FedUpUSA

Archive for the ‘State Budgets’ Category

He sees this the way I do, and note carefully: He was right about the subprime and housing in general too. 

Two parts:

Note that when he presented his views years ago to the big banks, he was told “I hope to God you’re wrong.”

He wasn’t.

The Market-Ticker

Big states with dismal budget short falls like California and New York have been making the news for the last couple of years.  Yet the problems with state budget deficits go beyond the big and mighty.  The banking system has been stabilized at a very high cost to average Americans but state budget deficits reflect a deeper underlying problem.  States generate revenue through a variety of taxes; these show up through payroll taxes, sales taxes, property taxes, and other fees.  As a metric for the economy, these are a good way of measuring the health of economic activity.  Looking at current massive budget deficits states are mired in expenses with revenues falling.  For the next fiscal year of 2011 states will face a combined $112 billion in budget short falls.  California’s current budget deficit is $19 billion (current plus next fiscal year).  But things can and may get worse.

A recent survey compares this recession with the previous recession:

Source:  CBPP

As of this year we are facing a deeply painful year for states.  This will be the worst on record if 2011 doesn’t come in close contention.  How is it that the rhetoric has shifted to recovery while states are facing deep and pervasive gaps in their funding?  A large part of the so-called recovery has been directed to the banking sector.  That is clear.  Unemployment and underemployment is pervasively high and when we look at the top job sectors, 9 out of 10 are in low paying service sector jobs.  Last month we added over 400,000 jobs but the vast majority were temporary Census positions.  This is not a true recovery and state budgets reflect this.

Why is the above gap occurring?  Take for example the collapse in housing prices.  States adjusted revenue projections to assume higher assessments and thus believed that bubble level prices were the new norm.  Take for example in California where property taxes can range from 1 to 1.5 percent of the assessed value of a home.  We’ll use a $500,000 home as an example.  Initially, this home would bring the state $5,000 per year at the low end in revenue.  The bubble pops and that home now sells for $250,000.  Only $2,500 comes into state coffers yet the state was expecting that funding to come in at a much higher level.  That is one facet of the problem.  Then you throw in pervasive unemployment that is taxing the system and you can see why state budget gaps are so wide and profound.

The state budget gaps are largely a reflection of a struggling working and middle class.  Sales taxes have fallen in many states as people have cut back and started applying a level of austerity to their lives.  Less spending obviously means less money coming in.  To show how widespread this problem is, all but four states with small populations have budget gaps:

Now I know some will only see the gaps and talk about closing them at any cost.  Yet some forget what this will mean to the overall economy and the so-called recovery.  At this point, take for example the mortgage market, 95+ percent of all mortgages originated are government backed.  The last month of employment gains were largely all (90+ percent) from government hiring.  The current economy is largely supported by massive government spending.  The problem is how we allocated the money.  We have funneled too much money to the banking sector with little tangible results outside of Wall Street.  As states cut deeper into their budgets, federal support is lagging and focusing more on helping out Wall Street.  What this will mean is larger cuts and a drag on the overall economy going forward.

Going forward we know that there are only two ways to balance the gaps.  More cuts or higher taxes and both hurt the economy.  The issue so far is that states have gone after low hanging fruit.  There are hundreds of state workers making high six-figures with fantastic pension plans and lifelong employment with little economic yield and these are not the people losing their jobs.  They are going after janitors, repair workers, young teachers, and other easy targets that do little to balance the bigger line items.  Penny wise but absolutely pound foolish.  Below is from the CBPP:

“Expenditure cuts are problematic policies during an economic downturn because they reduce overall demand and can make the downturn deeper. When states cut spending, they lay off employees, cancel contracts with vendors, eliminate or lower payments to businesses and nonprofit organizations that provide direct services, and cut benefit payments to individuals. In all of these circumstances, the companies and organizations that would have received government payments have less money to spend on salaries and supplies, and individuals who would have received salaries or benefits have less money for consumption. This directly removes demand from the economy.

Tax increases also remove demand from the economy by reducing the amount of money people have to spend — though to the extent these increases are on upper-income residents, that effect is minimized because much of the money comes from savings and so does not diminish economic activity. At the state level, a balanced approach to closing deficits — raising taxes along with enacting budget cuts — is needed to close state budget gaps in order to maintain important services while minimizing harmful effects on the economy.”

Even after the Recovery Act, large budget deficits will remain:

So combining budget gaps for 2011 and 2012 will result in budget shortfalls of $260 billion combined.  This is an incredible amount of money.  Even a modest recovery will have a hard time making that up and we have yet to see a recovery for working and middle class Americans.  The recovery to many is largely lost in the trillions of dollars funneled to a banking sector that is merely concerned about shoring up their balance sheets.

If we look at a map of state tax collections, 34 states saw declines in the first quarter of 2010:

Source:  Rockefeller Institute of Government

What this means is there are two recoveries going on.  A real one for Wall Street and the investment banks and a phantom one for working and middle class Americans.  I wouldn’t even call it a recovery for the investment banks since they are simply stealing taxpayer money and calling it turning a profit.  State budget gaps are merely a reflection of what we already know and that is the economy has yet to actually recover.

My Budget360

Private citizens have had enough of overpaid, underworked, public employees with benefits most private workers can only dream about.

Unfortunately, President Obama has not gotten the message (and likely won’t until he is kicked out of office). Time and time again, president Obama has proven that he is beholden to public unions no matter how unjustified the cost.

Now President Obama is asking for $50 billion more taxpayer dollars, your dollars, to dole out to the states, in an effort to buy votes or simply because he is economically illiterate. Most likely, it is a combination of both.

Please consider this letter from Obama to Speaker of the House Nancy Pelosi and the Senate leaders of both parties.

The president whines about losing 84,000 government jobs at the state and local level. I consider that a 5% down payment on what needs to happen.

Obama Begs for More of Your Money

The Washington Post sums up the situation nicely in Obama pleads for $50 billion in state, local aid

President Obama urged reluctant lawmakers Saturday to quickly approve nearly $50 billion in emergency aid to state and local governments, saying the money is needed to avoid “massive layoffs of teachers, police and firefighters” and to support the still-fragile economic recovery.

In a letter to congressional leaders, Obama defended last year’s huge economic stimulus package, saying it helped break the economy’s free fall, but argued that more spending is urgent and unavoidable. “We must take these emergency measures,” he wrote in an appeal aimed primarily at members of his own party.

“I think there is spending fatigue,” House Majority Leader Steny H. Hoyer (D-Md.) said recently. “It’s tough in both houses to get votes.”

Democrats, particularly in the House, have voted for politically costly initiatives at Obama’s insistence, most notably health-care and climate change legislation. But faced with an electorate widely viewed as angry and hostile to incumbents, many are increasingly reluctant to take politically unpopular positions.

The House last month stripped Obama’s request for $24 billion in state aid from a bill that would extend emergency benefits for jobless workers. Senate Majority Leader Harry M. Reid (D-Nev.) hopes to restore that funding but with debate in that chamber set to resume this week, he acknowledges that he has yet to assemble the votes for final passage. Obama’s request for $23 billion to avert the layoffs of as many as 300,000 public school teachers has not won support in either chamber.

Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell (R-Ky.), called the letter full of “contradictions.”

“He’s calling on Congress to pass a [jobless] bill that will add about $80 billion to the deficit, but then calls for fiscal discipline; he says these measures need to be targeted and temporary, but then calls for extending programs passed in the stimulus more than a year ago,” Stewart said in an e-mail.

Overpaid Unions Workers Need To Share The pain

If President Obama has any sense of fiscal responsibility he would be calling on public unions to share the pain. Government works almost entirely escaped the pain most in the private sector have gone through.

We lost 8 million private sector jobs in the recession, and a few hundred thousand public sector jobs are now at stake. Instead of asking overpaid, underworked public union workers to share in the pain, Obama want to tax to death everyone else to pay for it.

Send a Message

It is time to send a message and the way to do it is to vote against any incumbent from either party who just cannot say no to this fiscal madness.

What You Can Do

Please call your legislative representative and tell them the problem is too much government spending, unions are wrecking the country, and if they vote for more taxpayer sponsored bailouts of public union workers or more state aid, then you will vote them out of office.

Tell your representatives you are against spending $50 billion more on states and that it is long overdue for government workers share the pain and that it’s time for states to fix their budget messes without more Federal handouts and taxpayer dollars.

Here is a directory sorted by state of all the Senators of the 111th Congress.

You can also look up the phone numbers in the Online Directory For The 111th Congress

Bear in mind, not a single job is really at stake. All the unions have to do to keep every jobs is lower pay scales or reduce benefits. Instead, they want everyone else to pitch in to pay for their bloated salaries and their bloated pensions.

Enough is enough.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

The Revolt of the States

By Alan Caruba

President Obama, his weird circle of advisors (czars), and the ideologues within the Democrat Party led by Speaker Nancy Pelosi and Majority Leader Harry Reid only have a few months left to completely destroy the separation of powers between the States and the federal government.

A major battle is looming over the Tenth Amendment which declares that “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

Almost everywhere one looks today, the States are in rebellion to the overreaching of the federal government. The process involved is called nullification, a legal theory that a U.S. State has the right to nullify, i.e., invalidate, any federal law deemed unconstitutional. Since the Supreme Court moves at a glacial pace, the States through their legislatures have taken the lead in many cases.

Nullification is not secession as in the case of the Civil War, but there is a history of nullification that includes the Kentucky and Virginia Resolutions against the Alien and Sedition Acts. Thomas Jefferson and James Madison both argued that the States are the ultimate interpreters of the Constitution, arguing that the States could “interpose” themselves to protect their citizens from unconstitutional national laws.

Much of the discord in the nation today has its roots in the vital difference between a conservative attachment to traditional values and a liberal ideology that would impose a One World Government on our sovereign nation.

The great philosopher of American conservatism, Russell Kirk, wrote “True conservatism is the antithesis of ideology. It is the negation of ideology. For conservative is grounded in the past. Its principles are derived from the Constitution, experience, history, tradition, custom, and the wisdom of those who have gone before us—‘the best that has been thought and said.’ It does not purport to know the future. It is about preserving the true, the good, the beautiful. Conservatism views all ideologies with skepticism, and the more zealous and fanatic with hostility.”

A case in point is the way that State after State has lined up to oppose through the courts and by individual legal action the imposition of the president’s healthcare legislation, passed on strict party lines by the Democrat Party and only after the most vile revelations of bribery and backroom deals. It is a bill whose content Speaker Pelosi said Americans should supinely consider only after it was passed.

There has been a rapidly growing awareness and rejection of the assertion that the federal government can “own” General Motors or that the government should be in the business of buying and selling mortgages.

Pending financial reform legislation would permit the federal take over any company to install its own board of directors and thus control the economy. The failure to exercise existing regulation of the financial sector hardly calls for more regulation. It calls for stronger enforcement of existing laws.

The increasing awareness and rejection of the false “theory of global warming” is being rejected on the basis of the widely perceived cooling of the earth during this decade and the wild projections of warming 25, 50, a hundred or more years into the unknown future. More and more Americans now know it is based on feeble and deliberately false “computer models”.

That is why the Cap-and-Trade bill, a huge tax on energy use, awaiting action in the Senate, even if imposed in the same fashion as the healthcare bill, will be rejected by the States. There is no need to regulate carbon dioxide, a natural gas that has nothing to do with “warming”, but a rogue government agency, the Environmental Protection Agency, is set to assert this falsehood through massive regulation that will destroy the nation’s economic base.

With increasing pace, the States are demanding that the Second Amendment protecting the right to own and bear arms be respected and asserting their right to pass laws permitting gun ownership, including the right to carry concealed arms for self defense. States that have enacted such laws have seen a dramatic decrease in crime.

The assertion of unconstitutional federal powers lies at the heart of the State’s rejection of these efforts. Unfunded federal mandates are bankrupting the States and they want an end to them. The rapacious taking of State lands is crippling theirs and the nation’s ability to access our natural resources.

A growing spectrum of federal laws intruding upon the sovereignty of individual States is being challenged and this is a good thing. We should all take heart from these challenges as well as the spontaneous occurrence of the Tea Party movement that is a dramatic demonstration that the spirit of individual liberty and of States rights is alive and well in America.

A new generation of Americans is learning that the Constitution was designed to ensure a small and limited federal government and that the States, like the Union, are individual republics.

The battle has been joined.

State and Local Budget Crisis Black Swan – California paying out $100 Million per Day in Unemployment Insurance. Detroit’s Shrinking Population Crushes Revenues. The Employment Situation at a Micro Level.

Posted by mybudget360

One stunning statistic that hit this week regards California’s unemployment insurance claims being paid out.  California is paying out some $100 million per day in unemployment benefits.  I’m not sure if I would call it a “benefit” but more as a buffer to get by.  In reality if we really want to get a pulse on what Americans are facing in terms of the recession unemployment claims and benefits are a good place to start.  The unemployment rate as we all know can be fudged in many ways.  If you work 10 hours at Wal-Mart but want full-time work then you are counted as employed in terms of the headline rate.  This isn’t a big deal when a small part of the country is working part-time for economic reasons but this group is enormous (9 million to be exact).  The headline rate is 9.7 percent but add in this group and we are up to 16.9 percent.  And people seeking unemployment rarely fudge numbers because they need the money and they have to report their status every two weeks to continue receiving claims.

If we look at California for example, the numbers show anything but a recovery:

Source:  California EDD

Even with 99 weeks of unemployment insurance between federal and state, extensions, and other emergency support programs we have a sizeable number of people reaching the end of their rope.  This shows how pervasive and deep this economic crisis has hit average Americans.  I tend to look at unemployment insurance payouts as a good measure to see how quickly the economy actually recovers.  After all, if after two weeks you find a job, you would expect that less would be coming out of the fund when it comes to renewing your benefits.  So it is very sensitive to market changes in the employment market.  We have so many market indicators from consumer confidence to home sales but in terms of employment, I’d be following the unemployment insurance payouts very closely to see when things actually take a turn.

And one unique aspect (there are many) about this recession is the length of time people have been out of work:

Of the 15 million officially unemployed people, nearly 7 million have been unemployed for 27 weeks or more.  The problem when people remain without work this long is that they typically will be shifting into other industries.  Think of a mortgage broker that now needs to retool for another industry that is hiring (i.e., health care).  Congress is currently debating whether to extend unemployment benefits but the fact that we are even having this debate with 99 weeks of unemployment insurance in some states is troubling in itself.

In many places like Los Angeles and Detroit, you are seeing massive deficits in their budget but for different reasons.  California relied heavily on the housing bubble.  States that really built an entire tax collecting expectation around real estate are being harmed deeply:

The Real Estate Foursome

California

Nevada

Arizona

Florida

The private sector responded quicker.  Massive layoffs and crashing home values.  Yet state and local governments are still expecting revenues at higher levels.  Even if they don’t expect it, they haven’t done anything to the level necessary of balancing their budgets.  Many middle class Americans will probably be shocked to see their local tax rates blossom even as they see their wages cut.

The other side of the budget issue has ex-manufacturing states like Michigan and Ohio that are struggling from the economic downturn but for other reasons.  People forget that Detroit for example has had a crashing housing market for over 15 years.  This has to do with the dismantling of our manufacturing base but also people leaving the city:

Once the fifth largest city in the U.S. Detroit has lost half its population in 60 years.  This has caused deep ramifications in budgets but also in how the city deals with problems.  For example, there is an effort to bulldoze parts of the city to reflect the actual services available and the new population dynamics.  Drastic measures indeed but this is what is happening.

So dwindling revenues are another important aspect of the budget crisis.  Looking at local governments because many depend on tax collections for revenues, things are still in bad shape.  So if revenues are not up to par, then it is merely a reflection of the weak economy.  These are indicators that prove to be better at giving the “feel” of the recession because simply looking at Wall Street, you would think that we would all be partying with a 70+ percent stock market rally.  But Wall Street does not reflect Main Street and they only care about the worker on the street when it comes to taking their money for bailouts of their horrible business decisions of the past decade.