed, another $4 billion could be added to next year’s funding gap.

Complicating the fiscal picture is the fact that the state is already in a cash flow crunch. Unless energy bonds are sold soon to replenish the General Fund for energy purchases on behalf of the utilities earlier this year, the state could be short some $4 billion in cash by April of next year.

Finally, although it is impossible to predict how this crisis will be resolved, rest assured that the fiscal issues will dominate the policy agenda for the next few months—complicated by the primary elections in March 2002.

Compromise on requirements for financial planners; retirement security passed

The House has passed H.R. 2269, the Retirement Security Advice Act, which will allow employers to provide their workers with access to professional advice in managing, for example, self-directed 401(k) and other retirement plans. During the process, an amendment was defeated that would have required that all investment advisors be licensed brokers or certified financial planners – a requirement with which many banks might have had difficulty complying. Under a compromise, banks will not need to have licensed individuals providing the advice so long as the advice is provided by trust or custody department employees who are accountable to state or federal regulators. Advisors will be subject to disclosure requirements that would include possible conflicts of interest. Companion legislation is progressing in the Senate.

Bowne withdraws as nominee for FHFB chairman, other nominees confirmed

Florida consultant Shirlee Bowne, a confidant of the President Bush’s brother decided, just the day before her confirmation hearing, to withdraw as the nominee to become chairman of the Federal Housing Finance Board (FHFB). Bowne’s term would have expired in 2004, while another Republican, John Korsmo, was nominated for a full seven-year term. Bowne was assured she would be re-nominated in 2004, but she questioned whether she would be confirmed in an election year, and opted not to sell her consulting business and move to Washington for just two years. To some in the White House, it sounded like Bowne had doubts about the president’s re-election prospects in 2004. Not so, said Bowne, but she withdrew.

Meanwhile, confirmation hearings were held for Korsmo, and two Democratic nominees, Franz Leichter and Allan Mendelowitz. None encountered any opposition, but serious questions were raised about the salaries of the regional Home Loan Bank presidents, and an FHFB measure that could result in a regulation authorizing individual institutions to belong to more than one regional bank. Several Senators complained that FHLB presidents, whose salaries were deregulated under a provision of the Gramm-Leach-Bliley Act, are being paid more than three times what Federal Reserve Bank presidents earn. Ranking Republican Senator Gramm delivered a scathing attack on the system itself, questioning its mission and calling the FHFB a “renegade agency” under its former chairman Bruce Morrison. Nonetheless, the three are expected to be confirmed easily by the Senate some time after Thanksgiving along with nominees to the Federal Reserve Board and Jim Gilleran, as Director of OTS. Meanwhile, Tim O’Neill will remain as FHFB chairman until a successor is named.

Conforming ceiling likely to exceed $300,000

Though we won’t know until after Thanksgiving, the 2002 Fannie –Freddie ceiling could top $300,000. The ceiling is determined by comparing the percentage sales rise in October to October price averages that are compiled by the Federal Housing Finance Board. So far this year, the month to month comparisons have averaged a little over 10 percent. The ceiling is currently at $275,000 and a 10 percent rise would send it above $300,000 next year.

The jumbo market has been enjoying one of its most robust years ever, given rising sales prices, robust sales and heavy refinancing. It represents close to 30 percent of the entire mortgage market. Agency critics have pointed to the ever-expanding base whereby even small percentage increases result in very substantial increases in the conforming ceiling as reason for concern that the agencies will soon be able to finance all but a tiny percentage of mortgages originated in the U.S. California’s realtors, meanwhile, are urging Congress to authorize separate, high cost ceilings in California which could push the ceiling up an additional $150,000.

Bankers Legislative Conference set for February 5-6

To best serve their constituents, it is necessary for legislators to hear directly from members of their communities on important issues. It is for this reason that CBA holds its annual Bankers Legislative Conference every winter. The BLC gives CBA members an opportunity to meet with legislators and their key staff members to discuss the issues that affect the banking industry and its customers. This event is integral to the growth and maintenance of CBA’s grassroots advocacy efforts. Included in this mailing is a reminder for the event, as well as a registration form on the reverse side of the flier. If you have any questions about the BLC, please contact either Cynthia DeOliver at 916/441-7377 ext. 201 or Mary Maybie at 916/441-7377 ext. 207.

CBA to accept American Express

In response to the many requests we have had from our members to accept American Express payments for sponsorships, registrations and other payments, CBA has begun accepting American Express payments.

ABA Community Bankers Council update

The ABA Community Bankers Council met last month to discuss issues and challenges facing community bankers. Rod Brown, President/CEO of Montecito Bank & Trust passes on to us the Council’s report and a cover letter from the California bankers whom CBA has asked to serve on this important ABA committee. See the insert in this week’s accompanying Monday Courier.