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Your Money
No Using Strategic Petroleum Reserve; Foreclosures Still on the Rise; State Budget Shortfalls Rising
Aired July 27, 2008 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FREDRICKA WHITFIELD, CNN CENTER: And of course if you missed any of CNN's groundbreaking documentary "Black in America" you can see the whole show this weekend, tonight at 8:00 and 10:00 p.m. Eastern. It's your opportunity to see the documentary. Everyone is talking about "Black in America."
And YOUR MONEY is coming up next but first a look at the top stories.
Seventeen explosions in just over an hour rock one town in India, up to 20 killed, dozens injured. One explosion occurred at a bus stop. Another one went off in a car and yet another was actually on a bicycle. And a special session of the U.S. Senate, a short time ago, passed a multibillion dollar housing bill aimed at keeping homeowners out of foreclosure the vote 72-13. President Bush has said that he will sign it. Barack Obama now heading home ending his trip to Europe and the Middle East. He met with Britain's Prime Minister this morning as the Democratic presumptive candidate for the presidency of the United States. Obama defended the overseas trip, saying, it was important because many issues Americans face at home can only be solved with the help of strong partners abroad.
And Republican Presidential Candidate John McCain saying, in his radio address today, that he's feeling a little left out by all the "breathless coverage of Obama." Today, McCain speaks to a forum on disability issues. And we'll update your top stories at the bottom of the hour. And now time for YOUR MONEY.
MILES O'BRIEN, CNN HOST, YOUR MONEY: Welcome to YOUR MONEY, where we look at how the news of the week affects your bottom line. I'm Miles O'Brien sitting in for Ali Velshi. Today it was a busy week on the financial front. Let's get right to it. It turns out we won't be breaking into our piggy bank of oil. A bill that would have released a three-day supply of the oil from the strategic petroleum reserve ran out of gas on Capitol Hill. House Democrats hoped the bill would lower gas prices. Republicans didn't agree. A little later we'll look at where we get our oil and how that translates into prices at the pump.
And more grim news on the home front. Foreclosures are still on the rise. Nearly a 1/4 million homeowners lost their homes between April and June of this year, that's nearly triple this number from a same time a year ago. We'll take a closer look at the housing numbers and show you how one city is fighting back. And the tough economy is squeezing state budgets all across the country. One report predicting accumulative budget short fall for U.S. states of more than $40 billion. The problem is the sour economy. It means slumping tax revenues. We'll tell you which states are in the red. And how these fiscal woes could factor into presidential politics.
Well, it may not be enough to make you think twice about trading in your big honking SUV but gas prices are heading down and had been for more than in a week. We may soon be paying less than $4 a gallon. And can you believe that sounds like good news? So what's in store next week? Let's check in with a man who has unleaded crystal ball, Tom Kloza the chief oil analyst at Oil Price Information Service. Tom, thanks for being with us.
TOM KLOZA, OIL PRICE INFORMATION SERVICE: Nice to be here.
O'BRIEN: All right, what's going on with oil? First of all, when ever it goes up, it seems that the price of the pump is up in a heartbeat. It seems when things going down the price at pump lags a little more. Is that my imagination?
KLOZA: No it's not your imagination. There is a little bit of a rocket and feather aspect to it and we did rocket higher basically for about 18 months and we're feathering lower but you're going to start to see the prices drop much more quickly. We'll be below $4 basically this weekend. And probably heading for somewhere between $3.75 and $3.90 nationwide.
O'BRIEN: Ideal.
KLOZA: What is above $4 is like rogue prices for a small period of time.
O'BRIEN: All right, Tom, why the rocket and feather? I mean I guess I could guess that it is just a little bit of greed there but something else going on?
KLOZA: Well you know the retailers who always get blamed; they're the messenger that gets blamed for the message. They've the worst 200 days to start a year, really, probably in our lifetimes and it's been miserable. I mean if you make -- if you sell gasoline you might be lucky to make a penny or a fraction of a cent. So they have a little bit of breathing room right now. And to a great extent, gasoline retailers have to get a little bit of a beginning when prices drop. That's the thing that's counterintuitive. People think that retailers make money when prices go up but they really make their money when prices drop and they can feather down a little bit more slowly.
O'BRIEN: Feather down, interesting. So people -- even with these higher gas prices, they are driving more in the summertime. What's outlook for the remainder of the summer?
KLOZA: We'll continue to drive less. I mean we have not had a single week where the daily usage has been 400 million gallons a day this summer. And that was a standard basically last year. So we're using 2, 3 percent less. I have a hunch that when the government goes back and basically adjusts these numbers at the end of the year, it'll probably be even more of a percentage drop and that demand destruction I don't think will come back, certainly not in the next six weeks and probably not in the next six months.
O'BRIEN: How much of is this a simple case of supply and demand? The demand has fallen because gas prices are high and as a result the gas prices are now going down.
KLOZA: Well you know supply and demand fundamentals are sort the initial noise that gets made in the market but a lot of it has to do with sentiment, and Wall Street and money flow and that was the echo chamber and that basically allowed oil to go up $145, $147 a barrel. People were basically pulling money out of equities and putting it into commodities. Not just oil but the price of corn. The price of corn has dropped by about 30 percent or so in the last couple of months. So the problem is these crowd swings can sort of manifest themselves again. So I wouldn't necessarily say that the worst is over.
O'BRIEN: All right, help me understand; try to summarize it if you can the price of oil versus the price at the pump for gasoline. Doesn't always go together, why?
KLOZA: No. Well, certain years, for 2003, 2007 we had a refining squeeze here. We didn't have enough refining capacity. This year because people are using less and ethanol is displacing a large portion of what refiners make we have a lot of extra refining capacity actually on the shelf. So believe it or not, the price of sweet crude right now is actually higher than the price of gasoline coming out of refineries. You know it's generally been a miserable year once you get downstream the well head and go to the pump but the most miserable people right now would be the refining executives. They are having a horrible summer.
O'BRIEN: Tom Kloza is the chief oil analyst with the Oil Price Information Service, thanks for being with us, Tom.
KLOZA: Nice to be here.
O'BRIEN: Well, to drill or not drill that is the question as we slog through the energy crunch. Apparently one good place to look might be right under Santa's workshop. A new study out this week claims there may be 90 billion barrels of oil beneath the Arctic Circle. The study, which comes from the U.S. geological survey, also estimates there is -- listen to this -- 1,670 trillion cubic feet of natural gas there. That is one big elephant, as they say in the oil and gas business.
Matter of fact, it could account for 13 percent of the world's undiscovered oil and 30 percent of the natural gas. Though if its undiscovered how do they know this? In any case the devil is in the territorial jurisdiction on this one. Parts of the Arctic are claimed by Canada, Greenland and Russia, as well as the U.S. and in the U.S., we are familiar with some of the other issues that make it hard to get oil from the Uconn (ph) into our Uconns (ph). The placed synonymous with the debate is know by the acronym ANWR, the Arctic National Wildlife Refuge. Nearly 50 years ago Congress set ANWR aside making it off limits to development and drilling but there could be a lot of oil there. And that is prompting a lot of politicians to revisit this refuge notion. Our Ali Velshi went to ANWR to see what all of the fuss was about.
(BEGIN VIDEO CLIP)
ALI VELSHI, CNN CORRESPONDENT (voice over): I'm in Kaktovik, Alaska a town of about 300 people. It's the only human settlement in the ANWR, in the Arctic National Wildlife Refuge. Now some people say this poor place could do well economically if they bring oil drilling to ANWR but opinion in this town is split down the middle. Kaktovic is a busy place for the Arctic but most folks here still lead a traditional life. They hunt caribou and other game and the village is allowed to catch three whales a year. Some of the locals worry that if the oil drills and pipelines come the wildlife could go. But longtime resident Myrtle Soplu thinks oil drilling in the Artic National Wildlife Refuge, ANWR for short would bring jobs to this part of Alaska.
MYRTLE SOPLU, RESIDENT: Me I got three jobs right now to take care of myself. So if I think if ANWR opens we can stick to one job for a long time.
VELSHI: She's seen those jobs. They've been drilling for oil in other parts of Alaska for 30 years. Nearby, but never actually in ANWR itself. This is all part of the north slope oil field where 700,000 of barrels a day are pumped out of here, shipped by pipeline to Valdez, Alaska and where it is then sent to the rest the United States. But production here has been declining for 20 years. There's more oil in ANWR, but no one knows exactly how much, and it's off-limits.
And these days talk of drilling in ANWR is growing along with world wide demand for oil. Supporters of the idea point out the arctic tundra is flat free less land, not the forest wilderness that many may picture. No one's advocating opening up all of ANWR. The potential drilling area is about the size of the state of Delaware. The amount left untouched? About the size of South Carolina. But drilling opponents say that's not the point. ANWR was set aside for a refuge for animals in 1960, and they say it should stay that way. So the question is how much oil is there in ANWR? And what impact would it have on prices? The Department of Energy says the U.S. imports more than 60 percent of the oil it uses.
MICHAEL SCHAAL, U.S. DEPT OF ENERGY: An increase in production from ANWR would reduce that somewhat perhaps by 2 percent out to 2030. And that really is not enough to significantly alter world oil prices.
VELSHI: While resident's opinion is split the Kaktovic local government is officially in favor of drilling. Resident Mike Gallagher figures the animals will be OK but he's not sure that opening ANWR to drilling will give him much of a break at the pump.
MIKE GALLAGHER, RESIDENT: Open today and you're not going to kill nothing for five to ten years down the road. How's that going to change that?
VELSHI: So there are a couple of questions, what affect will drilling for oil in ANWR have on the wildlife, on the culture up here, and ultimately on the price of a barrel of oil or on the price of gasoline? Even the Department of Energy's best-case estimates right now suggests that it may not bring prices down all that much.
Ali Velshi, CNN in the Arctic National Wildlife Refuge.
(END VIDEO CLIP)
O'BRIEN: CNN is committed to the energy hunt. In the coming months Ali and I will be seeking out energy solutions for the future all around the world. If you have an idea, drop us a line. Our address is YOURMONEY@CNN.com.
Coming up after the break, the housing crises continue but in one city they're fighting back. And it could make for a silver lining for some who thought the American dream was out of reach.
(COMMERCIAL BREAK)
O'BRIEN: Welcome back.
So how bad is the housing market? A new report out this week showed existing home sales in June were down more than 15 percent from a year ago and the prices are going down as well. Another report shows home prices are down 5 percent on average in the past year. With no end in sight to the mortgage crisis, homeowners are looking for a lifeline and in Washington, they are trying to oblige.
Both the president and Congress have cobbled together a plan that provides hundreds of billions of dollars in assistant to troubled homeowners while also assuring the mortgage giants, Fannie Mae and Freddie Mac can survive the tough times ahead. The congressional budget office estimates the rescue of Fannie and Freddie could cost us $25 billion. In some cities they're not waiting for Washington to extend a helping hand. They're taking some action now to help people own homes and save neighborhoods from spiraling downward. Dan Lothian reports from Boston.
(BEGIN VIDEO CLIP)
DAN LOTHIAN, CNN CORRESPONDENT (voice over): Take a drive down Hindery Street in Boston's Dorchester neighborhood and you'll come face to face with the foreclosure crisis. Mayor Tom Menino says this doesn't compare to other big cities, like Cleveland, but it's not pretty.
MAYOR TOM MENINO, BOSTON: This is one street that's really been devastated by the foreclosure.
LOTHIAN: But he's not wringing his hands over a problem that he says was caused by predatory lenders who scammed unsophisticated homeowners. He's formed a foreclosure intervention team and on this street where crime has been a problem the goal is to pull down plywood, give people new homes, and this community a new life.
PAT CANAVAN, BOSTON HOUSING ADVISER: It's taken something bad, in this largest foreclosures crises and using it to provide an opportunity for people. LOTHIAN: Here's their solution. On this side of the street the city bought four abandoned, three family homes at a discount from lenders. Boston housing Chief Evelyn Friedman says one of several interested developers will get a good deal on the properties.
EVELYN FRIEDMAN, BOSTON HOUSING CHIEF: And that developer will produce -- rehab them and then sell them to new horns.
LOTHIAN: The only new restriction.
New owners will have to live in their buildings for at least five years. A good hedge against the perils of an absentee landlord and now something else is happening here. The cities work on this street is also encouraging private individuals to take a chance. Buy a house, renovate it, sell it, or rent it out. That's what contractor Luis Rodriguez is doing with this foreclosed property that he bought directly from a lender for what he says was a very good price. Rodriguez has faith in this boarded up street.
LUIS RODRIGUEZ, HOMEOWNER: It is going to be better than it is.
LOTHIAN: Using city phones Boston has also bought other, abandoned homes on this street which eventually will be rehabbed and resold.
MENINO: Ownership and have to have stability in the name. That's what we're looking for.
LOTHIAN: Dan Lothian, CNN, Boston.
(END VIDEO CLIP)
O'BRIEN: Coming up after the break, a look at both ends of the financial spectrum. The federal minimum wage increase this week it's now $6.55 an hour. Will that hurt small businesses?
And the rich are getting richer. So why am I still waiting for my shift to come in? We'll find out next on YOUR MONEY.
(COMMERCIAL BREAK)
O'BRIEN: A lot of workers at the bottom of the pay scale got a raise this week, thanks to a 70 cent bump in the national minimum wage. It's now $6.55. Now this does not affect workers in every state. Some states don't have minimum wage laws and 23 states in the District on Columbia have higher minimum wages than the federal standard. Wages in those states will not be affected. The increase is the second of three installments mandated by the Fair Minimum Wage Act which was passed in 2007. Before this legislation the national minimum wage had remained unchanged at $5.15 an hour all the way back to 1997. The act calls for a third and final increase next July that will raise the rate to $7.25 an hour.
Jennifer Westhoven joining us now with a look at some of the other top stories this week. Jennifer, we touched on the low end of the spectrum on wages. You want to start off with the very rich. JENNIFER WESTHOVEN, CNN CORRESPONDENT: Yeah, because if you think a single parent, if you're making minimum wage, 40 hours a week, you're still not up to the federal poverty level and then you look at the complete other end and what a different story here. We're talking about the top 1 percent of Americans; in 2006 the IRS says that they earned 20 percent of all of the money earned in the country 1 out of every $5.
O'BRIEN: That's a big disparity.
WESTHOVEN: It's huge. So this is the biggest slice of America's adjusted gross income in more than 20 years. So not just the dollar amount but percentage and at the same time that group, that top 1 percent paying less in taxes. Their tax rates fell to its lowest level in about 18 years but I should tell you before you get upset they also pay 40 percent of all taxes that are paid.
O'BRIEN: But it's still low. I mean they pay a lot of dollars but as a percentage it's slow, right?
WESTHOVEN: A percentage of their income it's small.
O'BRIEN: That's an outrage factor there. And you know you hear a little bit it on the campaign trail. This has had to be an issue that'll be project into the presidential politics.
WESTHOVEN: And especially as we hear about the plight of the middle class because something this week they had a hearing on Capitol Hill about this. A hearing focusing on all of the problems, inflation, right, while your paycheck stays about the same. Harvard professor Elizabeth Warren testified that most families have seen their income drop by about $1,200 since 2000 at the same time they are having to pay $4,600 more for basic expenses. And you know talk about the tricks and traps of credit cards that a lot of people say is a big problem. We're now spending 10 percent of our disposable income to paying off credit cards.
O'BRIEN: The middle class always gets slammed, doesn't it? It just gets worse for them.
WESTHOVEN: Lately and even more so. When they look at these numbers back to the '70s things -- the picture looks much worse in terms of spending power.
O'BRIEN: All right, well that's not -- there's more to that, right? Because there are a lot of issues with the credit cards, right?
WESTHOVEN: Yeah and I really like this, because lately I've been looking for my, to get a new credit card and when I read through the fine print it's incredible some of the things that are way down in the fine print there.
O'BRIEN: Are you in charge of reading the fine print in your household?
WESTHOVEN: I am, I am! So if you think that your credit card company tricked you or was not up-front about something, maybe you didn't know about it, this is your chance.
O'BRIEN: No one reads that fine print.
WESTHOVEN: Well you should!
O'BRIEN: Even for me?
WESTHOVEN: The government wants to hear. They're crafting these new rules for credit card policies right now, 30,000 people already wrote in. Some of the problems are rules that can strip away your grace period and even though that you think that you handled it. You have two weeks left if you want to make your voice heard. You got cheated on; this is the time that you can e-mail to. And if you can remember them or if you have a pencil to write down. Put r-1314 in the subject line. I know.
O'BRIEN: It sounds like the fine print.
WESTHOVEN: Exactly. You have to read the fine print.
O'BRIEN: You should read that stuff because there's so many ways they can get you and that is the fees. It's the way they jack the interest rate. You a day late -- a dollar short you're in trouble, right?
WESTHOVEN: And just to look online to look at your balance costs you $5.
O'BRIEN: Just to look online.
WESTHOVEN: The first time. To set yourself up with an Internet account. What's that? There are all kinds of servicing fees that they put into affect. Not only do you have to pay 100 bucks to set up the account but $8 to maintain your account. It's crazy.
O'BRIEN: Yeah, ought to be some laws in this realm I would guess, some would say. But self-responsibility is a big deal. People shouldn't spend too much but it doesn't sound pretty predatory when you hear about all of these fees that they charge.
WESTHOVEN: Yeah.
O'BRIEN: Jennifer Westhoven, thank you very much.
Coming up in the program, you think you're broke? Well the state you live in may be finding it even tougher to pay its bills.
And that hot summer breeze you're feeling could be the energy wave of the future. But first, this week's "Right on Your Money."
(BEGIN VIDEO CLIP)
ALI VELSHI, CNN CORRESPONDENT (voice over): Protect yourself when it comes to this economy having easy access to cash gives you a safety net for the unexpected. Like losing your job. So you should have enough on hand to cover your lifestyle for several months. (UNIDENTIFIED MALE): For my emergency reserve this three to six months that I need, your primary concern here is safety. You're not trying to get the absolute highest yield.
VELSHI: The key is putting your money into an investment that you can withdraw from anytime without penalty.
(UNIDENTIFIED MALE): Security is the utmost importance. So you want to stick primarily to savings accounts, money market accounts, short-term CDs. You want to do the best that you can within those -- within those category.
VELSHI: So shop around, and remember this is a low-risk, low- reward investment. That's why finding the best rate is your best bet.
(UNIDENTIFIED MALE): You're still probably a little bit below 4 percent. So you may be still losing out a little bit to inflation. But you can still do a little bit better than, for example, just getting the average return or just going automatically going to your local bank.
VELSHI: And that's "Right on Your Money."
(END VIDEO CLIP)
(COMMERCIAL BREAK)
WHITFIELD: Hello, I'm Fredricka Whitfield in Atlanta. Happening right now, 17 explosions rocked western India in a span of 70 minutes today killing as many as 26 people. India's intelligence bureau received an e-mail reportedly from the militant group India Majahadin warning about a possible attack. That group claimed responsibility for a bomb attack in May which killed more than 60 people.
The U.S. Senate today passed a sweeping housing rescue bill. Aimed at sparing some 400,000 homeowners from foreclosure. The bill also offers a temporary financial lifeline to troubled mortgage giants, Fannie Mae and Freddie Mac.
And Democratic Presidential Candidate Barack Obama is on his way home after a weeklong trip to Afghanistan, Iraq, the Middle East, and Europe. Earlier today, he talked foreign policy. Climate change and the global economy with British Prime Minister Gordon Brown.
And Republican Presidential Candidate John McCain says he feels, quote, "a little left out by all of the media coverage surrounding Obama." In a radio address he also criticized Obama for what he called his multiple positions on the troop surge in Iraq.
Coming up at the top of the hour, MLK, words that changed a nation. Now back to more of YOUR $$$$$.
O'BRIEN: The tough economy is leaving a lot of a lot of U.S. states scrambling to make ends meet. And unlike the federal government, many states have to balance their budgets by law. A new study says 20 states are cumulatively overdrawn to the tune of $13 billion. And that number is expected to triple next year. If you live in one of these cash-strapped states, it means either tax hikes or service cuts, or maybe both. Here to break it all down is Corina Eckl with the National Conference of State Legislators. And Stephen Moore of The Wall Street Journal.
Good to you have both with us. Karina, let's begin with you. First of all, let's talk about which states are in the worst trouble right now. Give us the big picture.
CORINA ECKL, FISCAL PROGRAM DIRECTOR, NCSL: Sure. If you look at the numbers, California stands out as having the largest budget gap at $15.2 billion. Of course that's a moving target. It could get more. Some of the other states we're looking at with pretty big budget problems are Florida, Arizona, Nevada, a couple of others around the nation, New Jersey and New York.
Mostly we're seeing this as a mixed bag around the country. Not every state is having trouble. States like Alaska, New Mexico, Wyoming are not. But really, when you look at the overall picture, we're seeing more bad news than good news.
The states that are doing the worst are really the ones that have seen some problems with their housing economy. We've seen especially in the states I've already mentioned, those states have seen really big downturns in their housing and construction environment.
So those ones were the first ones early into this economic downturn. Really what we're seeing is a slowdown in state revenue performance. When states were putting together their budgets, they thought they would be getting more revenues than are actually coming in. So this is really a problem on the revenue side of the ledger. So far spending has remained intact. Spending has not exceeded what state lawmakers had budgeted.
But as we go forward into the next fiscal year, I think we're going to see not only revenue problems but some spending problems as well.
O'BRIEN: All right-y, it gets kind of uglier out there. Stephen, let's inject this into the political spectrum for just a moment. Will this play out at all on the presidential politics front?
STEPHEN MOORE, THE WALL STREET JOURNAL: Well, first of all, you know, it's so amazing because I'd been looking at these state budgets now for 25 years, and this is the pattern that happens every single time the economy goes into a downturn. During the good times states spend like drunken sailors and that's what happened over the last four or five years, especially in a state like California.
Now in terms of how the politics of this straightens out, I think you're looking at a situation right now where more bad news obviously hurts the incumbent party, which is the Republicans. But I think that the Democrats are going to be facing a real tough situation right now because if they try to raise taxes during a period when Americans are feeling -- pinching their pocketbook with higher grocery bills and gas bills and so on, there is not a mood out there right now for tax increases.
In fact in a lot of states, there are moves to cut back on taxes, property taxes because people are feeling the financial pinch.
O'BRIEN: Yes, I guess people are seldom in the mood for more taxes, right, Corina?
MOORE: Especially -- yes.
O'BRIEN: Well, give us an idea, Corina, of what states are doing. I assume there is not a lot of talk about raising taxes, and if so, it's in whispers. So what are they considering doing to try to make ends meet? Because as we've pointed out, they have to balance their budgets, right?
ECKL: That's correct. And you're absolutely. We're seeing very little appetite for any new taxes. We are seeing some revenue increases occurring through fees, however. You know, fees are the low-hanging fruit in terms of trying to get additional revenue into state coffers. So you know, fees -- driver's license fees, license plate fees, court fees, those kind of things, we're seeing some of that.
But really we've not seen a lot of tax increases and I don't think that we're likely to for the very reasons that you've all just mentioned. What we're seeing states do, really, are -- they're cutting back on spending. And I guess I would not agree with the drunken sailor reference there.
What states do is during downtimes they do cut back on spending and when revenue growth starts recovering, they try to go back and make up some of the spending cuts that have been implemented. So...
O'BRIEN: All right. Stephen, you want to take...
ECKL: ... it's sort of this up-and-down kind of spending...
(CROSSTALK)
O'BRIEN: Do you want to take back the drunken sailor line or are you sticking to that one?
MOORE: Not at all, I mean, I don't know what she's talking about. If you look at California, for example, for the last four years, California's budget was up almost 40 percent. So this was -- and this is the state that's one in the worst economic shape. So when the money comes in, the states spend and spend and spend. And when the money can't come in, then they try to raise taxes, which is something that the public will revolt against.
There was about five or six states that will actually have initiatives on their ballot this year to withstand new taxes, and in fact, Massachusetts has an initiative to abolish their state income tax that'll be on the ballot in November.
O'BRIEN: And give us a sense -- you know, lotteries are always something that states go to, Stephen.
MOORE: Yes.
O'BRIEN: We've seen more gaming in a lot of these states, and isn't that kind of -- kind of a cheap tax. It's a tax that is regressive in some ways and doesn't force those lawmakers to go on the record as voting for more taxes.
MOORE: Yes. Well, states do like lotteries and most states have them now and the few that don't realize that if they don't have a lottery then their residents just buy lottery tickets in another state. And so that's a problem.
You know, another thing is that states have tried to get a lot of revenues for paying for health care out of cigarette taxes but they've got a problem, which is Americans are smoking less. So they're trying to fund these big expanding health care programs with a declining revenue base of cigarette smokers. The only way they're going to be able to pay these bills is to encourage people to smoke more.
O'BRIEN: Well, that's one way of looking at a good thing and finding a dark cloud.
MOORE: Right. Exactly.
O'BRIEN: Less smoking is bad news. You heard it here first, Corina.
(LAUGHTER)
ECKL: Yes.
O'BRIEN: What -- how much trouble -- the projections are for next year this is going to get even worse. How much trouble does this mean for these states?
ECKL: Right, that's correct. We do expect the problem to get worse and I'm compelled to say that I wouldn't judge the other 49 states and characterize all of them by what's going on in California. Just for the record, California is a unique circumstance.
But when we look at nation as a whole, all 50 states, not just California, we do expect that the situation is going to get worse. And in fact revenue growth projections are still worrisome in a lot of states and spending pressures continue no matter what. So we are hearing that the gap for fiscal year 2009, which states had been resolving, is $40 billion, which is triple the size they faced last year.
O'BRIEN: All right. We're out time, unfortunately. Corina Eckl, who is with the National Conference of State Legislatures. Stephen Moore with The Wall Street Journal, thank you both. We appreciate it.
Coming up next on YOUR $$$$$, could the answer to our nation's energy concerns be blowing in the wind? Will it be a "Boone" for all of us? We'll tilt at some windmills, next.
(COMMERCIAL BREAK)
(BEGIN VIDEO CLIP)
T. BOONE PICKENS, FOUNDER, BP CAPITAL LP: The Pickens plan, it starts with harnessing wind and building out solar. We're blessed with some of the best wind and solar resources in the world. The Department of Energy estimates that we can produce 22 percent of our country's electrical energy needs just by utilizing wind resource in the Great Plains.
(END VIDEO CLIP)
O'BRIEN: It's a big number. That was T. Boone Pickens at an energy hearing on Capitol Hill this week. The legendary billionaire oil man is now very bullish on wind. He's investing big money to create a 21st Century energy boom in the land of Texas tea, of all places. Steve Hargreaves of cnnmoney.com joins us now to tell us all about this, separate the "Boone" from the busters, sort of speak.
Steve, good to have you with us.
STEVE HARGREAVES, CNNMONEY.COM: Thank you.
O'BRIEN: That number -- first of all, that 20-some-odd percent for wind, is that realistic anytime soon?
HARGREAVES: Yes, I mean, it certainly can be done. You know, the question is just, you know, how much is it going to cost? Pickens is pretty ambitious. You know, he's trying to do it in 10 years. The Department of Energy said it could be done by 2030. It's really a question of how much you want to pay.
And I think Pickens estimates that his plan might cost $1 trillion, but you know, as he likes to point out, we're spending $700 billion every year on foreign oil. So it might be worth it.
O'BRIEN: That's a big number. How long would it take, though? Even if you spend all of this money, it has got to take a while to build all of these turbines.
HARGREAVES: Right, right, it certainly would. And there are, you know, substantial hurdles to doing this. The electricity infrastructure is old, it needs to be updated. There aren't enough wind turbines out there right now. Companies that have to make big investments in their capital plans to make the amount of turbines that are required.
O'BRIEN: Who are the big players?
HARGREAVES: Well, in terms of building wind turbines?
O'BRIEN: Yes.
HARGREAVES: You've got GE. You've got Vestas, Gamesa, Suzlon from India. There are a handful of companies that make these big wind turbines.
O'BRIEN: All right. You mentioned the infrastructure issues. And one of the big problems is, of course, that where the wind blows is in remote locations. Long way places from New York City where the energy needs are.
HARGREAVES: Right.
O'BRIEN: And how do you -- getting the power from those places to where it is needed is a big issue, isn't it?
HARGREAVES: Right, right. The transmission lines are really old. They really need to be updated. You know, you see this when you have things like blackouts in New York City. So you need a smarter electricity grid to do this, to carry this power from the Midwest, from the mountaintops to where it's needed.
And you know, another problem with wind is, it doesn't blow all of the time. So a smarter utility grid would help smooth out, you know, the variations of when the wind is blowing and when it isn't.
O'BRIEN: So there's a way to capture it, somehow, to store it, maybe, so when the wind blows? Is there technology out there, around the corner?
HARGREAVES: People are working on it, definitely. They are working on electricity storage, sort of a budding industry right now. You know, people are hoping that in the next few years that that might progress.
O'BRIEN: The U.S. is not a leader in this right this moment. Other countries have taken the lead. What countries have, and what has their experience been?
HARGREAVES: Right, Spain is big into it. Denmark is big into it. I believe in Denmark they get 20 percent of their power -- at least 20 percent of their power from wind. They seem to have had a good experience with it so far.
O'BRIEN: All right. The two issues which come up are the aesthetic issues, a lot of people don't want to live near them, and the environmental issues, migratory birds that fly into them. Are these issues that can be overcome?
HARGREAVES: Well, it depends on who you talk to. You know, I mean, there are a lot of people that don't want to see what is essentially a big utility scale power generation facility in their backyard. And you know, they are said to be noisy. As I pointed out with the birds, there is an issue of birds flying into them. So there are environmental tradeoffs associated with any type of energy generation plan.
O'BRIEN: Steve Hargreaves with cnnmoney.com. Don't go anywhere. We have more for you.
Still on come on YOUR $$$$$, Steve is going to stick around and we're going to talk up more about alternative energy. Plus, natural gas-powered cars. That's another Boone Pickens' idea that he's pushing. Find out if the idea could really take off. Stay with us.
(COMMERCIAL BREAK)
O'BRIEN: These days you hear a lot about alternative fuel for cars, biodiesel, cooking oil, hydrogen, electric. I'm being joined by cnnmoney.com's Steve Hargreaves and Poppy Harlow also joins us from cnnmoney.com.
Poppy, I understand you tried out a natural gas vehicle. And Boone Pickens is pushing this idea. He thinks this should be the fuel of the future for transportation. How was it?
POPPY HARLOW, CNNMONEY.COM: It felt just like riding in a normal gas-powered vehicle. But Boone Pickens is big-time behind fueling cars with natural gas. Right now we use natural gas widely across America to heat our homes but did you know you can power a car with it too? I didn't. Around the world more than 8 million vehicles run on natural gas, but 120,000 of those so are in the U.S. That's according to a group that promotes natural gas vehicles.
But Honda sells a version of its Civic that runs on natural gas. That's called a Honda GX, you see it right there. It has been on the market, believe it or not, for 10 years and a rep from Honda brought one over for us to check out. He says he was able to fill it up for the gasoline equivalent of just $2.70 a gallon.
O'BRIEN: Oh yes.
HARLOW: That's like a pipe dream these days. And you know Honda says it sells about a thousand of these a year, Miles. That's about it, and mainly in California.
O'BRIEN: All right. Well, a couple of things. First of all, who knew they had this for 10 years? They've got to do a little better job marketing this thing.
HARLOW: Marketing, right?
O'BRIEN: At less than $3 a gallon, I would think the world would beat a path to this vehicle.
HARLOW: Yes, you would think, but it's hard to find places to fill it up. That's the main issue here. It's also a low-emission vehicle. So it's better for the environment. The drawback, really hard to find a play to really fill it up, about 1,100 natural gas stations nationwide. Only half open for public use. Also this Honda costs about $8,000 more than the typical Civic.
It costs about $25,000. The good news, Miles, is if you buy it, you qualify for a $4,000 tax rebate.
O'BRIEN: All right. But not being able to fill up is a big deal and you can't go buy those propane canisters and put it in the car, right? HARLOW: Yes. You can't do that. You can fill it up in your own garage, which I'll get to in a minute. But in terms of having more places to fill it up, there are some big names behind this. Namely, T. Boone Pickens, as you and Steve were discussing. He is very much behind this. He actually reportedly owns a Honda GX himself. And recently some lawmakers have introduced a bill that would encourage gas stations to add natural gas pumps.
Meantime Honda is selling a pump, this is what I was talking about, designed to work in your own garage. You can install it if you run your home, you heat your home on natural gas. You can actually tap into those lines and fill up your car that way. So it's an option.
(BEGIN VIDEO CLIP)
CHRIS NAUGHTON, NORTHEAST REGIONAL MGR., HONDA: Well, it's unlikely that any specific engine type or fuel type in the near term will be the answer. I think this is one of many answers. And yet the beautiful thing about the Civic natural gas is that it's available now. It's the cleanest engine ever tested by the EPA. And it's something that it's very real now.
HARLOW: Here we go.
(END VIDEO CLIP)
HARLOW: As you can see, I decided to try it out for myself. And to answer Miles' question, yes, it feels just like a typical Civic but, Miles, if only I could find somewhere to fill it up. That's the big problem. That's why not a lot of people have these cars.
O'BRIEN: Well, you know, you bring up an important point. Let's bring Steve Hargreaves back in with cnnmoney.com, and talk about the big picture here. One thing that occurs to me is, a lot of people -- of course in New York City, this is not so good, but if you've got a house with natural gas, you've got a potential filling station, right?
HARGREAVES: Right. Definitely. I mean, the whole country -- most of the country has these natural gas pipes, you know, running up right up to people's homes. You know, people use it for heating, people use it for cooking. So the infrastructure is there. I mean, the real challenge is just putting the actual pump at the service station.
And you also -- you know, you hear a -- you haven't heard a lot about this until now. And most of the car companies have been pushing their electric cars or their hybrid cars, but they don't necessarily need to be mutually exclusive. Most of these hybrid, or these plug-in hybrids, they have a backup engine, and there's nothing saying that this backup engine couldn't run on gas.
O'BRIEN: Yes. I think Americans love a silver bullet solution, don't we? It has got to be some tricked out vehicle that does everything for us. I mean, let's face it, it's going to be hard to replace an automobile run by gasoline. It has so many advantages. (CROSSTALK)
HARLOW: ... can't afford to fill it up anymore, but one of the problems that the Honda rep told us of this car is the fact that it takes a lot more natural to be equivalent to filling your tank with gasoline. So your trunk is a lot smaller because the natural gas tank is a lot bigger. And you can only go a certain amount -- you can only go a few hundred miles, you can't go as far as on a typical car filled with gasoline. That is a challenge.
O'BRIEN: Do you know what the average American does for driving on the course of a day?
HARLOW: What?
O'BRIEN: Thirty miles, 30 miles. So I mean, really, we could all drive around golf carts and be fine. The truth is, it's this perception that we have to go 200 or 300 miles all the time that gets in the way of changes like this. Is this going to be a real thing, Steve? Do you think natural gas vehicles part of the whole solution here?
HARGREAVES: Yes. I mean, I think it has big potential, you know, a lot of outside experts said that this is really a very good idea. As Poppy pointed out, you know, you can fill one up for half the cost of gasoline.
HARLOW: Yes. But you also have to keep in mind the run-up we've seen in the cost of natural gas. Over the past month, natural gas prices have pulled back significantly, but we did see a run-up just like oil prices, so there's no telling whether natural gas will exceed the cost of oil down the road.
HARGREAVES: Boone Pickens, I think, made a promise that it never would.
HARLOW: OK.
O'BRIEN: Well, Boone Pickens is sitting on a lot of natural gas. And truth is the U.S. has a lot of natural gas, correct?
HARLOW: Yes.
HARGREAVES: Yes.
O'BRIEN: That's good. All right. So we keep that money here, in theory.
HARLOW: Instead of the $700 billion going elsewhere, as Boone said.
O'BRIEN: Now the important question, Poppy, you didn't wreck the car, did you?
HARLOW: I didn't. But I almost crashed into a bus, right? Columbus Circle in New York City is hard to navigate. O'BRIEN: Right there, right there. It's not so easy, is it?
HARLOW: Not so easy.
O'BRIEN: Counterclockwise.
HARLOW: Honda wouldn't have been very happy with that.
O'BRIEN: All right. Poppy Harlow, Steve Hargreaves, thank you both very much for gassing about natural gas with us here on the program.
Still to come on the program, we know fast food tastes good, but it's bad for us, right? So how is Big Mac offering hope for an economic turnaround? Find out next on YOUR $$$$$.
(COMMERCIAL BREAK)
O'BRIEN: Even in a tough economy, there will always be some companies that are doing well. Apparently McDonald's has found the secret sauce for success. The fast food chain out with a stronger- than-expected earnings report the other day.
Ali Velshi sat down with the McDonald's CEO Jim Skinner who served up some insights on why the company is sizzling in a downturn.
(BEGIN VIDEOTAPE)
JAMES SKINNER, CEO, MCDONALD'S: Well, we took our eyes off our fries, as we like to say. Instead of focusing on the customers and the restaurants in McDonald's, we started chasing opportunities that we thought would develop over time for the growth of the brand.
And when we went back to the core, focused on customers and restaurants and our revitalization plan, and we slowed our growth substantially, it was about getting bigger and we decided we needed to get better versus getting bigger.
So we focused more on existing restaurants, focused more on our customers in the restaurants that we had versus those that we were building.
ALI VELSHI, CNN ANCHOR: All right. Let's talk a little about food prices. We know it has hit all of us across America. It has got to hit you. Almost every component -- I was looking at a Big Mac the other day, and pretty everything in there has gone up in price. How do you handle price increases in food the way you've seen?
SKINNER: Well, first of all, it's important know that we have a great supply chain. Our supply chain partners, who are independent suppliers, by the way, are an enormous competitive advantage for McDonald's, in terms of mitigating cost, being able to deliver high quality goods and services, yet the best prices.
Then we have great treasury department that does a great job on out-contracts and sourcing that mitigates some of that. Having said that, the purchasing index, which is up over 8 percent -- over year- to-year, is certainly impacting us. We can't mitigate all of it. We do take price increases, we've taken a price increase to about 4.5 percent. So we get to about half of it.
The rest of it we either mitigate through costs control or we must have more visits to be able to compensate for that to maintain our margins and our cash flow for our franchisees. The fact is, we've done a good job of doing that. But we don't get it all, so we absorb some of that.
VELSHI: Tell me about the employment situation in McDonald's. What is it like to be an employee of McDonald's today? Are the wages competitive? Are the benefits competitive? What's the reason why one would choose to work at McDonald's?
SKINNER: Well, I think the wages are competitive, and certainly the benefits are competitive. We try to do the best we can to make sure that we're accessing -- or giving access to our employees for health care and other options and the benefits. But I wouldn't say that they're extraordinarily better than the others in the competitive environment. But I will say in terms of the opportunity, over the long-term certainly that opportunity is better at McDonald's for people to grow and to prosper.
VELSHI: You're talking about opportunity to advance.
SKINNER: Opportunity to advance.
VELSHI: To grow with the company.
SKINNER: That's right.
VELSHI: All right. When you -- if you -- and I suppose you can, because you're the boss, what would you choose? What's your favorite thing on the menu?
SKINNER: My favorite thing on the menu is a plain Quarter Pounder, just the meat and the bun. I'm from Iowa, the meat and the bun.
VELSHI: What do you do as you develop your menu to make sure you're core customer still feels like it's the same McDonald's they know?
SKINNER: Well, first of all, we're always improving our core, as I said, 70 percent of the visits are around a core menu item. So it's important for us to make sure that we're always following up and being diligent on the quality of the Quarter Pounder, for example, Quarter Pounder with Cheese, your favorite, the Big Mac.
VELSHI: Absolutely my favorite.
SKINNER: Now, Ali, and if you like chicken, try a Snack Wrap, OK?
VELSHI: All right. I'll try one. SKINNER: You'll like it, believe me. You can have a Big Mac and a Snack Wrap and just taste it, you'll figure out...
(CROSSTALK)
VELSHI: That's why I look the way I do, because I would happily have a Big Mac and a Snack Wrap.
(END VIDEOTAPE)
O'BRIEN: He likes a Quarter Pounder with nothing on it. That's a conservative guy. Well, anyway, boosted by those Big Macs and Snack Wraps, McDonald's reported its same-store sales in the U.S. jumped nearly 3.5 percent in the second quarter. And that beat expectations.
Thanks for joining us for this edition of YOUR $$$$$. We'll see you back here next week, Saturday at 1:00, Sunday at 3:00. We'll see you then.
