Archive for category State Finances
Open Letter to Congressman Dean Heller on Yucca
Posted by Tom in Nevada, Politics, State Finances, Yucca Mountain on February 21, 2011
Dear Congressmen Heller,
We were disappointed to learn of your support for Senator Harry Reid in blocking the Yucca Nuclear Repository. You proposed an amendment that would have defunded the project entirely. Many citizens of Nevada are pleased your amendment was defeated by voice vote.
As many informed citizens believe, Yucca could be an important resource to Nevada, every bit as important as the Alaska Pipeline was and is to Alaska. The proposition to convert Yucca to Temporary Storage, Nuclear Reprocessing, Energy Research and Development and eventually Nuclear Power Generation is a treasure available to Nevada that no other state has. With it Nevada can create a new industry, thousands of new jobs, and a more diverse economic base. With it Nevada can resolve its structural state deficit. And, most importantly, with it we can create a Nevada Permanent Fund under which each family in the state would receive an annual dividend eventually approximating $2,500 per year.
This concept has been overwhelmingly endorsed by several knowledgeable business groups, both in Reno and Las Vegas. It has been endorsed by every social service organization to which it has been presented. And it has been endorsed by every conservative political action group that has heard it.
We believe your amendment seems somewhat out of touch with current thinking.We have formed a group, the Reno Hayek Symposium, which is a voluntary group of conservatives in Northern Nevada. We are in conversations with our friends in Las Vegas to develop a comparable Hayek Group.
We hope to be able to support you in future elections. But, with all due respect, a word of caution is necessary: emulating Harry Reid in blocking the one uniquely available resource open to Nevada, is not the way to gain that support.
Sincerely,
Leftist Confronts Problems of His Own Making
Posted by Tom in Budgets, California, Deficit, State Finances, Unions on February 20, 2011
The picture of a Democratic governor confronting the out-of-control public pension mess that he himself initiated in his earlier term. California pension payouts have gone from $2 Billion to $6 Billion in 10 years. Of course, there’s a lot of games played with last minute promotions, etc. to maximise those generous payouts. The state’s program is underfunded and those unfunded liabilities don’t show up on the accounting books.
Those books show a $25.4 Billion current budget deficit! Jerry Brown wants to punt a tax increase to help solve the budget gap to the taxpayers. But he needs a handful of Republicans to agree to put the tax increase on the ballot. Business groups and the Republicans want the pension issue included as part of the fix.
According to the WSJ article, Public-Pension Fight Surfaces in California, ”Several big unions argue that the time isn’t right for a pension overhaul, including some that helped block efforts along those lines by former Republican Gov. Arnold Schwarzenegger. They worry that union members would have to pay significantly higher costs to fund their pensions, among other things.”
Imagine that, they worry that they would have to pay significantly higher costs to fund their pensions!
If there is any solace in this, it’s that the man responsible for public union collective bargaining in the state must now deal with the mess he created! Public employee unions, public monopolies, even FDR would be shocked!
Obamacare’s Medicaid Crutch Is Bankrupting the States
Posted by Tom in Budgets, Centrally Managed Economy, Constitution, Entitlements, Federalism, Fiscal Policy, National Character, State Finances, Welfare on February 4, 2011
To buttress the shaky fiscal credentials of Obamacare Congress increased the eligibility for Medicaid to 133% of the poverty line adding 25% to the rolls; it sent the bill for this to the states. So those new Medicaid entitlees would not have their healthcare welfare charged against Obamacare. George Melloan exposes this neat little trick in his op-ed in today’s WSJ, The States Can’t Afford Obamacare.
States unlike the federal government are required to balance their budgets. One of the largest cost items in those budgets is Medicaid. This is a federal welfare program which requires state administration and state budgetary contribution. The fed dictates the program which like all fed handouts is rife with fraud and abuse.
In the recent Florida Obamacare case, the 26 states argued that Medicaid was unconstitutional as a coercive control over state budgets; in other words a violation of federalism which forces states to implement and pay for federal welfare. Judge Vinson did not buy the argument stating that the states could merely refuse to implement Medicaid. In short the federal government was not forcing the states to implement Medicaid, AT LEAST NOT IN THE LEGAL SENSE OF THE TERM.
And therein lies the rub! If a state withdraws from Medicaid, the federal government continues to tax its residents. Those taxes that would have otherwise gone in part to pay the state’s Medicaid bill will now go to pay the Medicaid bills for other states. In this hard economic sense, Medicaid is an unfunded federal mandate. This is economic compulsion at its best. And this is undoubtedly a breakdown of our federal system.
To review the bidding, the Obama-Reid-Pelosi triumvirate enacted a new, intrusive and unsustainable federal welfare program, Obamacare, by increasing the size of an existant unsustainable federal welfare program, Medicaid. In the process the three exploded the states budget obligations, exacerbating the states budget deficits. This case of robbing Peter to pay Paul has driven both closer to bankruptcy.
It is good to keep in mind that these federal farces, these piles of money, promote overuse, fraud and abuse. There is little justification for this welfare largess, other than to addict voters to their source, in this case the liberal, leftist Democrats.
Kudos For New York’s Cuomo
Posted by Tom in Budgets, California, Democrats, Fiscal Policy, Nevada, State Finances on February 3, 2011
Applaud conservative, fiscally responsible ideas in public office whenever and wherever you find them; and today’s kudos go to Democratic Mario Cuomo, the governor of New York. According to today’s WSJ editorial, he has exposed the fraud of “baseline budgeting.” (See: Cuomo’s Lesson for House Republicans.)
“The budget that Mr. Cuomo unveiled this week closes a gaping deficit with major budget reductions, calling for spending cuts in state hiring, education, health care, aid to universities and payments to cities. The plan would balance the Empire State’s $135 billion budget without a dime of new taxes or borrowing. Remarkably, if his budget passed, the state would spend $3.5 billion less than it did last year.”
“These cuts are impressive on their own, but Mr. Cuomo’s real conceptual breakthrough is to expose the rigged-game of “baseline budgeting.” This is a gambit by which spending increases automatically each year even before a Governor submits his budget. The “baseline” grows each year due to spending formulas that legislatures build into the law even before they take a single vote.”
Guess what? The United States, the State of California, the State of Nevada and many others use baseline budgeting! That’s right. The budgets are in deficit before they are submitted. Most if not all of those less than adequate, so-called public services have automatic ups built into their continuation.
Courageous political leaders proposing a zero-based look at these bureaucracies are accused by the left leaning media of “cutting” education, healthcare, tree-hugging or whatever. But with government growth at most levels out of control, cut they must.
As the Journal editorial points out, the Republicans should sieze the opportunity in Congress to start the budgetary reform. And soon.
Jeb Bush and Newt Gingrich Back State Bankruptcy Option
Posted by Tom in Bankruptcy, Fed, Federalism, State Finances on January 27, 2011
In an L.A. Times op-ed today, Better off Bankrupt, Jeb Bush former Florida governor and Newt Gingrich former speaker of the house, call on congress for legislation to allow for the states to seek voluntary bankruptcy under the federal system. They recite all the economic necessities for such a law and they add a couple of interesting points.
- Just as with municipal bankruptcies, the federa judge would not have power to mandate tax hikes or any other governmental functions. He could only approve or reject the reorganization plan which may include a reformation of union contracts and benefits.
- Triggering mechanisms, respecting the sovereignty of the states, should allow for a majority vote of the legislature or an initiative of the people to put the state into bankruptcy. I would include action by the governor as well.
Hugh Hewitt hosted an interesting discussion on the subject during his radio broadcast yesterday. The callers were worried about the ”contracts clause” of the Constitution (Article I, Section 10) precluding reformation of union contracts and specifically reformation of unfunded pension obligations. The clause basically prohibits states from “passing any law impairing the obligations of contract.” My cursory research today indicates that this will not be a problem as the clause does not prohibit court action. And it certainly will not prohibit federal court action.
As usual, I would add to the bankruptcy option a statutory provision precluding the Fed from buying or guaranteeing any state obligations. And I also think a “belt and suspenders” constitutional amendment prohibiting a federal bailout of states would be advisable.
In any case it is heartening to see the calls for congressional action becoming more frequent and being made by a former governor and former speaker. This adds gravitas to the effort.
State Bankruptcy Is a Good Idea
Posted by Tom in Bankruptcy, California, State Finances on January 24, 2011
Opposing views are good to stimulate debate and ultimately find truth. Thus I welcome E.J. McMahon’s WSJ op-ed today, State Bankruptcy Is a Bad Idea. McMahon is a senior fellow at the Manhattan Institute. His argument is that governors and state legislators already have the tools necessary to negotiate with overfed public employee unions and that a large part of the state budget deficits results from Medicaid, and education transfer payments. He’s correct on all accounts. He argues that governors and legislators already have the tools to reform the recalcitrant public employee unions and suggests cuts and furloughs.
He is correct on all accounts. So why then, do the states have the severe problems. The all to obvious reason is the incestuous relationship between the politicians and the public employee unions. The “we elect you and you take care of us” mentality prevalent throughout the Democrat controlled “coastal’ states like CA, NY and IL (Lake Michigan!).
He then raises the argument that the public employee unions would love the state bankruptcy option since it would force the bondholders to share the pain and thus preserve some of the lucrative public employee benefits. Good point, but so what.
The argument that the muni bond market would be “roiled” by a bankruptcy provision demands an another “so what.” The muni bond market is already starting to wake up. It should be as free a market as any financial market with access to the free flow of news. That spendthrift states should pay more to borrow is the result of their spendthrift ways and well justified. That well managed states should pay less is also well justified. In essence, there needs to be the discipline of failure just as there is the reward for success. Moral hazard is real for state governments also.
The simple point is that a state bankruptcy provision gives courageous governors an additional tool with which to negotiate or with which to call bluffs. The fact that the governor is singularly in the spotlight as the chief executive puts tremendous pressure on him or her to overcome the public employee union pressure. It’s a needed tool and should be enacted by Congress.
What McMahon fails to focus on is the inability of the U.S. Government to bail out the states, given the dire straights of the national government. That option must be taken off the table, simply for the health of the federal treasury.
It’s a small price to pay (1) to enact a state bankruptcy provision, (2) to statutorily preclude the Fed from bailing out any state, and (3) to adopt a constitutional amendment precluding the bailout of any state. In fact, these three would enhance the credit of the U.S. and of the several states.
Happily, this would also be a step in a much needed return to federalism.
Only People Not Represented Are The Taxpayers!
Posted by Tom in Humor, State Finances, Taxation, Unions on January 22, 2011
It’s a story out of the Twilight Zone, the article in today’s WSJ, New Faces Appear at Bargaining Table, in cash-strapped states, government managers form unions! That’s right, managers and professionals are organizing to protect their very generous share of the pie. So, we will now have unions negotiating with unions! Unbelievable!
For example, “In Seattle, prosecutors and supervisors at the city’s electric utility both have formed collective bargaining units in the past year, while in central Minnesota, managers at a regional library system have created its first union of any kind. In Sacramento County, Calif., a group that includes management engineers and lawyers nine months ago voted to become a collective bargaining unit for the first time.”
Let’s see if we can imagine how the bargaining will take place with union member negotiating with union member. Monty Python’s “Life of Brian” comes to mind:
The only redeeming news is that union membership has dropped both in the private and public sectors. As you would expect, though, while the private sector membership in the last decade has dropped by 2% the public sector has dropped by only 1/2%. “The 7.6 million government workers in unions made up more than half of the 14.7 million workers in the U.S. who belonged to a union last year, with the state and local government sectors among the most heavily unionized in the economy.”
Do you think it’s time for the taxpayers to form a union and call a strike!
Another Call for a State Bankruptcy Provision-Is Congress Listening?
Posted by Tom in Bankruptcy, California, Constitution, Federalism, State Finances on January 18, 2011
David Skeel has another WSJ op-ed today, A Bankruptcy Law–Not Bailouts–for the States. This is important because with the U.S. in dire financial shape, if the federal government can’t afford its own unsustainable entitlements, it certainly can’t afford to bail out the states.
By now we all know the problems: California looking at a $20-28 Billion deficit and has a looming $500 Billion unfunded liability with its public employee pension programs. Illinois has a $15 Billion deficit, 208 Billion in unfunded liabilities and has just raised taxes by 75%. Newly elected NY Governor Cuomo is going to an emergency agenda because “the state of New York spends too much money.” Duh, duh, duh!
“Is there anything states can do in bankruptcy that a well-motivated governor can’t do without it? You bet there is.”
“First, the governor and his state could immediately chop the fat out of its contracts with unionized public employees, as can be done in the case of municipal bankruptcies. In theory, the contracts could be renegotiated outside of bankruptcy, and many governors are doing their best, vowing to freeze wages and negotiate other adjustments. But the changes are usually small, for the simple reason that the unions can just say no. In bankruptcy, saying no isn’t an option. If the state were committed to cutting costs, and the unions balked, the state could ask the court to terminate the contracts.”
“Second, the state could reduce its bond debt, which is nearly impossible to restructure outside of bankruptcy. While some worry about the implications for bond markets, the alternative for the most highly indebted states—complete default—is far worse. Randall Kroszner, a former Federal Reserve governor now at the University of Chicago Booth School of Business, showed in a 2003 study that the price of corporate bonds went up during the New Deal when the Supreme Court upheld legislation that reduced payments to bondholders. The reduction increased the prospect that bondholders would get paid. The prospect of state bankruptcy could have a similar effect, and even if it didn’t a reasonable reduction in state bond debt is essential to restructuring their finances.”
“Third, state bankruptcy could even permit a restructuring of the Cadillac pension benefits that states have promised to public employees. These are often “vested” under state law, and in some states, like California, are protected by the state constitution. Under state law, little can be done to adjust them to more reasonable amounts.”
There is not a fiscally prudent governor who would not like to have a bankruptcy tool at his disposal to tackle the intractable state budget problems. Congress and the President should relish the political mileage they would get in passing such legislation.
I have and continue to further urge: (1) a statutory restriction prohibiting the Fed from bailing out any state or its political subdivision by buying or guaranteeing the obligations thereof, and (2) a constitutional amendment prohibiting the federal government from the same sort of thing. With a bankruptcy provision and these two in place, the states will solve their own financial problems.
Such a step in a return to federalism would be wonderful for this republic. Urge your congressmen and senators to heed this call.
They Never Learn: Leftists Won’t Cut As Long As They Can Tax and Borrow
Posted by Tom in Deficit, Fed, Federalism, State Finances, Taxation on January 8, 2011
Illinois legislators, facing a $15 Billion deficit, $54 Billion unfunded pension liability and the highest state borrowing costs in the nation, are considering, what else, 75% income tax increase, from 3% to 5.74%, according to an IBD editorial, Illinois Taxes: How Blue Can You Get? And this, despite the preponderance of evidence showing that businesses, jobs and people flee high-tax states.
A chart illustrates the great migration and resulting great reapportionment:
But Illinois pols don’t have the same long view perspective that muni bond investors have, so the borrowing spigot is now in jeopardy. Michael Corkery picks up the story in his WSJ article, Bond Buyers’ Eyes Are on Illinois. The smart investors like Bill Gross of Pacific Investment Management are avoiding Illinois bonds. The state has been paying its vendors in IOUs. And “Illinois has struck fear in bond buyers’ hearts because, they say, more than many other financially troubled governments the state has increasingly relied on debt to pay bills, rather than making deep spending cuts or raising income taxes to increase revenue.”
So Illinois debt costs are the highest of the spendthrift states, including CA and NV.
People and businesses vote with their feet as the great migration from the high tax states to the business friendly low tax states well illustrates. As the IBD editorial exhorts: “Stop worrying about the distribution of the golden eggs and start worrying about the health of the goose!”
The only ray of hope here is Ben Bernanke’s statement Friday: “We have no expectation or intention to get involved in state and local finance,” Mr. Bernanke said in testimony before the Senate Budget Committee. The states, he said later, “should not expect loans from the Fed.” For the full discussion see, Bernanke Rejects Bailouts in today’s WSJ.
I would argue for a statutory prohibition against such Fed loans, a statutory provision for voluntary state bankruptcy, and a constitutional amendment precluding federal bailout of the states.
Other States Poach Nevada’s Golden Opportunity
Posted by Tom in Environment, Homeland Security, Nevada, State Finances, Terrorism, Yucca Mountain on January 6, 2011
Nevada had better watch out, other states like Texas see jobs and revenue in nuclear sites. While it is true that Nevada has the only federal statutory designation as a repository for spent nuclear fuel at Yucca Mountain, Texas now has decided to accept low-level waste from 36 states. Today’s WSJ sets it out well in Texas Welcomes Nuclear Discards.
Strange but Nevada has not seen the money, jobs, industry and research that can come with the current monopoly it has via Yucca Mountain on temporary storage of spent fuel. A group called Nevadans For Carbon Free Energy, http://NV4CFE.org, has developed the concept of an energy park that would provide temporary storage, develop reprocessing and recycling, and eventually grow into power generation. The benefits to the state include jobs, state revenue, and money for the residents along the lines of the Alaska Permanent Fund.
It’s worth serious consideration given the unemployment and budget deficits. Here’s a short video from their website: