How Detroit's breakdown will hit you

(Money Magazine)

Indeed, among localities still coping with fallout from the recession and housing bust, the Motor City stands alone in awfulness: 78,000 blighted structures, 18% unemployment, a $327 million operating deficit last year. Yet with the city looking to cut pensions and restructure debt, Detroit's comeback bid could have ramifications beyond Michigan's borders.

Your town may feel freer to slice retiree benefits. With so many state and local pensions facing funding shortfalls, cutting back retirement benefits -- or trying to -- is nothing new. What worker advocates fear is that bankruptcy-court approval of pension changes for Detroit, where pension protection is part of the state constitution, would embolden government leaders elsewhere to seek deeper cuts.

Related: Just how generous are Detroit's pensions?

In Detroit, pension changes are most likely to follow the national trend: eliminate cost-of-living adjustments and convert current workers to defined-contribution plans, says area financial planner Leon LaBrecque, rather than reduce payments.

The muni market could take a hit. Detroit has proposed treating certain general obligation bonds as "unsecured," instead of backed by city taxing power, and offering investors just 10 cents on the dollar.

The odds are long, but if Detroit succeeds, the precedent would shake up the bond market.

Also at risk: retiree health care, which lacks the same protections as pensions. Detroit would shift retirees to new federal exchanges or Medicare, a move other governments are studying.

Related: Detroit's stealth business boom

Still, for most of the country, "credit quality remains quite strong," says John Bonnell, a fixed-income manager for USAA. The five-year default rate in the $3.7 trillion muni bond market is less than one-half of 1%, reports Moody's; 93% of municipal issuers are rated single A or higher.

Michigan muni funds already have. Funds that specialize in the state's bonds are down as much as 17% this year, but at this point you shouldn't rush to sell, says Chris Ryon of Thornburg Funds. Even funds with big stakes in Detroit primarily hold the water and sewer bonds that Detroit is still fully backing, not the unsecured debt the city is defaulting on.

But the real story on bonds is ... Munis are less liquid than the Treasury market, and thus have taken a bigger hit as interest rates have risen of late. But David Kotok, chairman of money manager Cumberland Advisors, thinks the fear has been overplayed.

"High-grade munis are remarkable bargains," says Kotok. Still, stick with a short-term fund, such as Fidelity Short-Intermediate Muni Income (FSTFX) (recent yield: 1.77%), to cushion any losses as rates rise.

First Published: August 19, 2013: 5:57 AM ET

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The IRS is cracking down on small businesses

NEW YORK (CNNMoney)

The Internal Revenue Service has sent out letters to 20,000 small businesses since fall 2012, notifying them of "possible income under-reporting."

The IRS says it is trying to identify businesses that get "an unusually high portion" of their reported sales through credit card transactions. The thinking is that a lot of cash transactions might be going unreported.

To decide who gets letters, the IRS compares a business's credit card and cash receipts with industry averages.

One recipient was the owner of a baking equipment supply company (who preferred to remain anonymous). The IRS sent her a letter on May 28 saying that 80% of her $549,955 in annual revenue came from credit card swipes.

"A larger amount of noncard revenue would be expected," the IRS letter warned.

Related: Defunding Obamacare won't stop it entirely

The business owner was given 30 days to review her records and respond in writing with an explanation. Her accountant, Steve Schneider, wrote back to the IRS this month explaining that the numbers were accurate, but the agency's assumptions were wrong.

"Over the years, the business model has switched to more online sales," Schneider told CNNMoney. "These types of customers tend to pay with credit cards."

Schneider takes issue with the IRS's tactics. He said the agency, by relying on industry averages, doesn't account for how a particular business operates.

"I just don't think that the data they have is sufficient for them to send these letters out," Schneider said.

In the case of an Italian restaurant in Harrisburg, Penn., accountant Steve Gift had to explain to the IRS that his client's credit card data had been reported incorrectly by the payment processor.

Since 2011, the IRS has required payment processors to file 1099-K forms, a record of all credit card transactions on their systems.

The numbers were off, Gift said, because the business owner had changed his federal identification number mid-year. Plus, Gift doesn't think the IRS is looking at restaurants the right way.

"This client was targeted because he has a restaurant and the IRS believes he's getting substantial cash payments," he said. "But everybody nowadays charges on their credit card."

Cracking down on small businesses could make sense. The IRS found that some $450 billion is owed in taxes that goes uncollected. Under-reporting by small businesses accounts for about $140 billion of that tax gap.

In a written statement, the IRS said the aim is to "ensure that people who are non-compliant don't get an unfair advantage over those that play by the rules and follow the law."

The IRS also said its approach is "measured and equitable in several ways, including giving taxpayers the opportunity to explain and fix errors."

Some accountants say the IRS is just doing its job, and that not many business are affected. There are 6 million small employers and 20,000 makes up less than half of one percent.

"This is nothing new," said Van Ballantyne, a small business accountant in Greenland, New Hampshire. "I think it's another attempt to try to get us all to sit a little straighter in our chairs and be more honest in our reporting. It is fairly innocuous."

First Published: August 19, 2013: 6:02 AM ET

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Is renters insurance worth it for college students?

Students who live on campus typically don't have to worry about renters insurance: Their parents homeowner's policy should cover the loss or damage of most items.

NEW YORK (CNNMoney)

Students who live on campus typically don't have to worry about renters insurance: Their parents homeowner's policy should cover the loss or damage of most items as long as the policy includes so-called 'off-premise coverage.' (Just be sure you understand the limits to this coverage and the deductibles that apply.)

However, once you move off-campus and start paying rent, you are no longer covered by mom and dad's policy if there is a fire or someone breaks into the place, said Laura Adams, senior insurance analyst at InsuranceQuotes.com, a Bankrate company.

And you shouldn't expect the landlord to cover anything either. "Landlords typically cover the building and not the tenant's belongings," said Adams. "They will not replace any damaged or stolen items."

Related: Cutting the accelerating cost of car insurance

Also, if one roommate has a renters insurance policy, don't expect it to cover all of your stuff, too. Most rental insurance policies only cover the belongings of the policyholder. Although roommates can purchase a policy together if they'd like, said Adams.

So what does renter's insurance cover? There are three basic types of protection: personal possessions, liability and additional living expenses.

Personal possession protection covers your belongings if they are lost or damaged due to a fire, vandalism or theft among other things.

Related: The average cost to raise a kid: $241,080

Liability protection kicks in if, say, your dog bites the neighbor, or someone slips and gets hurt while at a party at your place. It not only helps cover any medical expenses but, in some cases, can pay for your legal fees if you get sued.

In addition, if you are displaced by a storm or a fire, the policy will typically cover the cost of a hotel, or a temporary rental until you can move back home.

The cost of renters insurance is typically pretty affordable -- on average, it costs $184 a year -- but the amount will vary depending on the location and size of the rental unit and how much coverage you need, according to the National Association of Insurance Commissioners.

Related: Boomerang kids: Nothing wrong with living at home

Students should shop around and make sure they get enough coverage. To determine how much you need, take inventory. Create a spreadsheet, take pictures or create a video inventory of all your belongings -- including clothing, electronics, jewelry and furniture, among other things -- and keep it in a safe place. Even if students only have a few possessions, ensuring they can be replaced if stolen or damaged is one less thing to worry about.

"If you can't afford to replace everything," said Adams. "You are really rolling the dice if you don't have renters insurance."

First Published: August 19, 2013: 6:38 AM ET

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India edges toward crisis as rupee plunges

Efforts by Indian authorities to restore investor confidence appear to have backfired.

HONG KONG (CNNMoney)

The slide that has rocked Indian markets accelerated Monday, with the rupee hitting a new record low against the dollar. The Mumbai Sensex, the country's benchmark index, dropped 1.6% on Monday and has now lost 10% of its value in the past month.

Investors are worried about India's large current account deficit, which reflects the nation's tendency to import many more goods than it exports and leaves it heavily reliant on foreign capital.

Talk of tighter U.S. monetary policy has seen some investors pull out of emerging markets in recent months.

Prime Minister Manmohan Singh has tried to calm nerves, saying the government has enough foreign reserves to defend the rupee for months.

"There is no question of going back to the 1991 [balance of payment crisis]," Singh told the Press Times of India, referring to an episode that nearly resulted in India defaulting on its debt payments.

But with elevated inflation, a sky-high government deficit and the economy slowing, some are worried that recent government attempts to shore up confidence may have had the opposite effect.

Related story: BRIC markets left in the dust

Policymakers last week unveiled a series of measures designed to support the rupee, including limits on the import of gold, oil and other key commodities.

The government also made a controversial move to restrict the amount of money Indian citizens can take out of the country, and similar restraints were placed on outgoing corporate investment.

The question now is whether the changes will be enough to bolster the rupee and stabilize the economy.

Related story: Dream companies for Asia's grads

Many observers think the government must do more -- and markets seem to agree. The reaction was most violent on Friday, when investors returned from a one-day holiday to push the Sensex down by 4%.

"Authorities are taking a really piecemeal approach, and these measures are having exactly the opposite effect of what was intended," said Anjalika Bardalai, a senior analyst at the Eurasia Group. "The government has given the impression they are in panic mode."

Economists have long argued that India needs to implement structural economic reforms to bring about meaningful progress. Last year, parliament lifted restrictions on foreign direct investment after much debate -- a key step.

But investment dollars have not materialized as international companies seek more details about the new policy and remain wary of a change in the political winds that could reverse the decision.

And with national elections due before May 2014, India's fractious political parties may not be in a mood to cooperate.

"The problem now is that the government is running out of time and running out of options," Bardalai said. "A lot of what happens now with the rupee is beyond the government's control."

First Published: August 19, 2013: 7:30 AM ET

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Credit score killers

Here are 7 common mistakes people make that can ravage your credit score.

NEW YORK (CNNMoney)

Not only is it used to determine whether you're creditworthy enough to open a credit card, land a mortgage, rent an apartment or get an auto loan, but it also plays a big factor in the interest rate you qualify for.

There are multiple credit scores out there, but the most common is your FICO score, which ranges from 300 to 850. A score of 780 or above is considered excellent and will land you the top deals available, while a 720 to 780 is strong but may not qualify you for the best rates, says John Ulzheimer, president of consumer education at SmartCredit.com.

A 680 to 720 means you're likely to get approved for credit but not likely to qualify for the most favorable rates, while having a 680 or lower will make it hard to get approved for credit at all, and any credit you do get will come with sky-high interest rates.

Related: Bad credit - A deal breaker for many singles

To avoid this bottom rung, steer clear of these common credit mistakes:

Carrying big balances: Running up piles of debt is never a good idea. Keeping a big balance on a credit card can increase your credit utilization ratio, which is the percentage of your credit limit that you use. Together with other measurements of your overall debt, this ratio accounts for about 30% of your credit score.

The ratio is calculated using the end-of-month balance that appears on your bill, meaning that your score can suffer even if you pay off your balance every month. To keep your debt utilization ratio in check, Bill Hardekopf, president of LowCards.com, recommends using less than a third of your credit limit.

Closing credit cards: It may seem like the responsible thing to do, but closing a credit card account can actually hurt your credit.

That's because it lowers the amount of credit you have available to you -- which can then hurt your debt utilization ratio (unless you don't carry any balance on your credit card).

The length of your credit history is also factored into your credit score, so keeping a credit card open also helps with that.

Related: Sneaky credit card charges can cost you hundreds

"Keep it open and charge a sandwich once a month just to have activity, and then pay it off each month," said Hardekopf.

But if it's just too tempting to have so many credit cards in your wallet, get rid of the one with the lowest credit limit, Ulzheimer recommends.

Paying late: Your payment history is one of the biggest factors lenders look at and makes up approximately 35% of your FICO score -- so late payments on credit cards, student loans, mortgages or even doctor's bills can all bring down your score if the company reports it to the credit bureaus.

"One or two isn't going to be significant but if it's habitual it's going to hurt you," said Richard Barrington, senior financial analyst at MoneyRates.

Defaulting: The most obvious credit no-no is defaulting on a loan or credit card, which means you fail to pay back the amount owed to a lender. The biggest hits come from declaring bankruptcy or foreclosing on a home, which can easily slice 100 points or more from a credit score.

"Anything that can be classified as defaults on obligations are the bombshells that are going to leave a giant smoking crater on your credit," said Barrington.

Opening too many credit lines: While having some credit is good for your score, there is such a thing as too much.

Each time you apply for a loan or credit card, the lender makes an inquiry into your credit history, which usually knocks off several points from your credit score.

Related: Fix costly credit report errors

Applying for multiple credit cards or loans or increasing your overall available credit can also be a red flag.

"If you're continually adding to your potential credit, credit companies are going to look at that as a risk that you could become overextended at some point," said Barrington. "So if you're one of those people who can't say no when a credit card offer arrives in the mail, this could drag down your credit [score]."

Not having a credit card: A growing number of Americans are ditching credit cards as they turn to debit and prepaid cards instead. But while this may keep you safe from debt, it's not going to help your credit score.

Without any credit history, you're typically considered unscoreable, meaning there isn't enough activity on your credit file to calculate a score. This leads many lenders to deem you too risky to take a chance on, said Ulzheimer.

Related: Millions without credit scores not so risky after all

"It's like walking into a job interview with an empty resume," said Ulzheimer. "[A lender] would have to roll the dice on you to give you credit -- and that's not a good position for you to be in."

It also hurts the diversity of your credit file, which accounts for 10% of your score and rewards you for having experience managing different kinds of credit -- like credit cards, mortgages and auto loans.

Co-signing: It's tempting to help out a friend or relative by co-signing a loan when they can't qualify on their own. But it's a huge risk to take, and it can often result in ravaged credit.

Related: Young Americans are ditching credit cards

By becoming a co-signer, you're assuming equal responsibility for the amount owed, meaning any late payments or defaults will show up on your credit report and your score will suffer accordingly. You could also end up facing collection action or even lawsuits.

"Co-signing is a disaster waiting to happen," said Ulzheimer. "You're basically saying, 'yeah, I realize no bank wants to do business with you but I'm willing to do business with you anyway.'"

First Published: August 19, 2013: 5:54 AM ET

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Deadline to challenge Detroit's bankruptcy filing looms

Monday night marks the last time people can challenge the city on whether its municipal bankruptcy should be allowed to proceed.

NEW YORK (CNNMoney)

The deadline, set at 11:59 pm Eastern time on Monday night, marks the last time people will be able to formally challenge the city on whether the largest municipal bankruptcy in the nation's history should be allowed to proceed.

Detroit filed for bankruptcy last month when the state-appointed emergency manager Kevyn Orr and Michigan Gov. Rick Snyder said the city could not pay its $11.5 billion in liabilities associated with pension benefits, retiree health care costs and unsecured debt held by investors.

But the question of whether Detroit can qualify for municipal bankruptcy, known as Chapter 9, remains.

Related: Retired Detroit firefighter: "My pension is what I was promised"

Judge Steven Rhodes, who's overseeing the case in U.S. Bankcruptcy Court, now must to decide whether the city has proven that it's insolvent, and that it has negotiated in good faith with creditors.

Only a handful of creditors have filed objections so far, all arguing that the city does not qualify for Chapter 9. More are expected to roll in as the day goes on.

Some of the arguments contend that the bankruptcy violates a provision of the Michigan constitution that prohibits cutting pension and retirement benefits.

In addition to arguing that it's unconstitutional, public employee unions have charged that the city did not negotiate in good faith, and should not be allowed to walk away from obligations made to employees and retirees.

While the deadline to object to Detroit's filing is fast approaching, the question of whether Detroit can qualify for Chapter 9 won't be taken up in court until October.

First Published: August 19, 2013: 9:39 AM ET

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Bond bubble finally bursting? Rates creep up

Click the chart for more market data.

NEW YORK (CNNMoney)

Worries that the central bank could taper its $85 billion a month in bond purchases, or quantitative easing, as early as September has spurred a huge sell-off in bonds.

Investors have yanked nearly $20 billion from bond mutual funds and exchange traded funds so far in August. That's the fourth highest pullback ever, according to TrimTabs data. In June, investors took out $69.1 billion -- the highest on record.

The heavy selling has pushed long-term bond rates to two-year highs, with the benchmark 10-year Treasury yield nearing 3%.

Click here for more on stocks, bonds, currencies and commodities

"As much as bond professionals say they've never really liked QE, they're trading as though they miss it already," said Jim Vogel, interest rate strategist at FTN Financial.

The Fed will remain in focus this week as investors look ahead to Wednesday. That's when the Fed releases minutes from its last monetary policy meeting. The Kansas City Fed also hosts its annual conference in Jackson Hole, Wyo. later this week.

Concerns about the Fed tapering have hit stocks as well. The Dow Jones industrial average, the S&P 500 and the Nasdaq have dropped for two consecutive weeks.

But with no economic data or significant earnings reports on tap Monday, the three major market indexes were mostly unchanged.

Related: Fear & Greed Index

What's moving: Shares of Chesapeake Energy (CHK, Fortune 500)advanced following news that Carl Icahn boosted his stake in the natural gas company to almost 10%.

Apple, (AAPL, Fortune 500) which Icahn announced a "large" position in last week, also continued to climb, hitting the highest level in seven months. And the stock was the hottest topic among traders on StockTwits.

FUNERALMAN21: $AAPL shorts and profit takers get your hats, get your coats, and go home I'm 100% sure this stock will be bigger then anyone has predicted.

daytradingshrink: $AAPL todays theme song has gotta be stairway to heaven. really thought it would break this intraday uptrend and move sideways. strong!

Of course not everyone was so bullish.

rmbagadiya: $AAPL Running too much too fast I am concerned

There was also plenty of chatter about Intel (INTC, Fortune 500), which was upgraded to "neutral" by analysts at Piper Jaffray.

alexsimonelis: $INTC Those are not dinosaurs in the least. What do you think the cloud runs on? Answer: Intel chips.

Shares of several Chinese companies were flying high and generating buzz on StockTwits as well. AutoNavi Holdings (AMAP), in which Chinese e-commerce leader Alibaba recently purchased a stake, was rising. Search engine Qihoo 360 Technology (QIHU), Chinese real estate website SouFun Holdings (SFUN) and social network YY (YY) were also sharply higher.

ivanhoff: Momo money has gone on vacation in China: $AMAP $QIHU $SFUN $YY etc.

UltraGwenn: $QIHU on the weekly, this is the most overbought stock i've ever seen in my life. rivals Google and Apple back in 2012. Bearish.

Related: J.C. Penny still in a world of trouble

The earnings calendar was light Monday, but results are due from J.C. Penney (JCP, Fortune 500), Target (TGT, Fortune 500) and Hewlett-Packard (HPQ, Fortune 500) later in the week.

World markets: European markets closed slightly lower, while Asian markets ended mixed results. Both the Shanghai Composite index and Japan's Nikkei rose nearly 1%. Stocks in Hong Kong declined by 0.3%. And investors are also nervously watching India, where stocks have plunged lately as the country's rupee currency hit an all-time low.

First Published: August 19, 2013: 9:51 AM ET

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J.C. Penney still in a world of trouble

Shares of J.C. Penney have plunged since the start of 2012. Click the chart to track J.C. Penney's stock.

NEW YORK (CNNMoney)

J.C. Penney (JCP, Fortune 500) is slated to report its second-quarter results Tuesday morning, and it's unlikely that the retailer will have much good news to share with investors.

In fact, analysts are expecting a ninth straight quarterly drop in sales and another large loss, even as returning CEO Mike Ullman aggressively tries to clean up the mess left by ousted CEO Ron Johnson.

"The bottom line is that the second quarter is going to be really bad for J.C. Penney," said Brian Sozzi, chief equities strategist at Belus Capital Advisors. "It's still fighting with the ghost of Ron Johnson when it comes to the merchandise, so customers still haven't regained their trust in J.C. Penney."

Related: J.C. Penney: A buy or a sell?

Investors will be looking for a possible glimmer of hope though. According to a report in The New York Post last week, J.C. Penney's same store sales, a key measure of health for retailers, began to improve in August.

"We need to know whether or not J.C. Penney has achieved stabilization in sales and whether it has any momentum going into the end of the year," said Sozzi. The second half of the year is typically much stronger for retailers. Back-to-school shopping kicks in during August while the fourth quarter includes the holiday shopping season.

With that in mind, analysts are eager to see if J.C. Penney is able to provide any upbeat guidance about the third and fourth quarter. But It doesn't help that many other retailers in a stronger position than J.C. Penney all issued relatively weak outlooks last week. Wal-Mart (WMT, Fortune 500), Macy's (M, Fortune 500) and Nordstrom (JWN, Fortune 500) all disappointed investors.

"The holiday quarter is critical for any retailer, and they'll need to show they're on the road to making some serious improvements because their future is dependent on it," said Paul Swinand, Morningstar analyst.

"A lot of J.C. Penney's wounds are self-inflicted," Swinand added. He argued that J.C. Penney does have a chance to fix itself with the "right merchandise and pricing." The company isn't necessarily struggling from online competition in the way that Blockbuster, Borders, Circuit City did. Those three retailers all went bankrupt. Borders and Circuit City were forced to shut their doors for good.

Related: Bill Ackman rides the crazy train

Nobody is really talking about the possibility of a Chapter 11 filing for J.C. Penney just yet. But its balance sheet will be in the spotlight amid ongoing liquidity concerns.

The retailer shot down reports earlier this month that commercial lender CIT stopped providing financial support to small suppliers that sell merchandise to it. Despite the denials, analysts remain worried that CIT (CIT, Fortune 500) could eventually halt lending to suppliers. If that happens, J.C. Penney would either need to pay its suppliers in cash or cut back on its inventory.

Still, J.C. Penney should be helped by the fact that Ackman will be less of a distraction. With the backing of the rest of the board, Ullman should be able to focus on executing his turnaround strategy.

But Ackman could still crate some trouble. Just a few days after Ackman left the J.C. Penney board, he reached an agreement with the company that allows him to register to sell shares of J.C. Penney in up to four separate blocks.

Ackman owns a 18% stake in the company. So once he does start selling, that could create more problems for a stock that is already down more than 30% this year, and more than 60% since the start of 2012.

"The fact that Ackman will be creating fewer headlines will be important for Ullman and overall confidence among vendors and investors," said Sozzi. "But I worry about that signal to the market when Ackman begins dumping his stock. He has been privy to all sorts of information for a long time, and if begins selling sooner than later, he'll be showing that he's willing to take a loss for fear of losing more money."

First Published: August 19, 2013: 9:02 AM ET

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The income gap

(Fortune)

Let's start with the first question. Both liberal and conservative economists agree that, yes, income inequality has increased since the 1970s. The Congressional Budget Office October 2011 report "Trends in the Distribution of Household Income Between 1979 and 2007" shows that during that 28-year period overall real average (after-tax) household income grew 62%. But for the top 1% of earners, income grew 275%, and for the bottom 20% of earners, household income grew only 18%. Pretty bald, I'd say.

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Drones can change the fight against wildfires

As wildfires grow in number and size, drones could drastically change the nature of the fight.

NEW YORK (CNNMoney)

Wildfires have grown in number and size, but fighting them has remained an old-school game that sometimes relies on paper maps and gut feelings.

Accessing new technology in rural areas where forest fires rage has been a challenge, but the use of new unmanned drones could drastically change the nature of the fight.

"We can get more information for less cost, and it doesn't put anyone in harm's way," said Sher Schranz, a project manager at National Oceanic and Atmospheric Administration who researches fire weather modeling.

Fighting wildfires is a tricky game, since the direction and intensity of the massive blazes can change in seconds. Drones can help in two ways: They can safely gather more information about fire conditions than is currently available, and they can send that information to firefighters on the ground quickly.

Related story: Cheap drones could save your life

Today, firefighters are often sent out with tablets and smartphones so they can be updated about conditions, but those devices don't help if Internet service is weak or non-existent -- which is likely, as wildfires typically rage in rural areas where rough terrain keeps firefighters out of signal range.

Drones can hover over dead zones, providing an Internet signal. That's something researchers are making a priority, said Tim Sexton, the program manager at the Wildland Fire Management Research Development and Applications Program.

Where Internet connections are available, great information about fires can be disseminated to firefighters. Internet-based tools can help calculate the risk of a fire reaching homes or other structures, and they can determine how fires may move, depending on the weather. Currently, firefighters hike up to a ridge where they can get an Internet connection, or they'll work with the local telecom company to set up portable cell towers.

But when those Web-based modeling systems aren't available, firefighters rely on "gut feelings" from those who knew the area well, Sexton said. Without an Internet connection, they have to rely on data they received that morning, which was likely gathered late the night before.

Information available to firefighters is often so out-of-date, because manned airplanes and helicopter flights that take pictures and infrared images to map the fire perimeter are costly and risky, so they only fly over a fire once or twice a day.

Drones, on the other hand, are comparatively cheaper, and more than one can be launched at once. Schranz estimates that a drone can cost as little as $2,000 for an eight-hour flight -- the same price for just one hour of a manned flight.

"Drones can sit up there all day long, or for days," said Sexton.

Drones aren't quite ready to assist in fire suppression, since the fire community is still in the early stages of making sure the technology is applied effectively and safely, said Erin Darboven from the Department of Interior. Unmanned aerial systems are strictly regulated by the Federal Aviation Administration.

Fifty years ago, photos taken from a plane above would have to be dropped in a tube to firefighters below, said Sexton. The process is a lot more advanced today, but drones could be a tool that gives firefighters an edge up in the battle against wildfires.

First Published: August 19, 2013: 11:45 AM ET

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