Bush's Economic Stimulus Package Fizzles

by Texas Nate, Thu May 29, 2008 at 06:25:38 AM EDT

In one of the first of what will be many polls giving the big thumbs down to Bush's 2008 "stimulus package", Rasmussen reports that 56% of voters nationwide say it had no impact on the economy. Furthermore only 24% of people thought that the stimulus package helped the economy.

The report shows that the public's mind is just about as clouded as Bush's when it comes to how to respond to the continuing economic crisis.

Rasmussen Reports national telephone survey found that 57% believe that if Congress and the President do nothing more, the economy will be in even worse shape a year from now.

However, if another stimulus package is passed, just 17% believe the economy will get better and 21% say it will get worse. Most voters say that if another stimulus package is passed, the economy will be about the same a year from today.

Its clear that the "stimulus package" didn't stimulate much economic activity and that further action by the federal government is necessary to prevent this recession from spiraling into something much worse.

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While the Bush Admin Fiddles, the States Burn

by Texas Nate, Thu May 22, 2008 at 11:56:22 AM EDT

An Associated Press article from this past Monday highlights a perilous choice for states feeling the effects of the nations economic downturn. At stake are state employee jobs, health care and school budgets, and essential services, all of which are at risk if the federal government does not take action to help the states.

The article entitled States debate whether to dip into their rainy day funds discusses the two sides of the debate on how to deal with growing budget shortfalls; to raid the rainy day fund, or cut services and spending.

The calculation involves deciding if it is better to raid the fund for fiscal emergencies now or to wait, in case the economic slowdown worsens and the need for revenue becomes more desperate.

States from Virginia to Arizona and everywhere in between are beginning to reach a crisis point in their budget problems where they must choose between tapping their rainy day funds or cutting critical portions of their budget. The rainy day funds are obviously meant for this kind of economic climate, however dreary forecasts from the National Conference of State Legislatures are making the decision of when to use the funds much more difficult.

In April, the NCSL said the finances of many states have deteriorated so badly that they appear to be in a recession, regardless of whether that is true for the nation as a whole.

Such dire news is one reason some states are holding off on raiding their reserves.

"They're worried that, as bad as it might be, it might get worse," said Scott Pattison, executive director of the National Association of State Budget Officers.

The document mentioned in the article is the NCSL's State Budget Update for April 2008. The press release on the update describes the health of state budgets as very uneven and getting worse.

In November, seven states and Puerto Rico reported shortfalls. That number rose to 16 states and Puerto Rico by mid-April. Collectively, these gaps totaled at least $11.7 billion.

The situation is worse for FY 2009: Budget gaps have emerged in 23 states and Puerto Rico, and collectively they exceed $26 billion

What is most disheartening about this story is that the states are choosing between two flawed solutions. Simply raiding the rainy day fund is not the answer when no one is able to determine what "rock bottom" for this economic downturn will be. It does not take very long for rainy day funds to dry out, and the AP article shows that the funds are quickly depleting after hitting a high in 2006.

(in 2006) states reported $69 billion in their reserves, including rainy day funds, or 12 percent of total revenue. That figure will drop to about $46 billion, or 7 percent, by June 30, the end of the business year for most states, according to the NASBO.

...Arizona lawmakers dealt with a $1.2 billion shortfall for this fiscal year, which ends in most states on June 30, by spending more than two-thirds of the state's rainy day reserve.

The rainy day funds will not be full forever and must be preserved if more difficult times are on the horizon. This leaves states with the painful option of cutting services, jobs, and other essential parts of their budgets. In Ohio, where the government is facing a $700 million shortfall they were forced to cut 2,700 state government jobs and close two mental health hospitals. In Tennessee the $468 million in budget cuts are coming from cutting 2,000 state government jobs, reducing the higher education budget by $55 million, and slashing $80 million from the TennCare program that pays medical expenses for people who have fallen into poverty because of massive medical bills. These cuts are having a real effect on the people in these states. According to the Columbus Dispatch story, Cambridge Mayor Tom Orr stated:

It's going to be painful … you can't even begin to measure the ripple effect.

And in the Tennessean Story:

Gordon Bonnyman, head of the Tennessee Justice Center and a longtime TennCare critic, said the cuts will be "tragic" for the population of catastrophically ill Tennesseans who rely on it.

The states are being forced into these painful decision due to a failure by the federal government to provide the proper aid in this time of economic hardship, and the ones who lose in this case are people like you and me.

So what is the federal government doing? As I posted previously, it has taken the position that bailing out corporations in trouble is more important than helping the states and localities who face similar financial crunches, which does not bode well for the states who arefacing an estimated $47 billion in combined shortfalls for FY 2009. The federal government has also steamrolled the states by enacting a stimulus package that, according to another CBPP study will only make matters worse by further cutting the revenue that the AP, Columbus Dispatch, and Tennessean stories all say is one of the main reasons that states are feeling such a financial crunch.

The federal economic stimulus package enacted on February 13 not only cuts federal taxes, but also threatens to reduce many states corporate and personal income tax revenue this year and next year.

The potential revenue loss comes at a particularly problematic time for states, because about half the states are already facing budget shortfalls for the current year, the upcoming year, or both; more states will be in trouble if the economic downturn worsens.

And what will the federal government do in the future? It certainly doesn’t seem like it will relieve the pressure states are feeling from soaring retiree healthcare costs and the burdens of the housing crisis. An effort to drive down the cost of medicare prescriptions drugs failed to make its way through Congress when the Medicare Fair Prescription Drug Price Act of 2007 failed to get off Capital Hill - that bill would have allowed the federal government to negotiate with drug companies for lower prescription drug prices.

And this statement made by Secretary Paulson before the National Association of Business Economists shows that help for homeowners is also not on the way.

We know that speculation increased in recent years; a resulting increase in foreclosures is to be expected and does not warrant any relief. People who speculated and bought investment properties in hot markets should take their losses just like day traders who speculated and bought soaring tech stocks in 2000.

As more and more people are effected by these state budget shortfalls I am left with one question. How disastrous does the crisis need to get before the Federal Government steps in with meaningful help?

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An American City Going Under, No Bailout In Store

by Texas Nate, Mon Apr 21, 2008 at 02:05:19 PM EDT

I posted last Friday about the painful irony of the Fed bailing out egregious greedheads Bear Stearns but refusing to lift a finger to help the majority of states that are falling into the red.

Now I see (by way of Calitics), that its not just the states, its also the cities. Vallejo, California is on the verge of bankruptcy:

Vallejo will inch closer to financial ruin Tuesday when the City Council lets pass its do-or-die date to avert bankruptcy.

City staff members have been unable to come up with a detailed, long-term financial plan because negotiations with the police and fire unions are still ongoing. The city is asking for steep concessions from the unions, whose members are among the highest paid in the Bay Area and whose salaries comprise about 74 percent of the city's budget.

"We had hoped to have an agreement by April 22 to give to the council," said Mayor Osby Davis, who has sat in on the negotiations. "But I'm optimistic. There's always room for a resolution if people are willing to give and take."

Vallejo has been slammed by the crumbling housing market and its escalating public safety salaries. In March, faced with a $9 million deficit and no reserves, the city slashed funding to senior centers, the arts, museums, libraries and public works, and laid off 16 city workers. Police and firefighters took a 6.5 percent pay cut, and the city closed two fire stations.

The cuts are intended to keep Vallejo afloat through June 30. But the city needed to come up with a long-term solution to its financial woes by April 22, allowing it the minimum amount of time to declare bankruptcy if necessary. The city heads into the 2008-09 fiscal year with a projected deficit of $13 million.

If it declares Chapter 9 federal bankruptcy, it will be the biggest city in California to go that route, and the only one to do so because of long-term financial problems.

The difference between a private entity like Bear Sterns and a public one like Vallejo, or California which is facing an enormous deficit of its own, is that public entities employ a lot of real people. They also provide essential services to children, the elderly and the ill.

The Center on Budget Policies and Priorities outlines some potential solutions.

Federal assistance can lessen the extent to which states take pro-cyclical actions that can further harm the economy. In the recession in the early part of this decade, the federal government provided $20 billion in fiscal relief in a package enacted in 2003. There were two types of assistance to states: 1) a temporary increase in the federal share of the Medicaid program; and 2) general grants to states, based on population. Each part was for $10 billion. The increased Medicaid match averted even deeper cuts in public health insurance than actually occurred, while the general grants helped prevent cuts in a wide variety of other critical services. The major problem with that assistance was that it was enacted many months after the beginning of the recession, so it was less effective than it could have been in preventing state actions that deepened the economic downturn. The federal government should consider aiding states earlier, rather than waiting until the downturn is nearly over.
The thing is, we'll have to rely on our Democratic congress taking effective action. I think we can, I think we can...
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If Bear Stearns is too big to fail, what about the states?

by Texas Nate, Fri Apr 18, 2008 at 01:06:15 PM EDT

Last month the Federal Reserve stepped in with $30 billion in tax payer money to bail out the failing Bear Sterns investment bank. The argument was that Bear Stearns was "too big to fail."
As part of the deal, J.P. Morgan Chase, a major Wall Street bank, will buy Bear Stearns for a bargain-basement price, paying $2 a share for an institution that still plays a central role in executing financial transactions. Bear Stearns stock closed at $57 on Thursday and $30 on Friday. J.P. Morgan was unwilling to assume the risk of many of Bear Stearns's mortgage and other complicated assets, so the Federal Reserve agreed to take on the risk of about $30 billion worth of those investments. The Fed "is working to promote liquid, well-functioning financial markets, which are essential for economic growth," Chairman Ben S. Bernanke said in a conference call with reporters last night. Treasury Secretary Henry M. Paulson Jr., who was deeply involved in the talks though not a formal party to them, indicated support for the actions. The Fed's moves were meant to reverse a rising tide of panic that has buffeted Wall Street as banks and other institutions have found it increasingly difficult to get credit.
This report from the Center on Budget & Policy Priorities shows that the states are now being hit hard by the same hard economic times that dropped Bear Sterns:
At least twenty-seven states, including several of the nation's largest, face budget shortfalls in fiscal year 2009. Of these 27 states, specific estimates are available for 22 states and the District of Columbia; the combined deficits of these 22 states plus the District of Columbia are expected to total at least $39 billion for fiscal 2009 -- which begins July 2008 in most states. Another 3 states expect budget problems in fiscal year 2010, although some of those gaps may occur earlier than expected.

...

The 22 states in which revenues are expected to fall short of the amount needed to support current services in fiscal year 2009 are Alabama, Arizona, California, Florida, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Hampshire, New Jersey, New York, Ohio, Oklahoma, Rhode Island, South Carolina, Vermont, Virginia, and Wisconsin. In addition, the District of Columbia is expecting a shortfall in fiscal year 2009. The budget gaps total $39.1 to $40.8 billion, averaging 8.9 - 9.3 percent of these states' general fund budgets.

Two things jump out at me:
  1. The amount of U.S. taxpayer money risked to bailout Bear Stearns -- $30 billion -- is almost as much as what it would take to bail out the 22 states that are experiencing shortfalls this year.
  2. Bear Stearns is considered "too big to fail" because its failing threatens other big Wall Street entities. The 22 states who are sinking under mountains of debt will have to cut their spending and that will hurt millions of Americans.

As the Center on Budget & Policy report points out, those consequences will be severe:

In states facing budget gaps, the consequences could be severe -- for residents as well as the economy. Unlike the federal government, states cannot run deficits when the economy turns down; they must cut expenditures, raise taxes, or draw down reserve funds to balance their budgets. Even if the economy does not fall into a recession as it did in the earlier part of this decade, actions will have to be taken to close the budget gaps states are now identifying. The experience of the last recession is instructive as to what kinds of actions states may take.

  • Cuts in services like health and education. In the last recession, some 34 states cut eligibility for public health programs, causing well over 1 million people to lose health coverage, and at least 23 states cut eligibility for child care subsidies or otherwise limited access to child care. In addition, 34 states cut real per-pupil aid to school districts for K-12 education between 2002 and 2004, resulting in higher fees for textbooks and courses, shorter school days, fewer personnel, and reduced transportation.
  • Tax increases. Tax increases may be needed to prevent the types of service cuts described above. However, the taxes states often raise during economic downturns are regressive -- that is, they fall most heavily on lower-income residents.
  • Cuts in local services or increases in local taxes. While the property tax is usually the most stable revenue source during an economic downturn, that is not the case now. If property tax revenues decline because of the bursting of the housing bubble, localities and schools will either have to get more aid from the state -- a difficult proposition when states themselves are running deficits -- or reduce expenditures on schools, public safety, and other services.
There's a lot more detail on consequences of letting a majority of our states go into budget shortfall here.
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Telco Fights Move to the States

by Left in the West, Tue Oct 10, 2006 at 11:31:06 AM EDT

As Matt Stoller has pointed out, the next great fights over the future of the Internet won't be in Congress, but in the 50 states. The fights won't just be over net neutrality, but about broadband access, municipal wireless, and whether the Internet will be a public infrastructure like roads and sewers or a private infrastructure dedicated only to making profits for the telcos who control it.

The upcoming legislative sessions in 2007 will be a key battle over the future of the Internet. And make no mistake, the telecom companies and their rightwing allies are well-prepared for this fight. In state after state, the Telcos have launched campaigns to prohibit municipal wireless. And they're prepared with a mix of industry-funded think tanks, legislators, lobbyists, and astroturf organizations to bring the fight again on issues ranging from muni wi-fi to universal access laws.

Fortunately, progressives also have a great opportunity. Like renewable energy, broadband expansion is an issue that can create new coalitions, provide a positive agenda, and unite our base if tackled properly. Executed well, expanded broadband increases democracy, grows the economy, and can even help make key advances in energy efficiency.

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