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Archive for the ‘10th Amendment’ Category

Reality Check in California, Michigan and Other States – Except One

In December 2009, the National Governors Association (NGA) and National Association of State Budget Officers (NASBO) issued their latest biannual Fiscal Survey of States, assessing their economies and presenting their outlook for the year ahead, a very glum one in their opening statement saying:

“States are currently facing one of the worst, if not the worst, fiscal periods since the Great Depression. Fiscal conditions significantly deteriorated for states during fiscal 2009, with the trend expected to continue through fiscal 2010 and even into 2011 and 2012.”

They say tax revenues are drastically lower from all revenue sources, and collections are expected to fall further in the current year. Citing a $256 billion budget gap between FY 2009 and 2011, they’ve had to enact sharp spending cuts and find new revenue sources. The federal American Recovery and Reinvestment Act of 2009 (ARRA) made up $135 billion of the shortfall. Another $87 billion in Medicaid funding facilitated critical health and human services spending.

Even so, programs across the board were cut with more coming in 2010 as governors and budget officers prepare for the worst. According to NASBO Executive Director Scott Pattison:

“We expect a continued deterioration in all financial indicators including revenues, balances and expenditures.”

As a result, the fiscal health of America’s states is dire with little in the way of expected relief. Across the country, governors say federal stimulus money is running out, yet conditions are worsening so more spending cuts and revenue increases are planned at a time opposite measures are needed.

However, unlike the federal government, states must balance their budgets, making up shortfalls by borrowing, taxes, and/or cuts in vital services. While constitutional, statutory, or traditional practices vary, three general kinds of balanced budget requirements exist, differing only in detail:

– the governors’ proposed budget must be balanced;

– the enacted one must be as well; and

– the fiscal or biennium fiscal year one must be also, with no deficits carried forward.

Given today’s conditions, that makes for cantankerous debates producing compromises and delicate juggling, satisfying no one, especially households hit hardest by the results.

One state alone stands out in the current environment, North Dakota, with its governor, John Hoeven calling a December 15 news conference to explain that the state has so much money (a $1.3 billion FY 2009 surplus, its largest ever) that individuals and businesses will average $650 in 2009 tax savings from income and property tax cuts enacted by its legislature. In addition, seniors and disabled people who own property or rent will get additional savings from an expanded Homestead Property Tax program.

According to Tax Commissioner Cory Fong:

North Dakota has been able to weather the economic crisis. “While other state governors and legislatures are looking for ways to raise revenue through raising taxes and cutting services, we just came through a historic session of funding both our important priorities and substantial tax relief….The winners are families, businesses and the State of North Dakota,” because it’s unique in one important respect.

It’s the only one with a state-owned bank (The Bank of North Dakota – BND) that sustains its distinctiveness and strength. As a result, it had the nation’s lowest unemployment rate of 4.1 at year end 2009 and created jobs throughout the crisis.

Established in 1919, it’s been a “credit machine” ever since, according to financial writer Ellen Brown, delivering “sound financial services that promote agriculture, commerce and industry,” something no other state can match because they don’t have state-owned banks.

With one, BND “create(s) ‘credit’ with accounting entries on (its) books” through fractional reserve banking that multiplies each deposited amount magically about tenfold in the form of loans or computer-generated funds. As a result, the bank can re-lend many times over, and the more deposits, the greater amount of it for sustained, productive growth. If all states owned public banks, they’d be as prosperous as North Dakota and be able to rebate taxes and expand public services, not extract more or cut them.

Brown explains that the BND:

“chiefly acts as a central bank, with functions similar to those of a branch of the Federal Reserve,” that’s neither federal or has reserves as is owned by major private banks in each of the 12 Fed districts, New York by far the most dominant with Wall Street’s majority control and a Fed chairman doing its bidding.

In contrast, BND is a public bank, 100% owned by the state, operating in the public interest and those of the state. It “avoids rivalry with private banks by partnering with them.” Local banks do most lending. “The BND then comes in to participate in the loan, share risk, buy down the interest rate and buy up loans, thereby freeing up banks to lend more. (One of its functions) is to provide a secondary market for real estate loans, which it buys from local banks. Its residential loan portfolio is now $500 to $600 billion” in a state with around 700,000 people and thriving.

Its function in the property market helped it “avoid the credit crisis that afflicted Wall Street when the secondary market for loans collapsed in late 2007 and helped it reduce its foreclosure rate….(Its other services) include guarantees for entrepreneurial startups and student loans, the purchase of municipal bonds from public institutions, and a well-funded disaster loan program.” When the state didn’t meet its budget “a few years ago, the BND met the shortfall.”

In sum, state-owned banks have “enormous advantages over smaller private institutions….Their asset bases are not marred by oversized salaries and bonuses, they have no shareholders” demanding high returns, and they don’t speculate in derivatives or other high-risk investments. As a result, BND is healthy with a 25% return on equity, paying “a hefty dividend to the state projected at over $60 million in 2009″ and well over five times that amount in the last decade, so it begs the question why other states don’t operate the same way. If enough of their residents demanded it, they might and not suffer the way nearly all of them are today, two notably – California and Michigan.

Hope And Change’s Backlash

Posted by Karl Denninger

My only comment: Youtube appears to have taken this down several times, but it keeps reappearing.  I found several incantations along with people hosting the raw FLV file.

This appears to be created by some rather angry Democrats, and is one of the things I expected to start to see this year.

You better start listening to the people Washington.  Youtube is today’s version of handbills nailed to trees in the dark of night - in 1775.  Ripping down the handbills does not make them go away when the people are pissed – it makes them multiply and the people begin to consider that the first box of freedom – speech – may no longer be effective.

God forbid the path that could lead us toward.

Tonight (01/17/2010) we have Part II:

Where’s My Recovery? (Tax Receipts)

Posted by Karl Denninger

From The Wall Street Examiner:

Month to date tax receipts are now in for the entire month of December. They’re down 7.7% from December 2008, which is exactly the same rate of decline as November’s. We know that the TBAC and Treasury officials were not anticipating that in their debt sales forecast for the first quarter. They had assumed that a recovery was taking root and would continue to do so.

But I thought that we were in the midst of a strong economic recovery?  So say all the pundits, all the Tout TV folks, everyone…

So how come I can’t find it in the sales tax receipts of the states, and I also can’t find it in the Federal tax receipts?

Doesn’t recovery mean more spending, some hiring, or at least people getting more hours even if they don’t have new jobs?

If this is all happening, as we’re being told incessantly on ToutTV, shouldn’t tax receipts be going up?

Remember, last December was pretty much the bottom, or so the pundits have told us.  We keep hearing that sales are improving, durable goods are improving, employers aren’t firing any more (and indeed many people are looking for a positive employment number for December and a positive revision to +ve for November) – and yet none of that makes any sense – especially employment turning to an actual positive number – if Treasury tax receipts are actually down on a y/o/y basis from last December.

That’s not the worst of it when it comes to macro level stuff.  From The Wall Street Journal came this piece that was largely ignored:

First, in most state capitals the stimulus enticed state lawmakers to spend on new programs rather than adjusting to lean times. They added health and welfare benefits and child care programs. Now they have to pay for those additions with their own state’s money.

Second, stimulus dollars came with strings attached that are now causing enormous budget headaches. Many environmental grants have matching requirements, so to get a federal dollar, states and cities had to spend a dollar even when they were facing huge deficits. The new construction projects built with federal funds also have federal Davis-Bacon wage requirements that raise state building costs to pay inflated union salaries.

Worst of all, at the behest of the public employee unions, Congress imposed “maintenance of effort” spending requirements on states. These federal laws prohibit state legislatures from cutting spending on 15 programs, from road building to welfare, if the state took even a dollar of stimulus cash for these purposes.

Wait a minute. 

Isn’t there a requirement in State Constitutions that a bill go through the Legislature to authorize spending that is then signed by the Governor (or vetoed and overridden)?

The article goes on to say:

A few governors, such as Mitch Daniels of Indiana and Rick Perry of Texas, had the foresight to turn down their share of the $7 billion for unemployment insurance, realizing that once the federal funds run out, benefits would be unpayable. “One of the smartest decisions we made,” says Mr. Daniels. Many governors now probably wish they had done the same.

The Governor of a State does not have the right to legislate from his office!

This sort of crap has been pulled by The Federal Government for decades – shove a program down The State’s throat, acceptance of which is either automatic in some form or which occurs by the action of some administrative agency within a state and thus bypasses the entire State Legislative process.

This is beyond outrageous and yet it is one of the means by which our Federal Government has effectively destroyed the Federal/State boundary, usurping into The Federal Tax mechanism state governments and legislatures.

It would be one thing if the legislature was to have taken up these “stimulus” packages and passed acceptance of them as an act of the legislature, signed by the governor.  That would be lawful.

But they didn’t.  In some cases the governor explicitly acted, but in others the decision was effectively made by an administrative arm of the state (e.g. the road department) via acceptance of Federal Funds.

Both are blatantly unlawful as acts of legislation without the legislature!

The States should have put a stop to this crap back in the days of “double nickel” speed limits, when it made its “high pressure” debut, demanding that all such effective appropriations occur through legislative action.

They didn’t.

Now the States are saddled with impossible-to-pay budgetary requirements, in some cases leaving them with as little as 10% of their budgets open to discretionary action - all as a result of unlawful appropriations made without the state legislatures passing a bill that is then signed by the governor!

The Journal continues onward with claims that this is all a liberal conspiracy. 

Nonsense. 

This is a raw abuse by both political parties that has been crammed down the throat of the states since the 1970s, through both Republican and Democrat Congresses and Administrations, and it is flatly unlawful as it violates the Constitution of every state of the union to legislate without action of the legislature!

The States must rise and pass 10th Amendment resolutions with the binding force of law that all such unlawfully-enacted “appropriations” are void as unconstitutional usurpations of The State Legislature and will not be complied with.

This is no longer a matter of political expedience.  It is now a matter of budgetary survival and maintenance of what we are supposed to be as a nation – a union of States that each have a Constitution that must be respected and abided by all parties.