The great government fire sale is on

NEW YORK (AP) -- As 2010 drew to a close, the mayor of Newark, N.J., was staring into a budget abyss so deep that he sold 16 city buildings to pay the bills. They included the architecturally significant Newark Symphony Hall and the police and fire headquarters.

In New York, the transit authority may sell its Madison Avenue headquarters, complete with an underground tunnel connected to Grand Central Terminal and air rights to build a skyscraper on top.

And soon, if state legislators have their way, private investors will be able to buy plenty of other municipal treasures: power plants in Wisconsin, prisons in Louisiana and Ohio and municipal buildings in Boston.

The Great Government Tag Sale is on. As states and cities struggle with billions of dollars in shortfalls, elected officials are increasingly selling public assets to cover their costs. Sometimes municipalities sell the buildings to pocket a one-time pile of cash and then lease them back so they can continue to use them.

To proponents, selling government property is an efficient way to plug budget holes. That's one reason the Obama administration has looked at unloading office towers, courthouses, warehouses and shacks. Private owners who develop the properties can inject vibrancy into municipal dead zones, the thinking goes. Buildings that were once exempt from property taxes are put back on the rolls.

But to critics, these sales are as misguided as pulling money out of your house to pay your bills. They point out that the government is letting go of a long-term, valuable asset in exchange for a one-time payment. When the asset is a building, a municipality then has to spend more money on leasing it back or renting another facility.

"This is tantamount to selling the family china only to have to rent it back in order to eat dinner," says economist Yves Smith, author of the top-rated business blog Naked Capitalism.

The Desperate States of America, yes. But in some cases, politics is influencing policy. Selling state assets has long been a part of the conservative playbook, which calls for moving some of the traditional functions of government to the private sector. And in other instances, the deals are shaded by accusations of corruption.

In Wisconsin, the center of the state budget battles, legislators lobbied for the budget repair bill to allow politicians to sell any state-owned heating, cooling or power plant to anyone for any price at any time -- without public approval or a call for bids.

Critics of Republican Gov. Scott Walker charged that Koch Industries, an energy conglomerate that made a $43,000 donation to his campaign, the biggest from any corporation, might stand to benefit. Koch's head of government affairs, Philip Ellender, says the company was never interested in buying a state-owned power plant.

The provision was removed from the budget bill just before it passed. But it is expected to be taken up again later this year.

In many ways, it's the perfect time to market these deals as do-or-die propositions. Elected officials across the country say the ravages of the Great Recession have given them no choice, as evidenced by the escalating conflict between governments and the unions representing their employees.

Local and state governments made promises about their retirement benefits but often failed to set aside the money to make good on those promises. Now those governments say they simply can't afford them. Illinois' pension fund, for example, is only 45 percent paid for. Actuaries recommend 80 percent.

Years of wishful budgeting and fiscal gimmickry have finally caught up. The states' "ridiculous" budget and pension accounting would "make Enron blush," as Microsoft founder Bill Gates recently put it. For fiscal 2012, states face a $125 billion shortfall, according to the Center for Budget and Policy Priorities.

Elected leaders have already raided road-repair budgets and borrowed from emergency-service coffers. They've nabbed citizens' unclaimed checking account cash and sold future proceeds from lotteries. Detroit and Omaha just reduced the pensions of the police.

Now that other options have been exhausted, officials say that to avoid mammoth tax hikes -- or any tax hikes, in some cases -- they have no choice but to sell municipal assets.

In Newark, last year's $80 million budget deficit was the worst crisis of Mayor Cory Booker's career. He had already enacted what critics called savage cuts, from police officers to toilet paper. Booker's choices were a monstrous tax hike or selling the Brick City's bricks in exchange for $74 million. Newark will lease back the buildings for 20 years from their buyer, a public agency called the Essex County Improvement Authority, for a total cost of $125 million. "I would rather not have done it. I would rather have done something different," Booker says. "But it was done to meet the urgencies of the budget crisis."

Often, the public balks at these deals. In Britain last year, people practically took up pitchforks when the government, as a part of its austerity cure, announced plans to sell Sherwood Forest. The environment secretary backed off. "This is the second worst thing a government can do," says Jay Powell, a fellow at the Bipartisan Policy Institute. "The worst thing they can do is run out of money."

In the U.S., taxpayers screamed when New Jersey and Pennsylvania attempted to sell their turnpikes. Fresh in their minds were other deals that have ended in disaster.

In 2008, for example, Chicago Mayor Richard Daley auctioned off the city's 36,000 parking meters to a private investment group that included Morgan Stanley, the Abu Dhabi Investment Authority and the German-based insurance giant Allianz. Daley did it to balance the budget. The deal may cost Chicago drivers at least $11.6 billion over the next 75 years, 10 times what the system was sold for, according to Bloomberg News. Since the deal went through, Morgan Stanley has raised parking fees 42 percent. It now plans on stuffing more cars into fewer metered spaces by getting rid of marking lines, raising the number of metered slots and expanding the hours that require fees.

City auditors dubbed the parking deal "dubious" because the city's chief financial officer didn't calculate how much the system would be worth to the city over the long term. Despite the controversy in Chicago, New York is exploring private options for its parking spaces.

Not everyone is joining the fire-sale fray. In February, California's newly elected Gov. Jerry Brown torched a deal struck by his predecessor, Arnold Schwarzenegger, to sell 24 state buildings, including the San Francisco Civic Center and the Department of Education, for $2.3 billion. It was hugely unpopular, especially after The Associated Press reported that it would have cost the state $5.2 billion in rent over 20 years -- the equivalent of a long-term loan at 10 percent interest. Brown is now proposing to cover the gap with short-term loans.

Meanwhile, the budget collapses are so dire that some local pols are joking -- or seriously wondering -- whether they should legalize marijuana, rubdown parlors or brothels. Ohio is currently accepting bids from private operators for five prisons. The state might also charge inmates for electricity. In New York City, real estate agents are eagerly awaiting news about which buildings -- in the hipster haven of lower Manhattan -- the Bloomberg administration will unload as a part of its real-estate downsizing plan.

And in Naperville, Ill., the City Council is debating whether to give corporations the right to splash their logos on city property.

One proposed municipal sponsorship deal would enable Kentucky Fried Chicken to repair potholes and then advertise on them: "This pothole repair brought to you by Kentucky Fried Chicken."

Wal-Mart buying minority stake in Yihao

BENTONVILLE, Ark. (AP) -- Wal-Mart Stores Inc. is buying a minority stake in online company Yihaodian as it looks to tap into growing online sales in China.

Terms of the deal and the size of the stake were not disclosed.

Yihaodian sells groceries, consumer electronics, clothing and other items. The Chinese company was launched in July 2008 and has 2,000 workers.

Walmart had 328 stores in China as of Dec. 31, according to a regulatory filing.

"By investing in Yihaodian, we're continuing to establish a presence in this important e-commerce market, and are moving forward on fulfilling our aspiration of being the leading global multichannel retailer," Eduardo Castro-Wright, vice chairman of Wal-Mart Stores and CEO of Walmart Global eCommerce and Global Sourcing, said in a statement.

The deal is expected to close within 60 days, the world's biggest retailer said Friday.

Wal-Mart's overseas business, which includes China, Brazil, Japan, Mexico and other countries, made up approximately 26 percent of the company's revenue in fiscal 2011. Wal-Mart said China, Brazil and Mexico contributed some of the biggest sales increases for the period.

Wal-Mart has 8,986 stores in 15 countries. It is based in Bentonville, Ark.

Consumer inflation may be peaking, economists say

WASHINGTON (AP) -- After weeks of pain at the gas pump and the grocery store, the worst appears to be over.

Oil prices have fallen, with gas soon to follow. Demand for farm commodities, like the corn used in everything from cereal to soda, has dropped. And businesses remain slow to pass along higher costs because customers aren't getting raises and might walk away.

Inflation may be approaching its peak.

"I think the bulk of the big price increases are over," said Gus Faucher, an economist at Moody's Analytics.

Lower prices -- or at least a break in their steady rise -- will come as a big relief. Consumer prices rose 3.2 percent for the year ending in April, the most since October 2008. Higher food and gas prices drove the gains.

Excluding those two categories, prices rose 0.2 percent in April. They rose 1.3 percent over the past year, below what the Federal Reserve considers healthy. Economists study this figure, known as core inflation, because food and energy prices are volatile.

Some inflation can be healthy for the economy because it encourages people to spend and invest rather than sitting on their cash. More spending drives corporate growth, which makes businesses more likely to hire people.

Inflation was a much bigger concern in March. Oil prices were rising steadily because of the unrest in the Middle East. Some feared gas could reach $5 a gallon, leaving Americans much less money to spend on cars, appliances and vacations. That kind of drop in spending would squeeze corporate profits, delay hiring -- maybe even tip the economy back into recession.

But last week, oil prices sank by the most in two and half years. Americans drive less when gas prices get high enough, and concerns about slowing energy demand sent oil prices tumbling -- from $114 at the start of May to about $97 on Friday.

Now the nationwide average for gas has leveled off. On Friday it was just under $4 a gallon, where it's been for the past week. Many analysts say it could drop to $3.50 as soon as next month.

The prices of milk, bread and chicken won't fall as fast -- it could take six months or longer, analysts say -- but they could decline by the end of the year. That's because the price of corn and other grains have fallen. Overseas ranchers are using less corn for feed, and U.S. farmers have planted more.

Food prices had risen in March at the fastest rate in three years.

Changes in grain and corn prices take longer to filter down to grocery stores than changes in oil prices do to the gas pump. That's because grains and other commodities represent a smaller fraction of food costs in the U.S than in other countries. By contrast, oil prices are the biggest factor in the cost of gas.

There was evidence in Friday's government report on consumer prices that food inflation will slow by year's end. Gas prices rose 3.3 percent in April, a steep rise but the smallest since November. Food costs rose 0.4 percent, half as fast as in March.

Gas accounted for about half of overall inflation in April. So a decline in the price of oil should hold down the increase in consumer prices for May.

Slower inflation would leave Americans with more money to spend to stimulate the economy, including keeping more of a cut in Social Security taxes that took effect in January. Economists expect the increased spending to raise overall economic growth to an annual rate of 3 percent in the second half of this year. In the first three months of this year, it was 1.8 percent.

The oil price drop should bring prices down for a range of products, including chemicals, plastics, even roofing materials. Higher diesel fuels had contributed, for example, to a sharp increase in commodity costs for Procter & Gamble. In response, the company raised prices for Gillette razors, Duracell batteries and Bounty paper towels.

Falling corn prices should also help. Corn is widely used as an animal feed, so when it became more expensive, meat and dairy prices went up, too. Corn is also used in sweeteners for soft drinks and snacks, so those could become less expensive.

Prices of corn, wheat and other grains jumped last summer after bad weather damaged harvests in countries from Russia to Australia to Brazil. Demand for corn from producers of ethanol, a corn-based fuel, also rose. The price of a bushel of corn reached a record high of $7.76 on April 11.

But supply worries have since eased. An Agriculture Department report this week predicted that U.S. corn supplies will rise later this year, based on the drop in demand overseas and the larger crop expected next year. They had earlier been forecast to fall.

Demand from fast-growing developing countries such as China and India may also slow as their central banks raise interest rates to try to slow inflation. That should also slow their growth and, in turn, may cool their demand for commodities.

It takes about six months for changes in commodity prices to affect consumers. Consumer food prices didn't start to increase until January, well after commodity costs began rising last summer.

Analysts also say many companies were slow to pass along those increases for fear of spooking price-sensitive shoppers. Wage growth has been weak. Average hourly pay rose an anemic 1.9 percent in the last 12 months, less than the rate of inflation.

Some companies probably won't lower prices much, if at all. Airlines, for example, lost money because of the steady rise in the price of oil. If you bought a plane ticket three months ahead of time, your flight was much more expensive for the airline when you flew than when you bought.

"They will resist any pressures to reduce fares or fuel surcharges," says independent airline analyst Robert Mann.

The average price of a round-trip ticket during the first three months of this year was $341 before taxes. That was up 10 percent from the same period last year. Airlines paid 27 percent more for fuel from January through March than they did a year earlier.

But there will be relief in the prices of other things. The cost of new and used cars rose in April, but some of those increases were related to temporary parts shortages caused by the earthquake and nuclear disaster in Japan.

Inflation will remain a risk. Commodity prices are volatile and subject to global turmoil. As recently as last winter, economists were worried that inflation was too low. In October, the core price index had risen only 0.6 percent in a year, and the Fed expressed concern about the risk of falling prices.