New Nuclear Plants Get More Expensive

By Dave Flessner, Chattanooga Times/Free Press, Tenn.

Jun. 11--At a cost of more than $6.2 billion when it was completed in 1996, TVA's Watts Bar Nuclear Plant is both the newest and most expensive nuclear reactor ever built in the United States.

But rising costs for everything from cement to steel are threatening to shatter that cost record for the next generation of nuclear power plants.

Despite streamlined licensing requirements and more advanced engineering and design, the latest projected costs for some of the next generation of nuclear reactors are double some initial estimates made five years ago.

TVA President Tom Kilgore said the rising costs of materials for nuclear reactors is causing the agency to re-examine its pursuit of new reactors. But the Tennessee Valley Authority, at this point, appears to still be committed to building more nuclear units.

"The cost of new plants are higher because concrete has gone up, steel has gone up, and other commodity prices have gone up," Mr. Kilgore said. "That causes us to pause and rethink, but frankly it's still the best option."

Critics of nuclear power wonder if the industry is still beset with the cost overruns that stalled any new U.S. nuclear reactors from being started in the past three decades.

"Once again, we're seeing the sticker shock from nuclear power," said Stephen Smith, executive director for the Southern Alliance for Clean Energy, a Knoxville group opposed to nuclear power. "What we continue to see from this industry are overly rosy estimates about construction costs to lure utilities into building nuclear. By the time they recognize what it is actually going to cost, they already have so much money sunk in a plant that they want to finish it."

The TVA, the nation's biggest government utility, in the 1970s and '80s sunk nearly $10 billion into nuclear plants that it ultimately decided to scrap when plant costs escalated and the growth in power demand slowed. But TVA officials insist they are using a different, more cost-competitive approach today toward building more nuclear units.

Unlike the 17 different reactors TVA began designing in the 1960s, the authority now is taking its power additions one reactor at a time to better align new power generation and power demand and to focus management attention on each reactor.

The next generation of reactors also will be built in cooperation with other utilities and with standardized designs to help speed construction and allow workers to successfully move from one plant to another, TVA Vice President Jack Bailey said.

"TVA is already leading the industry in additional nuclear generation," Mr. Bailey said.

After restarting TVA's oldest reactor last year through a five-year, $1.8 billion upgrade at the Browns Ferry plant near Athens, Ala., TVA is spending $2.5 billion to finish a second reactor at its Watts Bar plant by 2012.

Even more ambitious are TVA's preliminary plans for two of the next-generation nuclear reactors at its Bellefonte nuclear site in Hollywood, Ala. The reactors, to be built by Westinghouse, are expected to cost about $3 billion to $5 billion each, Mr. Bailey said.

A study three years ago jointly conducted by Toshiba Power Systems, Bechtel Corp. and TVA initially estimated the cost of each of the new AP-1000 reactors at Bellefonte at around $1,600 a kilowatt, or about $2 billion for each of the planned units.

"That is now probably bouncing around $3,500 a kilowatt, and even higher in some circumstances," said Adrian Heymer, senior director for new plant deployment at the Nuclear Energy Institute, an industry-backed trade group in Washington D.C.

Other utilities are projecting even higher costs to develop and finance similar reactors. Moody's Investors Service estimated last year that the cost of a new 1,000-megawatt reactor even smaller than what TVA wants to build at Bellefonte will cost between $5 billion and $6 billion.

Progress Energy Florida estimated that building reactors at a new 3,000-acre site in Levy County near Tampa, Fla., would cost about $7 billion per unit. Farther south near Miami, Florida Power & Light estimates the cost of adding new units at Turkey Point nuclear plant could range from $6.5 billion up to $12 billion per reactor, according to a March filing with Florida regulators.

David A. Kraft, director of the Nuclear Energy Information Service, an anti-nuclear group in Chicago, said cost estimates for new nuclear reactors continue to rise and the new designs of reactors add extra uncertainty to utility estimates.

"The upward trend in costs is unmistakable and also exists internationally," he said.

Mr. Kraft and Mr. Smith urged TVA and other utilities to take the billions of dollars they are planning to invest in new nuclear units and put it instead into aggressive efficiency measures and renewable energy generation from solar, wind and biomass.

"Nuclear plants take decades to pay off and, by that time, we can develop other sources of power like wind and solar that don't have any fuel costs and don't produce radioactive wastes," Mr. Smith said.

Mr. Bailey said higher cost estimates from other utilities reflect, in part, their desire to gain approval from state regulators to cover any unanticipated costs for the new reactors. The TVA executive noted that the Bellefonte site where TVA is proposing to build its new reactors already is developed with site security, transmission and cooling towers built for earlier reactors TVA scrapped in the 1990s.

Buying equipment in advance also could lock in costs to prevent costly increases later, he said.

Mr. Heymer said the costs of all types of generation will be higher in the future and nuclear power isn't as subject to rising fuel costs as is power generation from either coal or natural gas.

"No matter what you use to generate power, the consumer is going to see an increase in the cost of electricity," Mr. Heymer said. "Nuclear power is still competitive with other forms of generation and, if you put in the environmental concerns and new limits on carbon emissions, nuclear turns out to be the best buy."

FBI Announces Mortgage Probe

Posted By: Michael King

Reported By: Kevin Rowson

ATLANTA -- Federal agents are calling Metro Atlanta, but for all the wrong reasons. When it comes to mortgage fraud, you have a good chance of becoming a victim in Georgia.

In Washington, the FBI announced Operation Malicious Mortgage -- which has already made several hundred arrests.

Atlanta was the number one area in the country for mortgage fraud a few years ago. Today it is number six, but that is still not good enough as local FBI officials announced on Thursday.

The FBI in Atlanta has arrested more than 60 people in the past four years -- over 100 have been prosecuted in Atlanta's federal courts.

You've seen the sketches, you've seen the neighborhoods torn apart by over-inflated homes.

"We've had whole neighborhoods of all kinds from inner city low income neighborhoods to the nicest golf course gated communities just be devastated by mortgage fraud," said US Attorney David Nahmias.

On Wednesday, seven arrests were made in a mortgage fraud scheme that gutted a $3 million condo complex in DeKalb County.

The people who rent there and the people who live in any neighborhood racked by fraud are the immediate victims. The FBI says the problem is growing, and so are their efforts to stop it.

"Efforts are underway to redirect investigative resources within the FBI to the named cities most dramatically impacted by this and to secure additional resources in the upcoming budgets," said FBI Special Agent In Charge Greg Jones.

The people involved in mortgage fraud range from straw buyers to closing attorneys to brokers to appraisers to loan officers and real estate agents. What they are slowly learning is that the penalties can be a deterrant -- as much as 30 years in federal prison.

"That's more time than Bernie Evers got for Worldcom or Jeff Skilling got for Enron," Jones said. "And that word got out in the legal community and we think it has some effect that deter people in these schemes."

JPMorgan, 11 Others Sued Over Jefferson County Crisis

By William Selway and Martin Z. Braun

June 17 (Bloomberg) -- JPMorgan Chase & Co., Morgan Keegan & Co. and 10 other banks, advisers and insurers were sued by a Jefferson County, Alabama, man who claims their work on county bond transactions saddled residents with soaring sewer bills.

The complaint, filed in Alabama court in Birmingham today by Charles Wilson, also alleges that seven current and former county commissioners breached their fiduciary duty. The suit seeks damages for the 146,000 sewer customers in Jefferson County, the most-populous county in Alabama, as well as the return of fees.

The ``commissioners, various investment banks, insurers and advisers have continuously failed to act in the best interests of the citizens of Jefferson County,'' according to the lawsuit.

Sewer bills for residents of Jefferson County, with a population of 659,000, have risen more than fourfold over the last 11 years as the county amassed $3.2 billion of debt to build a new sewer system. Almost all of the bonds carry adjustable interest rates and are tied to derivatives intended to protect the county from higher borrowing costs, a strategy that backfired this year and pushed the county to the brink of bankruptcy.

Morgan Keegan spokeswoman Gail Rimer had no immediate response, while JPMorgan spokesman Brian Marchiony said the bank hasn't seen the suit and declined to comment. Jeff Lloyd, a spokesman for Financial Guaranty Insurance Co., which is also named the lawsuit, said the company had yet to review the suit and declined to comment. Michael Gormley, a spokesman for XL Capital Assurance Inc., didn't immediately respond to a request for comment.

Officials Named

Commission President Bettye Fine Collins, one of the politicians named in the lawsuit along with Birmingham Mayor Larry Langford and former finance director Steve Sayler, said she had no opinion about the suit. ``It'll just have to be dealt with,'' she said.

Today's lawsuit is only the latest litigation surrounding Jefferson County's financings.

In April, the Securities and Exchange Commission sued Langford, the former commission president, for allegedly accepting undisclosed payments from the head of a regional underwriting firm that worked on some sewer deals. And bankers who worked for New York-based Bear Stearns Cos. and JPMorgan when the county bought its swaps have been told they might face criminal charges under an antitrust investigation of the municipal derivatives industry.

Gleaning Information

Kathryn Harrington, the Birmingham attorney with Hollis Wright & Harrington who filed the suit, said the lawsuit may allow her to glean new information about how much the deals have contributed to rising sewer rates.

``There's a lot that hasn't come to light,'' she said. ``The citizens feel that they haven't gotten the full story.''

The county's financial crisis began in February after FGIC and XL, which guarantee $2.8 billion of the county's sewer debt, suffered credit rating cuts because of losses on securities tied to subprime mortgages. That caused the investors to sell back the county's $850 million variable-rate bonds to banks that agreed to be buyers of last resort, and to shun about $2 billion of debt whose interest is determined by auctions. Rates on some of the county's debt increased to as high as 10 percent.

At the same time, interest-rate swaps the county bought from JPMorgan, Bear Stearns Cos., Bank of America and Lehman Brothers Holdings Inc. to shield it against rising borrowing costs stopped working. The floating rates it pays on its bonds have climbed while the variable rates banks pay the county under the agreements have declined, pushing expenses higher.

Downgrades to Junk

The surging debt costs led the credit-rating companies to cut the county's sewer bonds to below investment grade. That, in turn, triggered clauses in bond and derivative contracts that gave banks the right to force the county to terminate the swaps at a cost of $277 million and buy back $850 million of the floating-rate debt over four years.

Without restructuring its bonds, interest costs on Jefferson County's sewer debt may reach $250 million, nearly twice the $138 million the system produces in revenue, Jefferson County Commission President Collins estimated in March. Since April, the county has obtained agreements to postpone making payments to banks holding its unwanted bonds as it looks for a way to restructure its debts.

Insurers' Proposal

The insurance companies have suggested that the county levy a fee on those who use septic tanks instead of the sewer, which commissioners have rejected. The commission this month hired Merrill Lynch & Co. to advise it on how to revamp the bonds and avoid bankruptcy.

The lawsuit filed today alleges that Jefferson County's bond transactions have left customers responsible for a massive debt load.

``Through a long series of ill-conceived financial transactions, the sewer ratepayers of Jefferson County have been saddled with a debt of roughly $11,491 per residential sewer customer, which is the highest in the nation,'' the complaint says.

The case is Charles E. Wilson, v. JPMorgan Chase & Co., et. al Jefferson County Circuit Court (Alabama). The case number is 01-cv-2008-901907.00

To contact the reporters on this story: William Selway in San Francisco at wselway@bloomberg.net; Martin Z. Braun in New York at mbraun6@bloomberg.net.

How Sweet It Is! (If you're KBR)

June 17, 2008

Lost Army Job Tied to Doubts on Contractor

By JAMES RISEN

WASHINGTON — The Army official who managed the Pentagon’s largest contract in Iraq says he was ousted from his job when he refused to approve paying more than $1 billion in questionable charges to KBR, the Houston-based company that has provided food, housing and other services to American troops.

The official, Charles M. Smith, was the senior civilian overseeing the multibillion-dollar contract with KBR during the first two years of the war. Speaking out for the first time, Mr. Smith said that he was forced from his job in 2004 after informing KBR officials that the Army would impose escalating financial penalties if they failed to improve their chaotic Iraqi operations.

Army auditors had determined that KBR lacked credible data or records for more than $1 billion in spending, so Mr. Smith refused to sign off on the payments to the company. “They had a gigantic amount of costs they couldn’t justify,” he said in an interview. “Ultimately, the money that was going to KBR was money being taken away from the troops, and I wasn’t going to do that.”

But he was suddenly replaced, he said, and his successors — after taking the unusual step of hiring an outside contractor to consider KBR’s claims — approved most of the payments he had tried to block.

Army officials denied that Mr. Smith had been removed because of the dispute, but confirmed that they had reversed his decision, arguing that blocking the payments to KBR would have eroded basic services to troops. They said that KBR had warned that if it was not paid, it would reduce payments to subcontractors, which in turn would cut back on services.

“You have to understand the circumstances at the time,” said Jeffrey P. Parsons, executive director of the Army Contracting Command. “We could not let operational support suffer because of some other things.”

Mr. Smith’s account fills in important gaps about the Pentagon’s handling of the KBR contract, which has cost more than $20 billion so far and has come under fierce criticism from lawmakers.

While it was previously reported that the Army had held up large payments to the company and then switched course, Mr. Smith has provided a glimpse of what happened inside the Army during the biggest showdown between the government and KBR. He is giving his account just as the Pentagon has recently awarded KBR part of a 10-year, $150 billion contract in Iraq.

Heather Browne, a spokeswoman for KBR, said in a statement that the company “conducts its operations in a manner that is compliant with the terms of the contract.” She added that it had not engaged in any improper behavior.

Ever since KBR emerged as the dominant contractor in Iraq, critics have questioned whether the company has benefited from its political connections to the Bush administration. Until last year, KBR was known as Kellogg, Brown and Root and was a subsidiary of Halliburton, the Texas oil services giant, where Vice President Dick Cheney previously served as chief executive.

When told of Mr. Smith’s account, Representative Henry A. Waxman, the California Democrat who is chairman of the House Oversight and Government Reform Committee, said it “is startling, and it confirms the committee’s worst fears. KBR has repeatedly gouged the taxpayer, and the Bush administration has looked the other way every time.”

Mr. Smith, a civilian employee of the Army for 31 years, spent his entire career at the Rock Island Arsenal, the Army’s headquarters for much of its contracting work, near Davenport, Iowa. He said he had waited to speak out until after he retired in February.

As chief of the Field Support Contracting Division of the Army Field Support Command, he was in charge of the KBR contract from the start. Mr. Smith soon came to believe that KBR’s business operations in Iraq were a mess. By the end of 2003, the Defense Contract Audit Agency told him that about $1 billion in cost estimates were not credible and should not be used as the basis for Army payments to the contractor.

“KBR didn’t move proper business systems into Iraq,” Mr. Smith said.

Along with the auditors, he said, he pushed for months to get KBR to provide data to justify the spending, including approximately $200 million for food services. Mr. Smith soon felt under pressure to ease up on KBR, he said. He and his boss, Maj. Gen. Wade H. McManus Jr., then the commander of the Army Field Support Command, were called to Pentagon meetings with Tina Ballard, then the deputy assistant secretary of the Army for policy and procurement.

Ms. Ballard urged them to clear up KBR’s contract problems quickly, but General McManus ignored the request, Mr. Smith said. Ms. Ballard declined to comment for this article, as did General McManus.

Eventually, Mr. Smith began warning KBR that he would withhold payments and performance bonuses until the company provided the Army with adequate data to justify the expenses. The bonuses — worth up to 2 percent of the value of the work — had to be approved by special boards of Army officials, and Mr. Smith made it clear that he would not set up the boards without the information.

Mr. Smith also told KBR that, until the information was received, he would withhold 15 percent of all payments on its future work in Iraq.

“KBR really did not like that, and they told me they were going to fight it,” Mr. Smith recalled.

In August 2004, he told one of his deputies, Mary Beth Watkins, to hand deliver a letter about the threatened penalties to a KBR official visiting Rock Island. That official, whose name Mr. Smith said he could not recall, responded by saying, “This is going to get turned around,” Mr. Smith said.

Two officials familiar with the episode confirmed that account, but would speak only on the condition of anonymity out of concern for their jobs.

The next morning, Mr. Smith said he got a call from Brig. Gen. Jerome Johnson, who succeeded General McManus when he retired the month before. “He told me, “You’ve got to pull back that letter,”’ Mr. Smith recalled. General Johnson declined to comment for this article.

A day later, Mr. Smith discovered that he had been replaced when he went to a meeting with KBR officials and found a colleague there in his place. Mr. Smith was moved into a job planning for future contracts with Iraq. Ms. Watkins, who also declined to comment, was reassigned as well.

Mr. Parsons, the contracting director, confirmed the personnel changes. But he denied that pressure from KBR was a factor in the Army’s decision making about the payments. “This issue was not decided overnight, and had been discussed all the way up to the office of the secretary of defense,” he said.

Soon after Mr. Smith was replaced, the Army hired a contractor, RCI Holding Corporation, to review KBR’s costs. “They came up with estimates, using very weak data from KBR,” Mr. Smith said. “They ignored D.C.A.A.’s auditors,” he said, referring to the Defense Contract Audit Agency.

Lt. Col. Brian Maka, a Pentagon spokesman, disputed that. He said in a statement that the Army auditing agency “does not believe that RCI was used to circumvent” the Army audits.

Paul Heagen, a spokesman for RCI’s parent company, the Serco Group, said his firm had insisted on working with the Army auditors. While KBR did not provide all of the data Mr. Smith had been seeking, Mr. Heagen said his company had used “best practices” and sound methodology to determine KBR’s costs.

Bob Bauman, a former Pentagon fraud investigator and contracting expert, said that was unusual. “I have never seen a contractor given that position, of estimating costs and scrubbing D.C.A.A.’s numbers,” he said. “I believe they are treading on dangerous ground.”

The Army also convened boards that awarded KBR high performance bonuses, according to Mr. Smith.

High grades on its work in Iraq also allowed KBR to win more work from the Pentagon, and this spring, KBR was awarded a share in the new 10-year contract. The Army also announced that Serco, RCI’s parent, will help oversee the Army’s new contract with KBR.

“In the end,” Mr. Smith said, “KBR got what it wanted.”

Gas hits national average of $4 for first time

Sunday June 8, 9:13 am ET Gasoline prices hit national average of $4 for first time, expected to go higher NEW YORK (AP) -- Drivers are paying an average of $4 for a gallon of gasoline for the first time. AAA and the Oil Price Information Service say the national average price for a gallon of regular gas rose to $4.005 overnight from $3.988. But consumers in many parts of the country have already been paying well above that price for some time.

Gas is expected to keep climbing, putting greater pressure on consumers and businesses, because the price of oil is soaring in futures markets. Light, sweet crude shot up nearly $11 a barrel Friday and approached $140 for the first time.

Along with higher fuel costs, consumers are also contending with higher prices for food and other goods because of rising transportation costs.

Biggest jobless jump since '86 -- Wall Street sinks

Friday June 6, 4:17 pm ET
By Jeannine Aversa, AP Economics Writer Jobless rate zooms to biggest increase in decades; stocks plunge nearly 400 points WASHINGTON (AP) -- Pink slips piled up and jobs disappeared into thin air in May as the nation's unemployment rate zoomed to 5.5 percent in the biggest one-month jump in decades. Wall Street swooned, and the White House said President Bush was considering new proposals to revive the economy.

Help-wanted signs are vanishing along with jobs, so the unemployment rate is likely to keep climbing, a government report indicated, underscoring the toll the housing and credit crises are taking on jobseekers, employers and the economy as a whole.

Adding to the pain, oil prices soared to a new record high, while the value of the dollar fell.

The Dow Jones industrials tumbled almost 400 points.

Oil Prices Skyrocket, Taking Biggest Jump Ever

June 7, 2008

By JAD MOUAWAD

Oil prices had their biggest-ever jump on Friday, after a senior Israeli politician raised the specter of an attack on Iran and the dollar fell against the euro.

The gains on Friday capped a second day of strong gains on energy markets, and fueled suspicions that commodities might be caught in a speculative bubble.

Oil futures surged more than $10, or almost 8 percent, to $138 a barrel, in afternoon trading on the New York Mercantile Exchange. Friday’s rise followed a 5.5 percent jump on Thursday.

Even as uncertainties abound about the fundamentals of the market, geopolitical tensions in the Middle East regained center stage after Israel’s transportation minister, Shaul Mofaz, said Friday that an attack on Iran’s nuclear sites looked “unavoidable.” Iran is the second-largest oil producer within the OPEC cartel and any interruptions in its exports could push prices higher levels.

“The return of the Iranian risk premium calls for a careful assessment of the potential oil supply impact of military strikes on Iran,” said Antoine Halff, an analyst at Newedge, an energy broker.

The strong volatility in energy markets in recent weeks have continued to puzzle investors and traders. Prices keep rising despite a lack of shortages in the market, and strong evidence of lower consumption in industrialized countries. But investors seem to be caught in a bullish mood, focusing instead on perceived risks to future oil supplies and continued growth in oil demand from emerging economies that subsidize fuels.

The latest jump in oil prices also came as the dollar lost almost 1 percent against the euro amid bleak economic news that fanned recession fears on Friday. The unemployment rate surged to 5.5 percent last month, the government said, the biggest increase in more than two decades.

Investors reacted to the latest forecast by a large Wall Street bank that oil prices would spike to $150 a barrel in the next month because of strong demand from Asian economies. Morgan Stanley said “an unprecedented share” of Middle East oil exports are headed to Asia.

Some analysts also said that the threat of a strike by Chevron’s workers in Nigeria could lead to “considerable” shutdowns of Nigerian production. A similar strike by Exxon Mobil workers last April, which lasted a week, reduced Nigerian output by 800,000 barrels a day, or nearly a third of the country’s daily exports.

A strike might delay the start of Chevron’s 250,000 barrels-a-day Agbami project, the country’s largest offshore venture, which is slated for June 15.

One view that has been gaining ground in recent months is that the commodity market is caught in a speculative bubble akin to the housing or technology bubble of the late 1990s. The notion is buffered by the fact the oil prices have doubled in 12 months despite a slowing economy.

That theory was raised by politicians in Washington and a slew of OPEC producers, who blame speculators for the staggering rally in oil prices. Speaking before Congress recently, George Soros, a prominent hedge fund investor, said the current oil markets presented some characteristics of a bubble.

“I find commodity index buying eerily reminiscent of a similar craze for portfolio insurance, which led to the stock market crash of 1987,” Mr. Soros said earlier this week. But he cautioned that an oil market crash was not imminent. “The danger currently comes from the other direction. The rise in oil prices aggravates the prospects for a recession.”

Jeffrey Harris, the chief economist at the Commodity Futures Trading Commission, who was speaking before another Senate committee last month, said he saw no evidence of a speculative bubble in the commodity market. Instead, Mr. Harris pointed out to a confluence of trends that have contributed to the oil price rally, including a weak dollar, strong energy demand from emerging-market economies, and political tensions in oil-producing countries.

“Simply put, the economic data shows that overall commodity price levels, including agricultural commodity and energy futures prices, are being driven by powerful fundamental economic forces and the laws of supply and demand,” Mr. Harris said. “Together these fundamental economic factors have formed a ‘perfect storm’ that is causing significant upward pressures on futures prices across the board.”

Oil prices had been weakening in recent days but reversed dramatically after the president of the European Central Bank, Jean-Claude Trichet, suggested on Thursday that the bank might raise interest rates. That pushed up the euro against the dollar and prompted investors to buy into commodities to hedge against the weaker American currency.

Gasoline prices have also been rising steadily. American drivers are now paying an average of $3.99 for a gallon of gasoline nationwide, according to AAA, the automobile group. In many parts of the country, like California, Connecticut and New York, consumers are already paying well over $4. Diesel costs $4.76 a gallon on average.

“I don’t know how else to say it, this is not a bubble,” Jan Stuart, global oil economist at UBS, said. “I think this is real. There is a whole bunch of commercial buyers out there who are spooked and are buying. You are an airline, right now, you’re scared. But I don’t see who would buy at these prices unless they need to.”

Not-So-Safe-Deposit Boxes: States Seize Citizens' Property to Balance Their Budgets

Resources to Search for Unclaimed Property in Your Name

By ELISABETH LEAMY

May 12, 2008 —

The 50 U.S. states are holding more than $32 billion worth of unclaimed property that they're supposed to safeguard for their citizens. But a "Good Morning America" investigation found some states aggressively seize property that isn't really unclaimed and then use the money -- your money -- to balance their budgets.

Unclaimed property consists of things like forgotten apartment security deposits, uncashed dividend checks and safe-deposit boxes abandoned when an elderly relative dies.

Banks and other businesses are required to turn that property over to the state for safekeeping. The problem is that the states return less than a quarter of unclaimed property to the rightful owners.

Not-So-Safe-Deposit Boxes

San Francisco resident Carla Ruff's safe-deposit box was drilled, seized, and turned over to the state of California, marked "owner unknown."

"I was appalled," Ruff said. "I felt violated."

Unknown? Carla's name was right on documents in the box at the Noe Valley Bank of America location. So was her address -- a house about six blocks from the bank. Carla had a checking account at the bank, too -- still does -- and receives regular statements. Plus, she has receipts showing she's the kind of person who paid her box rental fee. And yet, she says nobody ever notified her.

"They are zealously uncovering accounts that are not unclaimed," Ruff said.

To make matters worse, Ruff discovered the loss when she went to her box to retrieve important paperwork she needed because her husband was dying. Those papers had been shredded.

And that's not all. Her great-grandmother's precious natural pearls and other jewelry had been auctioned off. They were sold for just $1,800, even though they were appraised for $82,500.

"These things were things that she gave to me," Ruff said. "I valued them because I loved her."

Bank of America told ABC News it deeply regrets the situation and appreciates the difficulty of what Mrs. Ruff was going through. The bank has reached a settlement with Ruff and continues to update its unclaimed property procedures as laws change.

California's Class Action Lawsuit

Ruff is not alone. Attorney Bill Palmer represents her and countless other citizens in a class action lawsuit against the state of California.

"They figured the safety-deposit box was safer than keeping it under the mattress," Palmer said. "In the case of a lot of citizens, they were wrong, weren't they?"

California law used to say property was unclaimed if the rightful owner had had no contact with the business for 15 years. But during various state budget crises, the waiting period was reduced to seven years, and then five, and then three. Legislators even tried for one year. Why? Because the state wanted to use that free money.

"That's absolutely correct," said California State Controller John Chiang, who inherited the situation when he came into office. "What we've done here over the last two decades has been dead wrong. We've kept the property and not provided owners with the opportunities -- the best opportunities -- to get their property back."

Chiang now faces the daunting task of returning $5.1 billion worth of unclaimed property to people. Some states keep their unclaimed property in a special trust fund and only tap into the interest they earn on it. But California dumps the money into the general fund -- and spends it.

"It's supposed to be segregated and protected," Palmer said. "California has taken all of that $5.1 billion and has used it as a massive loan."

California became so addicted to spending people's money, that, for years, it simply stopped sending notices to the rightful owners. ABC News obtained a 1996 internal memo in which the lawyer for the Bureau of Unclaimed Property argued against expanding programs to notify rightful owners. He wrote, "It could well result in additional claims of monies that would otherwise flow into the general fund."

Seizing More Than Safe-Deposit Boxes

It's not just safe-deposit boxes. A British man went to retire and discovered the $4 million in U.S. stock he had been counting on had been seized and sold for $200,000 years earlier -- even though he was in touch with the company about other matters.

A Sacramento family lost out on railroad land rights their ancestors had owned for generations -- also sold off as unclaimed property.

"If I had hung onto it, I would be a millionaire, multimillionaire," said John Whitley. "But that didn't happen because we didn't get to hold it."

State Reforms

California's unclaimed property program was so out of control that, last year, the courts issued injunctions barring the state from seizing any more property until it made reforms. Since then, Chiang has taken several steps to try to clean up the program.

For example, the state now sends notices alerting citizens about unclaimed property before it is handed over to the state -- the only state to do so. Once unclaimed property is delivered to the state, it is now held for several months while the state tries to contact the owners, rather than it being immediately sold off or destroyed.

Which raises the question, in the Internet era, is anybody really lost anymore? California and other states are just beginning to make use of modern databases that can find most anyone in minutes. Unfortunately, California only uses those databases to search after it has already seized a citizen's property.

If California does get better at locating people, that could present another challenge. Remember, right now, the state spends the money.

"It's like the last guy in line at a pizza parlor," Palmer criticized. "There is only so much pizza. At the end, when I get up to the counter to claim my pizza, there may be no pizza for me."

California's fiscal problems are legendary and once again in the news, so it's reasonable to question whether the state can afford to repay its citizens if a bunch of them surface at once.

"There is always going to be money to give the owners when they make their claim, " Chiang insisted. "I don't want my legacy to say I continued a broken program. I want my legacy to be 'this guy was the guy who truly cared about the people and returned their money.'"

California is not the only state to come under fire for its handling of unclaimed property. In Delaware, unclaimed property is the third largest source of state revenue. Idaho recently passed an unprecedented law that says the state gets to keep unclaimed property permanently if the rightful owners don't claim it within 10 short years. And all 50 states pay private contractors 10 to 12 percent commissions to locate and seize accounts for them. It's an inherent conflict of interest: the more rightful owners are found, the less money the contractors make.

Of course, there are some states who handle their people's property with respect. Oregon never takes title to unclaimed property. Instead, it holds it in a perpetual trust fund.

Colorado uses the interest on its unclaimed property fund to pay for some state programs, but leaves the principal untouched.

Missouri, Iowa and Kansas make extra efforts to reunite people with their property even setting up booths at state fairs to get the word out. The State of Maryland actively compares the names on unclaimed accounts with state income tax records. If it finds a match, the state simply cuts a check and sends it to the citizen.

Protecting Your Property

So, the question for citizens is, how do you protect yourself?

Make contact with your bank, your brokerage firm, etc. at least once a year, in a way that creates a paper trail. Make sure they have your current address.

If you own stock, occasionally vote your proxies or take other steps to keep your stock ownership active. Stay in touch with your broker.

Write a list of all your accounts and keep it with your will, so your heirs will know where to look.

Consider insuring valuables even if you keep them in your safe-deposit box. That way, you're covered financially if the bank or state makes a mistake and empties your box. Plus, safe-deposit contents have been known to be destroyed by fire or flooding.

If you want to search for unclaimed property in your name, you do not need to pay other people to do it for you. Check out the following links for more information:

National Association of Unclaimed Property Administrators

www.missingmoney.com

Copyright © 2008 ABC News Internet Ventures

Gotta love it!

State seizing federal stimulus checks for back taxes

By JAMES SALZER
The Atlanta Journal-Constitution
Published on: 06/04/08

Thousands of Georgians who owe back state income taxes are seeing their federal stimulus checks go back to the government.

So far, at least part of 16,000 stimulus payments to Georgians have been intercepted by the state because the recipients owe back state taxes.

In all, the state has collected $4.66 million worth of federal stimulus money from Georgians owing back taxes through the end of May. That's second only to the state of New York, which has collected $4.71 million in back taxes from the stimulus payouts, according to the Georgia Department of Revenue.

"I knew we'd get something, but I've been surprised by the number, and it takes a lot to surprise me," said Revenue Commissioner Bart Graham. "16,000 people. That's a college basketball arena full of people."

The state hooked into the federal "offset" system almost five years ago that allows it to get all or part of federal tax refunds if a Georgians owes back state income taxes. Graham said the state has collected $122.2 million in back taxes from the program since then.

"We could have never gotten enough people to chase that down by ourselves," he said. "Even if we had, it would have taken years."