Student loan delinquency rate is increasing

More people borrowing for education are failing to pay off their loans.

Almost a third of student-loan borrowers in repayment were delinquent at the end of last year, up from about a quarter in 2008 and 20% in 2004, according to a report on household debt and credit released Thursday by the Federal Reserve Bank of New York.

The amount of educational debt, which includes federally backed and private loans taken out by students and parents, has almost tripled in the last eight years to $966 billion, the bank said. With costs to attend college continuing to outpace the inflation rate, more borrowers are struggling to pay. That makes it harder for people, especially those ages 25 to 30, to secure other types of credit, including home mortgages.

"Student loan debt is the only kind of household debt that continued to rise during the Great Recession and has now the second-largest balance after mortgage debt," wrote Donghoon Lee, an economist at the New York Fed. "With delinquent student debt, mortgage origination is very difficult."

The New York Fed report is based on a sample of data provided by the credit bureau Equifax Inc. and examines borrowers' current debt. It doesn't measure how much was taken out at origination.

About 44% of student loan borrowers aren't repaying their loans because of deferments, forbearance or continued schooling.

Delinquency rates in 2012 were highest among borrowers younger than 30 who are repaying their loans. Thirty-five percent were 90 or more days behind, compared with 21% in 2004.

The Fed also reports on the share of all borrowers who are delinquent 90 days or more, including those in deferral, forbearance or still in school. That rate is 16% for those younger than 30, up from almost 8% in 2004.

As more people attend college, the average educational loan balance and the numbers of borrowers and delinquencies are increasing. The number of student-loan borrowers was almost 39 million in 2012, up 70% from about 23 million in 2004. The average borrower's balance in 2012 was $24,700, compared with $15,308 eight years earlier.

Total student-loan debt in the fourth quarter was $966 billion, up $10 billion from the previous quarter, according to the New York Fed. The federal Consumer Financial Protection Bureau put the number at $1 trillion last year.

Read More..

Race for L.A. city controller heats up

A previously low-profile race for Los Angeles city controller has begun to heat up as opponents of City Councilman Dennis Zine accuse him of "double dipping" the city's payroll and question why he is considering lucrative tax breaks for a Warner Center developer.

Zine, who for 12 years has represented a district in the southeast San Fernando Valley, is the better known of the major candidates competing to replace outgoing Controller Wendy Greuel.

The others are Cary Brazeman, a marketing executive, and lawyer Ron Galperin. Zine has raised $766,000 for his campaign, more than double that of Galperin, the next-highest fundraiser, and has the backing of several of the city's powerful labor unions.

L.A. ELECTIONS 2013: Sign up for our email newsletter

He also has been endorsed by Mayor Antonio Villaraigosa and several of his council colleagues. Galperin is backed by the Service Employees International Union, one the city's largest labor groups, and Brazeman is supported by retired Rep. Diane Watson and several neighborhood council representatives.

With the primary ballot less than a week away, Brazeman and Galperin have turned up the heat on Zine, hoping to push the race beyond the March 5 vote. If no one wins more than 50% of the ballots cast, the top two vote-getters will face a runoff in the May general election.

In a recent debate, Zine's opponents criticized him for receiving a $100,000 annual pension for his 33 years with the Los Angeles Police Department and a nearly $180,000 council salary. Brazeman and Galperin called it an example of "double dipping" that should be eliminated.

That brought a forceful response from Zine, who shot back that he gives a big portion of his police pension check to charities.

"I am so tired of hearing 'double dipping,' " he said. "I worked 33 years on the streets of Los Angeles. I have given over $300,000 to nonprofits that need it.... That's what's happened with that pension."

In the same debate, Brazeman accused Zine of cozying up to a Warner Center developer by pushing for tax breaks on a project that already has been approved. The nearly 30-acre Village at Westfield Topanga project would add 1 million square feet of new shops, restaurants, office space and a hotel to a faded commercial district on Topanga Canyon Boulevard.

"The councilman proposed to give developers at Warner Center tens of millions of dollars in tax breaks even though it's a highly successful project," he said. "He wants to give it away."

City records show that less than a month after the development was approved in February 2012, Zine asked the council for a study looking at possible "economic development incentives" that could be given to Westfield in return for speeding up street and landscaping enhancements to the project's exterior.

The motion's language notes that similar tax breaks have been awarded to large projects in the Hollywood and downtown areas, and that "similar public investment in the Valley has been lacking." Westfield is paying for the $200,000 study.

Zine defended his decision before the debate audience, saying if the study finds that the city will not benefit, no tax breaks will be awarded. "If there's nothing there, then they get nothing," Zine said.

The controller serves as a public watchdog over the city's $7.3-billion annual operation, auditing the general fund, 500 special fund accounts and the performance of city departments. Those audits often produce recommendations for reducing waste, fraud and abuse.

But the mayor and the council are not obligated to adopt those recommendations, and as a result the job is part accountant, part scolder in chief. All the candidates say they will use their elective position not only to perform audits but also to turn them into action.

Their challenge during the campaign has been explaining how they will do that.

Zine, 65, says his City Hall experience has taught him how to get things done by working with his colleagues. He won't be afraid to publicly criticize department managers, he said, but thinks collaboration works better than being combative.

"You can rant and rave and people won't work with you," he said. "Or you can sit down and talk it out, and you can accomplish things."

Galperin, 49, considers himself a policy wonk who relishes digging into the details to come up with ways to become more efficient with limited dollars and to find ways to raise revenue using the city's sprawling assets. For instance, the city owns two asphalt plants that could expand production and sell some of its material to raise money to fix potholes, he said.

He's served on two city commissions, including one that found millions of dollars in savings by detailing ways to be more efficient. Zine is positioning himself as a "tough guy for tough times," but the controller should be more than that, Galperin said.

"What we really need is some thoughtfulness and some smarts and some effectiveness," he said. "Just getting up there and saying we need to be tough is not going to accomplish what needs to be done."

Brazeman, 46, started his own marketing and public relations firm in West Los Angeles a decade ago and became active in city politics over his discontent with a development project near his home. He has pushed the council to change several initiatives over the last five years, including changes to the financing of the Farmers Field stadium proposal that will save taxpayer dollars, he said.

As controller, he would pick and choose his battles, and, Brazeman said, be "the right combination of constructive, abrasive and assertive."

catherine.saillant@latimes.com

Read More..

Lawyer says Lohan committed to turning life around

LOS ANGELES (AP) — Lindsay Lohan is committed to turning her life around and wants to record public service announcements on the dangers of domestic violence, alcohol abuse and drunken driving, her attorney said Wednesday.

Mark Heller told The Associated Press that the actress' plans are independent of a criminal case that could return her to jail on charges that she lied to police about being a passenger in her car when it slammed into a dump truck in June.

The "Liz & Dick" star has been repeatedly sentenced to jail, rehab, and community service since her first pair of arrests for driving under the influence in 2007. She spent several months in court-ordered psychotherapy until a judge released her from supervised probation in March 2012.

As part of the intense psychotherapy sessions, Lohan is in the beginning stages of trying to become an inspirational speaker to young people, he said.

"I think she suddenly woke up one morning and had an epiphany and she suddenly realized and appreciated the seriousness of the events that led to her being in court," Heller said.

"She's going to try to inspire hope in people," he said. "I think it will be good for her. It certainly won't hurt others."

Heller mentioned Lohan's intent to become an inspirational speaker in a letter to prosecutors and a judge that was obtained Tuesday. He said he will meet with prosecutors on Friday to try to reach a resolution in Lohan's newest case, which includes misdemeanor charges of reckless driving and obstructing officers from performing their duties.

She has pleaded not guilty. Lohan, 26, was on probation at the time of the crash and faces up to 245 days in jail if a judge determines her conduct violated her probation in a 2011 necklace theft case.

Officers suspected alcohol might have been involved in the June accident on Pacific Coast Highway, but the actress passed sobriety tests at a hospital and she was never charged with driving under the influence.

Santa Monica police Sgt. Richard Lewis said officers did not give Lohan a field sobriety test at the accident scene because she and her assistant were injured in the crash and were taken to a nearby hospital. While officers could not rule out that Lohan might have been drinking, he noted that she did not show signs of impairment.

Celebrity web site TMZ, citing anonymous sources, reported Wednesday that a bottle of alcohol was found next to Lohan's sports car after the crash. Lewis said he could not discuss evidence in the case, but noted that the actress was not charged with drunken driving.

Heller wrote in a motion filed last week that officers found a bottle that they initially thought was urine, but might have contained wine. His filing, which seeks a delay or dismissal of charges against the actress, states that "upon information and belief" the bottle's contents were never tested.

Lohan's case returns to court on Friday, although the actress is not required to attend.

Heller is asking a judge to dismiss the case against Lohan because officers ignored the actress' request to talk to her attorney before being interviewed, court records show. He said he is prepared to defend Lohan at trial if necessary, but is hoping a deal can be worked out. He is seeking a delay in the case to have time to prepare and allow Lohan to demonstrate she is improving her life.

Threats from judges and jail sentences that are invariably cut short because of overcrowding haven't helped Lohan, Heller said. "None of it really brought closure to this predicament that led to this most recent event."

___

Anthony McCartney can be reached at http://twitter.com/mccartneyAP

Read More..

Global Health: After Measles Success, Rwanda to Get Rubella Vaccine

Rwanda has been so successful at fighting measles that next month it will be the first country to get donor support to move to the next stage — fighting rubella too.

On March 11, it will hold a nationwide three-day vaccination campaign with a combined measles-rubella vaccine, hoping to reach nearly five million children up to age 14. It will then integrate the dual vaccine into its national health service.

Rwanda can do so “because they’ve done such a good job on measles,” said Christine McNab, a spokeswoman for the Measles and Rubella Initiative. M.R.I. helped pay for previous vaccination campaigns in the country and the GAVI Alliance is helping to finance the upcoming one.

Rubella, also called German measles, causes a rash that is very similar to the measles rash, making it hard for health workers to tell the difference.

Rubella is generally mild, even in children, but in pregnant women, it can kill the fetus or cause serious birth defects, including blindness, deafness, mental retardation and chronic heart damage.

Ms. McNab said that Rwanda had proved that it can suppress measles and identify rubella, and it would benefit from the newer, more expensive vaccine.

The dual vaccine costs twice as much — 52 cents a dose at Unicef prices, compared with 24 cents for measles alone. (The MMR vaccine that American children get, which also contains a vaccine against mumps, costs Unicef $1.)

More than 90 percent of Rwandan children now are vaccinated twice against measles, and cases have been near zero since 2007.

The tiny country, which was convulsed by Hutu-Tutsi genocide in 1994, is now leading the way in Africa in delivering medical care to its citizens, Ms. McNab said. Three years ago, it was the first African country to introduce shots against human papilloma virus, or HPV, which causes cervical cancer.

In wealthy countries, measles kills a small number of children — usually those whose parents decline vaccination. But in poor countries, measles is a major killer of malnourished infants. Around the world, the initiative estimates, about 158,000 children die of it each year, or about 430 a day.

Every year, an estimated 112,000 children, mostly in Africa, South Asia and the Pacific islands, are born with handicaps caused by their mothers’ rubella infection.

Thanks in part to the initiative — which until last year was known just as the Measles Initiative — measles deaths among children have declined 71 percent since 2000. The initiative is a partnership of many health agencies, vaccine companies, donors and others, but is led by the American Red Cross, the United Nations Foundation, the Centers for Disease Control and Prevention, Unicef and the World Health Organization.

This article has been revised to reflect the following correction:

Correction: February 27, 2013

An earlier version of this article misstated the source of the vaccine and some financing for the campaign. The vaccine and financing is being provided by the GAVI Alliance, not the Measles and Rubella Initiative.

Read More..

Island Air is Ellison's latest buy

How do you follow the purchase of an island in Hawaii?

If you're Oracle Chief Executive Larry Ellison, you buy an airline so you can hop to and from your tropical paradise.

Ellison has been on a shopping spree lately, buying 98% of the island of Lanai in June from Los Angeles billionaire David Murdock and then, in November, buying a beachfront Malibu home from film and TV producer Jerry Bruckheimer.

Ellison's most risky acquisition may be Island Air, which he bought Wednesday through a holding company.

The exact purchase prices of Ellison's recent deals have not been disclosed, but local observers value the 141-square-mile island at more than $500 million and the three-bedroom, three-bath Malibu pad at more than $3.65 million. The details of the airline deal were not announced.

Island Air, a regional carrier serving airports on all major Hawaiian islands, has 245 employees and three turboprop planes, with 224 weekly flights between the islands of Oahu, Maui, Molokai, Lanai and Kauai.

Lanai, the sixth-largest Hawaiian island, was once a pineapple plantation and is still sparsely inhabited. It includes two resort hotels and two golf courses with clubhouses, according to Hawaii's Public Utilities Commission.

But Ellison did not buy the airline just to get to and from his island, airline officials say.

He hopes to expand the businesses to serve locals visiting relatives on the islands and to fly mainland and foreign tourists throughout the island state, airline officials said. The airline plans to retire two 1980s-era planes and expand to four or five new ATR 72 turboprops by the end of the year.

But Ellison should not get his hopes up about pocketing big profits, said Ray Neidl, an aviation analyst for Nexa Capital Partners in Washington, D.C.

"It's a high-risk situation with no significant margins, at least initially," he said of owning an airline.

And if Ellison hopes to expand the business, he should expect to get some resistance from the big carrier on the island, Hawaiian Airlines, Neidl added. "It really depends on what Hawaiian does."

Island Air began in 1980 as Princeville Airways, carrying passengers from Kauai to Honolulu. The history of the carrier has not always been blue skies and soft landings.

"In our 30-plus years, we had our ups and downs, pardon the pun," said Michael Rodyniuk, a senior consultant to the airline.

Like most airlines across the country, he said, Island Air struggled during the economic turmoil between 2008 and 2012 but expects to thrive with a surge in tourism that Hawaii has been enjoying in the past year or so.

The state welcomed a record 8 million visitors in 2012, surpassing the previous high of 7.6 million visitors in 2006.

"All major markets are up," Rodyniuk said.

The previous owner of the airline, California businessman Charles Willis IV, had been looking for a buyer for the airline and had put all 245 employees on notice that layoffs could begin as soon as March 11 if a buyer was not found, he said. "So Mr. Ellison saved 245 jobs," Rodyniuk said.

Forbes ranks Ellison as the third-richest American, with a net worth of $36 billion. He has cut big checks in the past on high-priced properties in Malibu, Lake Tahoe, Rancho Mirage and other locations.

But unlike real estate, air carriers are an investment that can give investors nightmares.

Virgin America, a California-based airline partly owned by millionaire Richard Branson, has been operating for more than five years without recording a profitable year.

California Pacific Airlines is the brainchild of Encinitas businessman Ted Vallas, who has already invested more than $6 million of his own money but has spent the last year trying to clear federal red tape so he can begin selling tickets.

And then there are the 11 other airlines — including American, Delta, United and US Airways — that have filed for bankruptcy since 2000.

"The profit margins on airlines, even though they are improving, are not that attractive," Neidl said.

hugo.martin@latimes.com

Read More..

Tribune Co. hires advisors to explore sale of newspaper unit

Tribune Co. has hired investment bankers to advise the media company on the potential sale of its newspaper publishing unit.

The company announced that it has retained JPMorgan Chase & Co. and Evercore Partners to assess whether to sell the division that includes the Los Angeles Times, Chicago Tribune and six other daily newspapers.

The bankers will analyze bids from suitors, but their hiring does not necessarily mean that the assets would be sold.

"There is a lot of interest in our newspapers, which we haven't solicited," Gary Weitman, a Tribune spokesman, said in a statement. "Hiring outside financial advisors will help us determine whether that interest is credible, allow us to consider all of our options, and fulfill our fiduciary responsibility to our shareholders and employees."

Tribune hopes to sell the newspaper group intact instead of selling each paper individually, according to a person familiar with the matter.

The Chicago company has a healthy balance sheet and doesn't feel financial pressure to sell the properties, according to the person. It's unclear how long the process could take.

There has been widespread speculation that Tribune would attempt to unload the newspaper business to focus on its more promising television operations. Rupert Murdoch's News Corp. is among the possible bidders for the newspaper assets.

Tribune emerged from its four-year bankruptcy at the end of 2012 and appointed broadcasting veteran Peter Liguori as chief executive in January.

JPMorgan Chase holds an ownership stake in Tribune.

Evercore Partners, a boutique investment bank, also is working for the parent company of the New York Times on its planned divestiture of the Boston Globe.

walter.hamilton@latimes.com

andrew.tangel@latimes.com

Read More..

Bobby Brown sentenced to 55 days in jail for DUI

LOS ANGELES (AP) — Bobby Brown has been sentenced to 55 days in a Los Angeles jail and four years of probation for a drunken driving case.

City attorney's spokesman Frank Mateljan (mah-tell-JIN') says Brown was sentenced Tuesday after pleading no contest to charges he was under the influence and driving on a suspended license when he was arrested in October.

Brown was on probation for another DUI case at the time.

The 44-year-old "New Edition" singer was ordered to report to jail March 20. He also was placed on four years of informal probation and will be required to complete an 18-month alcohol treatment program.

Brown's attorney Tiffany Feder had no immediate comment on the sentence.

The sentence was first reported by celebrity website TMZ.

Read More..

Advanced Breast Cancer May Be Rising Among Young Women, Study Finds

The incidence of advanced breast cancer among younger women, ages 25 to 39, may have increased slightly over the last three decades, according to a study released Tuesday.

But more research is needed to verify the finding, which was based on an analysis of statistics, the study’s authors said. They do not know what may have caused the apparent increase.

Some outside experts questioned whether the increase was real, and expressed concerns that the report would frighten women needlessly.

The study, published in The Journal of the American Medical Association, found that advanced cases climbed to 2.9 per 100,000 younger women in 2009, from 1.53 per 100,000 women in 1976 — an increase of 1.37 cases per 100,000 women in 34 years. The totals were about 250 such cases per year in the mid-1970s, and more than 800 per year in 2009.

Though small, the increase was statistically significant, and the researchers said it was worrisome because it involved cancer that had already spread to organs like the liver or lungs by the time it was diagnosed, which greatly diminishes the odds of survival.

For now, the only advice the researchers can offer to young women is to see a doctor quickly if they notice lumps, pain or other changes in the breast, and not to assume that they cannot have breast cancer because they are young and healthy, or have no family history of the disease.

“Breast cancer can and does occur in younger women,” said Dr. Rebecca H. Johnson, the first author of the study and medical director of the adolescent and young adult oncology program at Seattle Children’s Hospital.

But Dr. Johnson noted that there is no evidence that screening helps younger women who have an average risk for the disease and no symptoms. “We’re certainly not advocating that young women get mammography at an earlier age than is generally specified,” she said.

Expert groups differ about when screening should begin; some say at age 40, others 50.

Breast cancer is not common in younger women; only 1.8 percent of all cases are diagnosed in women from 20 to 34, and 10 percent in women from 35 to 44. However, when it does occur, the disease tends to be more deadly in younger women than in older ones. Researchers are not sure why.

The researchers analyzed data from SEER, a program run by the National Cancer Institute to collect cancer statistics on 28 percent of the population of the United States. The study also used data from the past when SEER was smaller.

The study is based on information from 936,497 women who had breast cancer from 1976 to 2009. Of those, 53,502 were 25 to 39 years old, including 3,438 who had advanced breast cancer, also called metastatic or distant disease.

Younger women were the only ones in whom metastatic disease seemed to have increased, the researchers found.

Dr. Archie Bleyer, a clinical research professor in radiation medicine at the Knight Cancer Institute at the Oregon Health and Science University in Portland who helped write the study, said scientists needed to verify the increase in advanced breast cancer in young women in the United States and find out whether it is occurring in other developed Western countries. “This is the first report of this kind,” he said, adding that researchers had already asked colleagues in Canada to analyze data there.

“We need this to be sure ourselves about this potentially concerning, almost alarming trend,” Dr. Bleyer said. “Then and only then are we really worried about what is the cause, because we’ve got to be sure it’s real.”

Dr. Johnson said her own experience led her to look into the statistics on the disease in young women. She had breast cancer when she was 27; she is now 44. Over the years, friends and colleagues often referred young women with the disease to her for advice.

“It just struck me how many of those people there were,” she said.

Dr. Donald A. Berry, an expert on breast cancer data and a professor of biostatistics at the University of Texas’ M. D. Anderson Cancer Center in Houston, said he was dubious about the finding, even though it was statistically significant, because the size of the apparent increase was so small — 1.37 cases per 100,000 women, over the course of 30 years.

More screening and more precise tests to identify the stage of cancer at the time of diagnosis might account for the increase, he said.

“Not many women aged 25 to 39 get screened, but some do, but it only takes a few to account for a notable increase from one in 100,000,” Dr. Berry said.

Dr. Silvia C. Formenti, a breast cancer expert and the chairwoman of radiation oncology at New York University Langone Medical Center, questioned the study in part because although it found an increased incidence of advanced disease, it did not find the accompanying increase in deaths that would be expected.

A spokeswoman for an advocacy group for young women with breast cancer, Young Survival Coalition, said the organization also wondered whether improved diagnostic and staging tests might explain all or part of the increase.

“We’re looking at this data with caution,” said the spokeswoman, Michelle Esser. “We don’t want to invite panic or alarm.”

She said it was important to note that the findings applied only to women who had metastatic disease at the time of diagnosis, and did not imply that women who already had early-stage cancer faced an increased risk of advanced disease.

Dr. J. Leonard Lichtenfeld
, deputy chief medical officer of the American Cancer Society, said he and an epidemiologist for the society thought the increase was real.

“We want to make sure this is not oversold or that people suddenly get very frightened that we have a huge problem,” Dr. Lichtenfeld said. “We don’t. But we are concerned that over time, we might have a more serious problem than we have today.”

Read More..

Bernanke urges Congress to avoid spending cuts

WASHINGTON — Federal Reserve Chairman Ben S. Bernanke urged Congress to avert the new spending cuts set to begin Friday, saying they not only are bad for the economy but fail to deal with the underlying problems of the nation's long-term debt.

"You've made progress in the very near term as far as the budget is concerned," Bernanke told members of the Senate on Tuesday, referring to measures now in place that are expected to reduce the government's red ink for the next several years.

"Where the problem still remains unaddressed is in the longer term. And so it doesn't quite match to be doing tough policies today when the real problem is a somewhat longer-term problem."

At the same time, the Fed chief laid out a case for why the central bank should keep priming the economy with monetary stimulus — despite dissent from within and concerns from outside that the Fed's easy-money policies may be doing more harm than good.

Critics said the Fed was encouraging excessive risk-taking and sowing seeds of future inflation.

In his semiannual testimony to Congress on monetary policy and the economy, Bernanke said the Fed's bond-buying and other efforts to hold down interest rates had helped the housing market and car sales.

The Fed should continue those policies given the weak job market and low rate of inflation, he said, noting that he didn't see much evidence of a stock market bubble.

Diane Swonk, chief economist at Mesirow Financial in Chicago, said of Bernanke's testimony, "Those worried that the Fed may end large-scale asset purchases prematurely should be reassured."

Bernanke's remarks cheered Wall Street as investors and analysts concluded that the Fed's campaign to stimulate economic growth was unlikely to be slowed or halted any time soon.

The Dow Jones industrial average rose 115.96 points, or 0.84%, to close at 13,900.13 on Tuesday. That recouped about half the losses the Dow suffered Monday after the Italian election results reignited worries about the Eurozone debt crisis and unsettled financial markets around the world.

Bernanke also pushed back against accusations that he was soft on inflation.

Responding to Sen. Bob Corker (R-Tenn.), who called Bernanke the "biggest dove" on inflation "since World War II," Bernanke said "my inflation record is the best of any Federal Reserve chairman in the postwar period, or at least one of the best, about 2% average inflation."

The record of the Bernanke years has been notably less stellar on unemployment. The Fed has a dual mandate — to control inflation and to maximize employment. Liberal critics have said Bernanke has done too little to stimulate the economy to bring unemployment down, even as conservatives have accused him of doing too much.

In his testimony, Bernanke repeated his oft-stated concerns about the hardships of millions of unemployed people, particularly those without work for more than six months. He also rebutted the complaint that the Fed's efforts to tackle the nation's high jobless rate have hurt savers, especially seniors, by keeping interest rates at record-low levels.

"The only way to get interest rates up for savers is to get a strong recovery. And the only way to get a strong recovery is to provide adequate support to the recovery," he said.

Right now, that recovery continues at a moderate pace, Bernanke said. He described the flattening of growth in the fourth quarter last year as a "pause" and said "available information suggests that economic growth has picked up again this year."

Although the Fed's stimulus programs drew considerable attention in the two-hour hearing, lawmakers were largely focused on their own problems, most notably the automatic spending cuts that are set to start taking effect Friday.

Several pressed Bernanke for his opinion on whether the economy would be better off with a more targeted round of budget cuts instead of the across-the-board effects of the so-called sequestration.

A more "thoughtful approach" would be better, Bernanke said. But he noted that in the short term, the "effect on growth would probably not be substantially different" if smarter budget cuts were put in place.

The basic problem is that any cut the size of the one planned — about $85 billion this year — probably would reduce economic growth, Bernanke said. He agreed with the Congressional Budget Office's estimate that the budget cuts would slice a sizable 0.6 percentage point from economic growth this year.

Combined with other deficit-reduction policies that already have been put into place, the budget changes are likely to slow economic growth by 1.5 percentage points this year, a significant figure given that the economy has been growing on average just over 2% a year.

"I am not in any way denying the importance of long-run fiscal stability," Bernanke said. "I just think that to some extent, the fiscal policy decisions being made are mismatched with the timing of the problem. The problem is a longer-term problem and should be addressed over a longer time frame."

don.lee@latimes.com

Read More..

California braces for impending cuts from federal sequestration

California's defense industry is bracing for a $3.2-billion hit with the federal budget cuts that are expected to take effect Friday.

But myriad other federally funded programs also are threatened, and the combined effect is expected to slow the momentum that California's economy has been building over the last year.

As the state braces for pain from so-called sequestration, there are warnings of long delays at airport security checkpoints, potential slowdowns in cargo movement at harbors and cutbacks to programs, including meals for seniors and projects to combat neighborhood blight.

Despite the grim scenarios from local and state officials, economists say the cuts' overall blow to the economy would be modest, felt more acutely in regions such as defense-heavy San Diego and by Californians dependent on federal programs, such as college students who rely on work-study jobs to pay for school.

Critics say the cuts come at an inopportune time because the economic recovery in the U.S. and California is still weak.

"We need stimulus, not premature austerity," Gov. Jerry Brown said during a break at the National Governors Assn. meeting in Washington.

Rep. John Campbell (R-Irvine) contends that critics of the cuts are exaggerating the effects.

"If we can't do this, what can we do" to reduce Washington's red ink, he asked. "We ought to be panicked about the day when people won't buy our debt anymore because we borrowed too much."

If automatic spending cuts occur as planned, the growth in the country's gross domestic product is likely to slow by 0.4 percentage points this year, from about 2% to 1.6%, economists said.

California's GDP would see a similar slowdown. The state stands to lose as much as $10 billion in federal funding this year, according to Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto.

Levy said the more than $1 trillion in cuts planned over the next decade include "items in the federal budget that invest for the future," such as support for research and clean energy, that particularly affect California because of its "innovation economy."

The ripple effects the cuts might have on business and consumer confidence — which would further dampen economic activity — remain to be seen, said Jason Sisney, a deputy at the state's nonpartisan Legislative Analyst's Office.

"We're at a point where gains in housing and construction markets have begun to take hold," Sisney said. "A slowdown from sequestration would come at just the moment that the economy was beginning to right itself."

Jerry Nickelsburg, a UCLA economist who writes a quarterly economic forecast on the Golden State, said the state's recent economic gains would provide a buffer against sequestration.

"California can absorb it," Nickelsburg said. "Will it slow economic growth? The answer is yes. Will it result in negative economic growth? I think the answer is no."

Los Angeles officials project that the city would lose more than $100 million at a time when they're struggling to close a hole in the city's budget.

Douglas Guthrie, chief executive of the Los Angeles city housing authority, said Monday that rent subsidies to as many as 15,000 low-income families would be cut an average $200 a month, forcing many families to search for less expensive housing. His agency also might face as many as 80 layoffs in an already reduced workforce.

But Guthrie said in a letter to the Los Angeles City Council that the housing authority must plan for the "painful consequences" of the federal budget cuts and is preparing to send warning notices to participants in the housing assistance program "as soon as we see that the cuts are made and there are no immediate prospects to resolve the budget crisis."

At Yosemite National Park, snow plowing of a key route over the Sierra would be delayed, ranger-led programs are likely to be reduced and the park would face "less frequent trash pickup, loss of campground staff, and reduced focus on food storage violations, all of which contribute to visitor safety concerns and increased bear mortality rates," according to the National Park Service.

Some programs, such as Social Security, would be spared from the $85 billion in cuts nationwide due to kick in Friday. But defense programs are expected to be cut by about 13% for the remainder of the fiscal year and domestic spending by about 9%, according to the White House budget office.

The Obama administration sought Monday to highlight the effects close to home in an effort to step up the pressure on Congress to replace across-the-board cuts with more targeted reductions and new tax revenue collected from taxpayers earning more than $1 million a year.

The Los Angeles Unified School District is bracing for a loss of $37 million a year in federal funding. Supt. John Deasy said Monday that he is sending a letter to the California congressional delegation warning about the "potential very grave impact" of the cuts on Los Angeles schools.

Rachelle Pastor Arizmendi, director of early childhood education at the Pacific Asian Consortium for Employment in Los Angeles, said she anticipated that the cuts would cost her agency $980,000 in federal Head Start funding. That would force PACE to eliminate preschool for about 120 children ages 3 to 5.

"It's not just a number," she said. "This is closing down classrooms. This is putting our children behind when they're going to kindergarten."

The nonprofit serves about 2,000 children, providing most of them two meals a day in addition to preschool education. The cuts would mean PACE would have to lay off four of its 20 teachers, forcing the closure of eight Head Start classrooms, Arizmendi said.

ricardo.lopez2@latimes.com

richard.simon@latimes.com

Lopez reported from Los Angeles and Simon from Washington. Times staff writer Jim Puzzanghera in Washington contributed to this report.

Read More..