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07/04/2009 12:51 AM

5 Public School Cutbacks Students Will Feel

School may be out for the summer, but across the country school boards are now wrestling with mammoth budget shortfalls that will require painful cuts in the upcoming year.

Their own budgets in shambles, many states are inflicting deep reductions in K-12 funding. At the same time, local property tax revenue has waned because the housing market’s collapse slashed residential property values. The losses were particularly heavy in big-bubble states, including California, Arizona and Florida. Economists estimate the broader housing market won’t fully recover for years, which could put a dent in school districts’ coffers for the foreseeable future. That deficit is forcing many of the nation’s 14,300 school districts to make harsh cuts. School officials are telling parents that programs and resources they have come to expect will be pared down or eliminated.

Of course, small fluctuations in municipal budgets can always leave a field trip cancelled or a playground scrubbed, but this recession has exacted a far greater toll on public education. Many schools are scaling back academic programs or closing altogether because of financial hardship, according to a survey by the American Association of School Administrators on the impact of the economic downturn. For instance, 44% of schools surveyed are increasing class size for the 2009-10 academic year, up from 13% the year before. The percentage of schools eliminating enrichment programs and other nonacademic courses will rise to 27%, up threefold from last year. And more schools are doing away with field trips, deferring textbook purchases and reducing elective classes.

Some budget shortfalls are being filled by federal aid. The federal stimulus package has funneled about $100 billion to states for education funding – the largest single federal outlay for education in U.S. history, says Jack Jennings, president of the Center on Education Policy, a nonprofit advocacy organization that studies school funding. “If it weren’t for the stimulus money, these would be the worst cutbacks in education since the Depression,” he says. “It’s what’s saving the schools from disaster.”

The cutbacks are not necessarily permanent and in fact may save some schools and services in the long run. Making cuts earlier rather than later can mitigate future financial trouble, says Arturo Pérez, a fiscal analyst at the National Conference of State Legislatures in Denver. “By making reductions, you are essentially providing a future savings to the program.” If school districts were to face another year of weak tax revenues and leave their budgets untouched, then “the problem compounds itself,” he says.

Here’s a look at some of the things that public-school students will be missing out on come September.

Bands and Music Programs Silenced

At many schools, library services, counselors and extracurricular activities like sports, band and art clubs may be curtailed or eliminated. Even curriculums are being stripped to the bare minimum because schools typically cut enrichment courses first to avoid laying off teachers, Jennings says.

For example, all three elementary schools in the Phoenix/Talent district in southern Oregon have lost their music teachers, a move that will impact 1,200 students, says Dori Brattain, deputy executive director of the Oregon School Board Association. As of now, no concerts are budgeted for the next school year, but the PTA is trying to raise funds to resurrect the music program, she says. In Arizona, Higley Unified school district is scaling back its sports program back by 60% because of budget cuts, says Janice Palmer, director of government relations at the Arizona School Boards Association. That means the football, baseball and girls soccer teams will be playing with old uniforms and equipment, and ballfields won’t be maintained.

Desks Inch Closer Together

In California, 27,000 teachers have been laid off already, with more expected soon. In total, these layoffs amount to cutting 15% of the state's public school teachers, according to data compiled by the National Conference of State Legislatures. Fewer teachers means bigger classes. For instance, the San Jose Unified School District is considering increasing its class sizes to 30 students from kindergarten through second grade, up from 20 last year, in order to save the district at least $6 million.

Class size increases in Massachusetts are particularly pronounced at the elementary-grade level, says Glenn Koocher, executive director of the Massachusetts Association of School Committees. For instance, some second-grade classes in the Asburnham-Westminster Regional School District will get bumped to 25 students next year, up from about 21 now.

School’s Out, Like It or Not

California’s public school system – whose per-pupil expenditures were already below the national average – is getting hit with some nasty cuts, thanks in large part to the state’s $24 billion budget gap, says Brian Edwards, senior policy analyst at EdSource, a nonprofit education and research group in Mountain View, Calif. In response, Gov. Arnold Schwarzenegger proposed slashing $5.3 billion from K-12 education funding, making summer school a luxury most districts can’t afford.

In May, the Los Angeles Unified School District said it would cancel the bulk of its summer programs, and the consequences will no doubt be hard felt. Parents who otherwise would enroll their kids in a summer program will have to find child care; many students won’t be able to take courses required to graduate, and others will miss an opportunity to prepare for next year.

Cut in Bus Service

Heavy cutbacks in transportation will make life tougher on students and parents next year. The number of schools cutting bus transportation routes rose to 23% for the 2009-2010 school year, up from 14% last year, according to the American Association of School Administrators survey.

The Novato Unified School District in California’s Marin County is cutting bus service for most of its students as part of a $647,000 cost-cutting measure. Meanwhile, other districts are hitting students – and their parents – with transportation fees. Students living within two miles of their school in Lakeville, Minn., will have to pay $150 a year for bus service starting in September. (Students living two or more miles from their school get free transportation, according to state law.)

Athletes Will Pay to Play

Playing sports is getting pricier at many schools next year. Students in the Asburnham-Westminster district in Massachusetts will have to shell out $195 a year for every sport they play – up from $170 now. And in Colorado, the Boulder Valley Board of Education agreed to increase high school and middle school athletic fees to retain the district’s six high school athletic trainers. That means high school athletes will pay $185 for each sport they play, up 37% from last year. Intramural fees at the middle school are also set to rise.

SMARTMONEY ® Layout and look and feel of SmartMoney.com are trademarks of SmartMoney, a joint venture between Dow Jones & Company, Inc. and Hearst SM Partnership. © 1995 - 2009 SmartMoney. All Rights Reserved.


5 Housing Markets That Have Further to Fall

Home buyers looking for a bottom in the real estate market may have been encouraged by housing data released earlier this week. Sales of existing homes rose 2.4% in May, according to the National Association of Realtors. The increase was a little less than most analysts had expected, but it represented the second straight month of improvement. Meanwhile, sales of new homes dipped 0.6% in May, continuing a trend of fairly flat months so far this year, according to data released by the Commerce Department.

Don’t get too excited – it’s still too early to say the housing market bottomed out, analysts and economists say. Distressed properties still account for about a third of all sales, and 29% of sales were to first-time home buyers, who are currently benefiting from an $8,000 tax credit.

The sales trends are telling. “You’re not really seeing a lot of move-up buying,” says Richard F. Moody, chief economist and director of research at Forward Capital, LLC. “There are so many vacant homes and so many foreclosures that [there’s] not the normal trade-up pattern that you would have traditionally seen,” Moody says.

Housing prices fell nationwide during the first quarter, according to Standard & Poor’s Case-Shiller Index. The decline appears to be slowing: in February and March, the annual rate of decline did not set a new record, but home owners should take little solace in those numbers. “Based on the March data… we see no evidence that that a recovery in home prices has begun,” David M. Blitzer, chairman of the Index Committee at Standard & Poor’s, said in a statement.

All of this less-than-terrible news has left analysts cautiously optimistic that much of the country will start to see housing prices rise sometime in the next year or two. Looking at the nation as a whole, today through the spring of 2011 may be the window for those looking to buy a house at the bottom of the market, says Gary Hager, president and founder of Integrated Wealth Management, a New Jersey-based financial planning company.

A few markets where the housing crisis started earliest have already shown signs of bottoming out. Early-suffering cities like Denver and Boston are now seeing slower declines in home prices, which could indicate they’re already poised for a comeback.

And in some areas, buyers have seized on rapidly falling prices. Existing-home sales rose 9% in the Midwest in May, according to the National Association of Realtors.

“There will be regional differences in the turnaround,” says Maureen Maitland, vice president of index services at Standard & Poor’s. “Most economists I talk to are expecting the beginning of the turnaround to be sometime next year,” she says. However, she added, “the last market may not turn around for two or three years.”

For those hoping to buy at the best possible price, we’ve got a list of five cities where home prices may still have farther to fall. But keep in mind, getting a house at a discount is still not necessarily a house you can afford.

“In light of the housing market boom and bust, consumers should feel very comfortable financially” before deciding to buy, says Lawrence Yun, chief economist for the National Association of Realtors. “They should not try to overstretch their budget to get their dream home.”

1) Detroit

Housing prices fell 4.9% in Detroit in March, according to the latest reading of the Case-Shiller Index. That marked the city’s largest monthly decline since January 1991, when S&P’s backlogged data begin. Houses in Detroit are currently selling at 1995 prices – and with prices still falling so fast, it’s hard to say when the city will rejoin the 21st century.

“Detroit is Detroit because of the auto industry,” says Maitland. The whole Midwest is hurting from car companies’ woes, but Detroit is hurting the most.

2) New York City

Anyone who was hoping to see Wall Street suffer from the financial crisis can relax. New York may have avoided the nationwide implosion in home prices early on, but the city saw its largest-ever monthly decline in March, at 2.5%.

“New York may not be out of the woods,” Maitland says. “Because of what’s going on with the financial markets and the layoffs on Wall Street, New York may be one of the last places to turn around.”

3) Phoenix

Home prices in Phoenix have fallen 53% from their peak in June 2006, and the 2009 data suggest they’ve got farther to go. In March, prices in Phoenix fell 4.5%.

The Southwest has been one of the hardest-hit regions in the mortgage crisis. The region still faces a glut of recently-built homes.

“In Phoenix, you had some of the worst excesses,” in terms of overbuilding, Moody says. “The surplus of houses is so great that it could take two or three years” for prices to turn around. However, a steady influx of new residents into the region suggests the long-term prospects for the market are sound, he says.

4) Portland, Ore.

In the Northwest, median home prices are down but they remain above the national average. Portland’s prices fell 2.1% in March. Home prices in Seattle were down 2.0% for the month.

“Portland’s still going down,” says Dave McCarthy, president and chief executive of Integrated Asset Services, a real estate valuation and asset disposition and management company that collects data on the housing market.

The city “has remained pretty strong but they’re starting to feel some of the effects,” he adds.

The local labor market may be playing a role, Moody says. Portland’s unemployment rate was 11.6% in April, according to the Department of Labor. That’s well above the national average for the month (8.9%).

The Pacific Northwest bubble was among the last to burst, which could mean the market will be among the last to recover.

5) Minneapolis

Housing prices in Minneapolis fell 6.1% in March, the largest monthly decline of any metro area since data tracking began in 1987.

More than half of all March home sales in Minneapolis were due to foreclosure or short-sale activity, according to the Federal Reserve Board’s Beige Book, which gathers information on regional economic conditions. Foreclosed homes tend to drive prices down because “the bank’s best interest is to get the asset off their books” as quickly as possible, Maitland says.

SMARTMONEY ® Layout and look and feel of SmartMoney.com are trademarks of SmartMoney, a joint venture between Dow Jones & Company, Inc. and Hearst SM Partnership. © 1995 - 2009 SmartMoney. All Rights Reserved.


'Jon and Kate' Divorce? The Money Traps Ahead

On television, “Jon & Kate Plus 8” has been a ratings bonanza. But as any divorce lawyer will tell you, “Jon Minus Kate” could be a complex financial maze — with college tuition alone posing a million-dollar dilemma.

As the media spectacle of Jon and Kate Gosselin’s separation — disclosed in Monday night’s episode of their reality show – unfolds, much of the focus will be on what went awry in their marriage, the emotional impact on the couple’s eight kids and how their divorce procedings unfold.

But as with any divorce, financial questions can present complications. In the case of an unusually large family, such as the Gosselins, those complications can be particularly tricky. College costs alone for the eight Gosselin kids could amount to upwards of $1 million, for instance. Though divorcing parents could agree simply to split the future costs of education, for a couple with many children, agreeing now how both spouses contribute to an ongoing savings plan could avoid future strife.

For now, the Gosselins are separating, and no one knows what plot twists might be in store – reconciliation or eventual divorce. In terms of their arrangements, so far the Gosselins have divulged only that their children will remain in their house and that Jon and Kate will take turns with them.

Among the big money questions for a big family splitting up:

(1) How Are Child Support Payments Determined?

Generally, child support includes monthly payments for food, shelter, clothing and education. Most states use a model based on “income shares,” in which children receive the same financial support before and after their parents are divorced. The noncustodial parent’s contribution is based in part on the number of children in the family and the gross household income. However, in Pennsylvania, which is where the Gosselins are based, in cases in which both parties' net income exceeds $20,000 a month or the family has more than six children, the courts determine child support payments based on their expenses, says Julia Swain, an attorney at Philadelphia-based Fox Rothschild, which practices family law.

(2) Who Pays Out-of-Pocket Health-Care Expenses?

In most cases, children will remain covered under the health plan of the same parent who covered them prior to the divorce. However, parents may need to split unreimbursed medical expenses or out-of-pocket costs, depending on their income, says Daniel Clement, a family law and matrimonial attorney with offices in New York and New Jersey.

In Pennsylvania, where the Gosselins live, the custodial parent must pay the first $250 of out-of-pocket health expenses per year per child, says Swain. After that, the parents will split the costs in proportion to their income. Those expenses can pile up quickly in big families. For example, the measles vaccine ProQuad costs $128.90 per dose in the private sector, according to the Centers for Disease Control. For a family of eight children, that’s $1,031.20 for the first dose. If the family’s health-care plan has a high deductible or doesn’t cover the vaccine, parents could have to pay these costs out-of-pocket.

If parents can’t reach an agreement on these costs, the custodial parent should consider signing up for the health-insurance plan that their employer provides – assuming that they have this option.

Typically, parents don’t set up an account for these expenses, says Clement. Instead the agreement is laid out in the divorce paperwork. And often, the parent who receives the bill will send their ex an invoice for reimbursement.

(3) Do the Kids Need Two of Everything?

Toys, cribs and other items that the couple purchased for their children while married are technically up for grabs in equitable distribution, says Clement. (These items can include the crooked houses that the Gosselins ordered for their children last winter and arrived during Monday’s show.) The argument on each parent’s side is that they’ll need these items when they spend time with their children, says Clement. Big-ticket items, like the Gosselins’ family car – a 2004 Dodge Sprinter 2500 passenger van – are also on the block, but in most cases the custodial parent ends up with most of these items since he or she will be the one spending the most time with the children, says Clement.

Of course, arrangements can be made for each of the parents to use these items when they’re with the children, says Clement. This could be a likely outcome in Jon and Kate’s case, as the children will remain in their home and each parent will be staying there during their designated time with the kids. The Gosselins would be a unique case, but in most states, including Pennsylvania, figuring out which parent gets what falls under equitable distribution laws.

(4) Pay for College Now or Later?

As part of a divorce, ex-spouses should agree to continue contributing to their child’s college education fund even if the child is a decade away from graduating high school, says Clement.

The average cost of college tuition, including room and board, is $14,333 per year for in-state students at public four-year colleges and $25,200 for out-of-state students as of 2007-08, according to the College Board’s latest data. The average cost at a private university is $34,132 for 2008-09. That means that the Gosselins could pay as much as $1.1 million for all eight of their children to attend college (not including the annual inflation on tuition).

What’s more, the Gosselins will probably encounter these astronomical expenses over a relatively short period; their eldest twins Cara and Madelyn are 8 years old and their sextuplets are five.

“This behooves them to deal with the ticking time bomb,” Clement says. “That is, sooner or later, your kids will go to college, and the cost will be apportioned in some way between the two parties.”

In the case in which an ex refuses to contribute but has the means to do so, the other parent can drag them into court. With 529 plans, both exes can contribute to a single plan for each child or separately if need be, says Rick Kahler, a fee-only certified financial planner in Rapid City, S.D.

The riskiest thing to do, however, is to agree to split Junior’s costs evenly once they start college, Kahler says. There’s no guarantee that both parents will be financially sound that far down the road, he says.

(5) How Much Allowance to Give?

Deciding how much allowance to give your child each week may seem insignificant, but it should be laid out in the divorce paperwork, says Kahler. Parents need to decide how often and how much they’ll give their kids and whether the kids will have to work to earn their allowance or not.

“You don’t want it to be where one parent has a more strict view of allowance and the other one has a liberal view, and the kid starts playing that against each parent,” says Kahler.

SMARTMONEY ® Layout and look and feel of SmartMoney.com are trademarks of SmartMoney, a joint venture between Dow Jones & Company, Inc. and Hearst SM Partnership. © 1995 - 2009 SmartMoney. All Rights Reserved.


10 Things Moving Companies Won't Say

1. “We’ll hijack your stuff.”

The moving industry packs in nearly 55 percent of its business during the summer months, but often leaves a trail of frustrated consumers in its wake. The Department of Transportation receives up to 4,000 household moving complaints annually, mostly about loss and damage, poor service, or overcharging. The Council of Better Business Bureaus, meanwhile, reports that complaints about movers jumped from nearly 3,800 in 1997 to more than 9,200 in 2007.

Just ask Spyro Malaspinas, a victim of a botched move. He says that Nation Van Lines, which he hired to move his belongings from Austin, Tex., to Chicago in January 2003, hiked his bill from an estimate of $1,050 to nearly $4,300. The movers, according to Malaspinas, said his goods measured 500 cubic feet more than anticipated. When Malaspinas threatened to call the police, the drivers made off with his possessions, which he estimates were worth $47,000. Despite an FBI investigation and the March arrest of Nation owner Eli Peretz by the FBI for alleged crimes with another moving company, Malaspinas wasn’t thrilled with the final results: He only got back around $25,000—and never saw his belongings again. The experience was “paralyzing,” he says. “It’s not like somebody stealing your wallet; they have stolen everything you’ve got.” (Peretz’s lawyer did not return our calls; Nation Van Lines has since gone out of business.)

2. “We’re popular, especially with the FBI .”

Eli Peretz wasn’t the only mover rounded up by the FBI in March 2003. The feds indicted a total of 16 moving companies and 74 operators, owners, and employees on various charges following a two-year investigation called Operation Stow Biz. “It is the most significant crackdown that we’ve done,” says a spokesperson for the FBI’s Miami division, whose undercover agents posed as potential customers to trap movers committing fraud, money laundering, and other acts. Among those indicted were 20 officers and employees of Sunrise, Fla.–based Advanced Moving Systems. The charges in the 60-count indictment include fraud, extortion, false documentation, and “inflating the price of the move and, thereafter, withholding delivery of . . . goods until [customers] paid the inflated price.”

Too bad Patrick and Tammy Runion didn’t get advance word of Advanced’s alleged practices. The couple booked the company for their move from Toledo, Ohio, to Lake Forest, Calif. Patrick says that Advanced movers locked their stuff in storage in Chicago when he refused to pay an additional $500 because the load’s weight had been miscalculated by a driver. “We were so stressed and frustrated” by the ordeal, says Patrick, who eventually paid $1,000 to find the storage space. Attempts to contact Advanced officials were unsuccessful, and the company has since gone out of business. According to the FBI, 10 of the indicted employees are listed as fugitives; the other 10 have pleaded not guilty to charges as of press time.

3. “Don’t mess with us; we’re virtually untouchable.”

While the FBI sting did manage to take some bad guys out of play, Robert Julian, bureau chief for the Economic Crimes Division in Ft. Lauderdale, Fla., doesn’t think “consumers should breathe easy.” Scammers are tough to stop. Local police hesitate to get involved in moving disputes because they’re considered civil matters, and while the FBI will investigate complaints involving interstate moves, getting property back is not its priority.

There are also federal laws to contend with that, historically speaking, have tended to protect moving companies more than consumers. It used to be, for example, that while dissatisfied customers could sue their moving company for goods lost in a move, they stood very little chance of recovering even their basic monetary value, let alone winning any punitive damages on top of that amount. But the advent of the Safe, Accountable, Flexible, Efficient Transportation Equity Act in 2005 has given consumers and the federal government more authority in going after scofflaw movers; it “has helped the agency greatly in curbing abuses” in the industry, according to a spokesperson for the Federal Motor Carrier Safety Administration (FMCSA). Today movers are being held liable in a way they never were before for at least replacing the value of lost items—so long as the customer opted for full-value protection for their belongings in the initial moving contract. For more information, visit the FMCSA’s website at www.protectyourmove.gov.

4. “Someone will deliver your stuff—it just might not be us.”

In June 2002, Carole and Doug Stowers contracted with Elite Van Lines to transport the contents of their threebedroom house from Palm City, Fla., to Bailey, Colo. Nothing unusual there, right? Guess again. Elite then subcontracted the job to other companies for the cross-country trip. The Stowers were shocked when Majesty Moving & Storage pulled up to their new home with only half their possessions and didn’t know what had happened to the rest—after all, they hadn’t loaded the goods.

Beware: In the hectic summer months, a mover might get so busy that it asks another company to help out with a job. That’s fine, but the consumer should be notified in advance of the deal. A spokesperson for the American Moving and Storage Association says, “For a completely different company to show up at your house with no prior arrangements, that is totally unacceptable.” No need to tell Carole Stowers that. She shelled out $5,375 to Elite—the original estimate was $1,700— to get all her possessions back. “We almost went bankrupt trying to save our furniture,” she says. (Both Majesty and Elite have since gone out of business.)

5. “How much experience do our movers have? At least a day or two.”

Even if one company does handle your entire move, don’t assume that the movers who show up are actual employees of that company. Moving companies have been known to hire day laborers plucked off the streets on moving day. Peter Drymalski, investigator for the Montgomery County Division of Consumer Affairs in Maryland, says for smaller movers, “That’s probably the rule rather than the exception, because they often don’t have regular crews.” The problem is that inexperienced workers are more likely to damage possessions.

Similarly, many moving companies contract with independent truck drivers—a concern if the mover arrives in an unmarked rental truck. That’s a red flag, indicative of a fly-by-night operator with limited fixed assets—who would be difficult to go after in court. Swing by the company’s offices before you choose a mover. If the company doesn’t appear to have its own trucks, do yourself a favor: Cancel the job.

6. “Our pricing policies are wacko.”

Moving can test even the most timeconscious planner. For instance, it may be tempting to bypass getting an inhouse and written estimate from a mover, opting instead to save a few minutes with a telephone or online estimate. But if you take the shortcut, be prepared to get burned. Tim Walker thought he’d caught a break when he booked a mover online who gave him a lowball quote of $1,800 for a Virginia to Nevada move. But once his goods were on the truck and measured in cubic feet, Walker says, the price was jacked up to $5,012. He could pay only the original amount, so the movers held his belongings until he ponied up the cash six weeks later.

With an in-house estimate, you’re likely to get a more precise idea of the cost. But you also need to consider how the mover is reaching that estimate—is it by total weight or by cubic feet? Go the weight-based route, if possible. That will at least entitle you to witness all weighings. Also, it’s pretty easy to check your bill to see if you’ve been overcharged. Simply divide the total weight by the number of items. If the average amount per item is more than 35 to 45 pounds, there’s cause for suspicion. The trouble with cubic-foot pricing is that actual charges could depend on how the mover packed your items.

7. “Extra fees and charges? You can count on it.”

Understand this: There are many ways for movers to squeeze extra dollars from customers. Besides charges for accessorial services, movers have been known to levy exorbitant fees for such things as packing supplies. Sound petty? Sure, but they can add up. According to the American Moving and Storage Association (AMSAS), you can knock off some of these costs by packing your own nonbreakables, but movers may be reluctant to take responsibility for items they didn’t pack.

There are also charges related to the specific circumstances of a move. You might get dinged for a “long carry,” when the distance the movers have to haul your belongings from their truck to your door exceeds a certain limit; this is often applied in cities, where movers can’t always secure parking directly in front of a residence, for example. Then there’s the “flight charge” for having to lug goods up and down stairs in the absence of elevators.

“You just have to make sure you know all of these costs up front so you’re not surprised at the end,” says a spokesperson for the National Endowment for Financial Education, a nonprofit dedicated to promoting financial security and education. “If you start to incur these separate charges that weren’t estimated before, you’re going to have sticker shock.”

8. “We’ve never met a schedule we didn’t ignore.”

Thinking of moving during the last 10 days of June, July, or August? Think again. Those are the busiest moving days of the year. Still, moving companies will often overbook just to keep you from taking your business elsewhere. Consider what happened to Jenna Callahan. She was scheduled to move from Boston to West Chester, Pa., in July, but the movers never showed up. “I lost a lot of time and sanity,” she says.

But it doesn’t only happen at peak times. In January 2002, Tyrone Kelley was set to move from Stoughton, Mass., to Las Vegas, but the movers didn’t arrive until 6 p.m., seven hours late. Says Kelley, “It’s a common tactic to arrive after business hours so that it’s too late for you to find another moving company.” He wishes he had, because U.S. Movers charged him more than double the estimate due to allegedly wrong weight calculations. They also locked his stuff in storage when he didn’t have cash to pay for the job. It took three months to persuade the local police to serve a search warrant on the storage facility so he could reclaim his stuff. U.S. Movers’ executive vice president, Tom Timen, denied the weight was false, saying Kelley had more than twice the number of items listed on the estimate. “All we asked was to be paid for the services he agreed to,” Timen said in 2003. U.S. Movers has since gone out of business.

9. “Surprise! Our insurance isn’t worth much.”

Remember Carole Stowers? When she and her husband finally got their belongings back from Elite Van Lines, much of her furniture was battered and broken. The insurance adjuster from Crawford & Co. estimated $13,642 worth of damage. But little good that did—she was entitled to just over $2,000 recompense. The reason? A mover’s liability coverage, known as “valuation,” doesn’t work like a typical insurance policy. For interstate moves, standard valuation limits the carrier’s liability to no more than 60 cents per pound, and it’s often less for in-state moves. So if your 50-pound plasma screen TV gets smashed, you’ll collect just $30.

The AMSA estimates that one in five moves involves a claim for damage. That said, you’re better off getting some real protection—say, through a rider on your homeowner’s insurance. At the end of the move, look over your possessions carefully before signing a receipt. If you sign and later discover a huge dent in your Chippendale dresser, the mover will point to the receipt as proof that the dresser was fine when he dropped it off.

10. “We change addresses as often as our customers do.”

James Balderrama called the Federal Motor Carrier Safety Administration (FMCSA) in June 2001 to register a complaint about his belongings being seized by a mover. Good idea. Too bad he didn’t get a return call until 10 months later. The agency, a Department of Transportation division that oversees safety, licensing, and regulation of trucks and buses, has only eight full-time investigators to police roughly 4,000 companies.

With so little manpower, the FMCSA lacks the muscle to rein in rogue movers. The agency fined 117 carriers in 2007 at an average amount of $13,000 per carrier—chump change for an industry that brings in $10 billion annually. And companies that do get censured often remain defiant. “Typically, they will not pay the fine; instead, they close down and reopen under a different name,” says an FMCSA spokesperson. Until regulators toughen up, take the FMCSA’s advice: “Educate yourself before you hire a mover. Once you hire one, most of the time it’s too late for us to do anything to help.”

SMARTMONEY ® Layout and look and feel of SmartMoney.com are trademarks of SmartMoney, a joint venture between Dow Jones & Company, Inc. and Hearst SM Partnership. © 1995 - 2009 SmartMoney. All Rights Reserved.


A New Number for You to Sweat: Your ID Score

You probably already know how an inaccurate credit score can cause you problems — but what about your “identity score”?

Though most consumers aren’t familiar with this type of rating, it’s increasingly being used by everyone from car dealers and banks to utilities and wireless service providers. Much as a credit score attempts to put a number on how good someone is at paying their bills, an identity score measures the risk that a consumer isn’t who they say they are.

Companies that sell ID scores say their products serve as a weapon to combat that fraud by helping to predict the likelihood of identity theft, which by some estimates cost consumers and businesses $48 billion last year. Already, such scores are used before most credit-card transactions or loan applications are approved -- and their use is expected to spread. Thanks to new regulations, most businesses will soon be required to use ID scores or some other type of methodology to confirm a customer's identity.

But the growing use of identity scoring is raising some questions, too. Some privacy advocates say the expansion of efforts to compile incredibly detailed consumer dossiers is troubling. Others say the scope of identity theft has been exaggerated -- in terms of losses to both businesses and consumers. And then there's the issue of accuracy: If some of the data used to calculate a score are wrong — due to errors in one’s credit report, for example — the score will be wrong as well.

A bad identity score — justly or not — is likely to create a number of issues for consumers, ranging from the inconvenience of having to answer some annoying questions when applying for credit to having important purchases or bank transfers slowed or put on hold for a matter of days while thorough ID verification takes place.

Companies that calculate and sell these scores say they're beneficial to businesses and consumers alike. As for privacy concerns, they say that consumers' personal information is never sold or shared with third parties. Some also say identity scores measure identity risk much more accurately than credit scores measure credit risk.

“Credit scores and identity scores should not be viewed with the same lens,” says Thomas Oscherwitz, chief privacy officer at San Diego-based ID Analytics, one of the companies that provide identity scores. “They have different purposes and are calculated differently.” Heather Grover, senior director of product management at Experian’s fraud and identity solutions group, says that consumers can make sure their identity score is accurate by disputing any erroneous information in their credit reports.

While nowhere near as big as the market for credit scores, ID scoring is becoming a fast-growing field. Players include FICO, which offers its Falcon product for scoring credit-card transactions; Experian's Precise ID, which is used to determine the fraud risk of new account applications; and ID Analytics'sID score, which is sold to companies directly and through partnerships with credit bureaus Equifax and TransUnion. It’s an industry estimated at $1 billion a year -- just from the credit-card issuers alone, according to Brian Riley, research director at financial services research firm TowerGroup.

Thanks to federal regulations scheduled to take effect Aug. 1, that market is only expected to grow. This so-called Red Flags rule will require any business that conducts transactions or extends payment terms to consumers (such as lawyers, retailers or telecom outfits) to have a system in place to identify and resolve red flags that a transaction or application is fraudulent, says Oscherwitz of ID Analytics who helped draft the rules five years ago as a staffer at the Senate Judiciary Subcommittee on Terrorism, Technology and Homeland Security.

Identity scores are calculated based on how certain personal information, such as your name, Social Security number, address, birth date or phone number, is used in transactions or for credit applications. For instance, your score might be higher -- signifying a higher risk -- if you move around a lot. Other factors that can raise your score, according to companies that calculate them: changing your name (say, after getting married) or living in an apartment building, where many people share the same street address. Even using an out-of-state cellphone number when applying for a car loan can boost your score.

If a score is deemed too high, an account application or transaction gets flagged. As a result, the consumer may be asked seemingly random “challenge” questions. They're meant to be questions that fraudsters are unlikely to be able to answer -- but in some cases, they can tax the memory of the authentic consumer. You might be asked the house number where you lived seven years ago, for instance, or the color of the car you owned in college or the issuer of the mortgage on your first home. Further up the inconvenience scale, you might even be asked to visit a bank branch to show your personal identification or to fax information to prove your identity.

And then, of course, there's the faulty information to contend with. David Szwak, a consumer credit attorney and partner at Bodenheimer Jones Szwak & Winchell in Shreveport, La., calls it the “garbage in – garbage out” problem. Some of the data used to calculate your identity score come from the “above the line” part of your credit report – which often contains errors.

“Almost every single report that I have seen has personal identification information that does not belong to that consumer,” says Szwak. “There are typographical errors, just plain old inaccurate addresses, multiple Social Security numbers on file.”

The result: Between 5% and 20% of applications for credit are flagged and less than 1% end up being fraudulent, says Andy Smith, a former vice president of business analytics at the fraud department of Capital One, the big credit-card issuer.

Smith says he often runs into such problems himself. “My last name is Smith, my father and brother’s names are David,” he explains. While trying to transfer a large amount of funds between trading accounts, he was unable to answer the questions correctly and was kicked out of the system for manual review. The transfer was delayed by three days.

While many consumers are likely to be unaware of the world of identity scores, some companies want to change that. ID Analytics, which says its ID Score is used by some of the biggest banks in the country, as well as major wireless service providers, is now making the score available to consumers at no charge through MyIDScore.com.

ID Analytics says consumers can use the score to assess their personal risk that their identity may have been stolen. But the company gets something out of it too: More information for its own database. In order to get the score, consumers must enter their name, address, phone number, date of birth. (Social Security numbers are by request, but providing it is optional.) The result is a three-digit number between 1 and 999 -- lower is better -- that assesses the level of risk that you’ve been a victim.

Mari Frank, a Laguna Niguel, Calif.-based attorney who specializes in privacy rights and identity theft, says consumers should be aware they're sharing sensitive personal information in order to get their score, which the company can then use to improve its products, according to its privacy policy.

CEO Bruce Hansen says ID Analytics may use the information to improve its web site, but does not plan to use it in product development. The company also says consumers can opt out, though the instructions – which require sending an email – are buried in the privacy policy’s fine print. ID Analytics says it is working on adding an opt-out option next to the fill-in form within the next month.

And much like the use of credit scores and reports has expanded dramatically over the years, from lenders to insurers and even employers, the potential for identity authentication and scoring is unlimited. Smith, the former Capital One exec, is now building a similar model that predicts instances of insurance fraud. “Stopping fraud is not that hard,” he says. “Stopping it without dropping a whole bunch of inconvenience on your customers is the trick.”

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