State Budgets: Serious, Ridiculous, Ugly
by ilene - June 28th, 2010 1:43 am
State Budgets: Serious, Ridiculous, Ugly
Courtesy of John Rubino, Dollar Collapse
This week the focus shifted from Europe, where (apart from the French World Cup team) things are quiet, to the US, where state budget deadlines are forcing some tough, and occasionally bizarre, choices. Time Magazine’s cover, for instance blares “The Broken States of America”. An excerpt:
… Almost no one — and no place — is exempt. Nearly everywhere, tax revenue plummeted as property values tanked, incomes dwindled and consumers stopped shopping. Falling prices for stocks and real estate have made mincemeat of often underfunded public pension plans. Unemployed workers have swelled the demand for welfare and Medicaid services. Governments that were frugal in the past are just squeaking by. Governments that were lavish in the good times, building their budgets on optimism and best-case scenarios, now risk being wrecked like a shantytown in an earthquake.
How the Money Ran Out
For the first time in four decades of collecting data, the National Governors Association (NGA) reports that total state spending has dropped for two years in a row. In hard-hit Arizona, for example, the state budget has sagged to 2004 levels, despite blistering growth in population and demand for government services. Starting with the 2008 fiscal year, state governments have closed more than $300 billion in cumulative budget gaps, with another $125 billion already projected for the coming years, says Corina Eckl, fiscal-program director at the National Conference of State Legislatures (NCSL). Similar figures aren’t collected for the nation’s counties, villages and towns, but when the National League of Cities surveyed mayors recently, three-fourths of them described worsening economic conditions.Accustomed to the ups and downs of the ordinary economic cycle, elected officials and budget planners are facing something none of them have experienced before: year after year of shortfalls, steadily compounding. Ordinarily, deficits are resolved mostly through budgetary hocus-pocus. But the length and depth of the recession are forcing governments to go beyond sleight of hand to genuine cuts. And that makes lawmakers gloomy in all but a handful of states. (It’s a swell time to be North Dakota.) According to an NCSL survey, worry or outright pessimism is the reigning mood in the vast majority of capitals.
And here’s a brief look at how some states are dealing with their deficits, starting with California:
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DiggNew York Pension Story Gaining Attention in Mainstream Press
by ilene - June 19th, 2010 4:28 pm
New York Pension Story Gaining Attention in Mainstream Press
Courtesy of Trader Mark at Fund My Mutual Fund
The study I highlighted yesterday on New York
As I’ve written for the past 3 years, I believe eventually (if trend lines continue without any fixes) we’re going to see some social issues arise in the U.S. due to the growing inequity between the public v private sectors. Especially since it appears a massive bailout will eventually be needed to "keep promises" to this select class. Wherever you fall on this debate, any system that pays out MORE in
Much like the deficit stood in shadows for years as some vague ‘issue’ (I still doubt 8 in 10 Americans could tell you the total debt within $2 trillion), I just don’t think most Americans have a clue yet about the growing problem – hence this sort of transparency we saw in the study is going to be an eye opener for those who don’t troll in certain financial blogs.
Via NYTimes:
- In Yonkers, more than 100 retired police officers and firefighters are collecting pensions greater than their pay when they were working. One of the youngest, Hugo Tassone, retired at 44 with
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States have $5.17 Trillion in Pension Obligations, Gap is $3.23 Trillion; State Debt as Share of GDP
by ilene - March 30th, 2010 11:23 pm
States have $5.17 Trillion in Pension Obligations, Gap is $3.23 Trillion; State Debt as Share of GDP
Courtesy of Mish
As the jobless yet supposedly nascent recovery plods on, states are finding it increasingly difficult to ignore their fiscal woes and pension deficits. The New York Times has some details in State Debt Woes Grow Too Big to Camouflage.
California, New York and other states are showing many of the same signs of debt overload that recently took Greece to the brink — budgets that will not balance, accounting that masks debt, the use of derivatives to plug holes, and armies of retired public workers who are counting on benefits that are proving harder and harder to pay.
California’s stated debt — the value of all its bonds outstanding — looks manageable, at just 8 percent of its total economy. But California has big unstated debts, too. If the fair value of the shortfall in California’s big pension fund is counted, for instance, the state’s debt burden more than quadruples, to 37 percent of its economic output, according to one calculation.
Unstated debts pose a bigger problem to states with smaller economies. If Rhode Island were a country, the fair value of its pension debt would push it outside the maximum permitted by the euro zone, which tries to limit government debt to 60 percent of gross domestic product, according to Andrew Biggs, an economist with the American Enterprise Institute who has been analyzing state debt. Alaska would not qualify either.
Professor Rogoff, who has spent most of his career studying global debt crises, has combed through several centuries’ worth of records with a fellow economist, Carmen M. Reinhart of the University of Maryland, looking for signs that a country was about to default.
“When an accident is waiting to happen, it eventually does,” the two economists wrote in their book, titled “This Time Is Different” — the words often on the lips of policy makers just before a debt bomb exploded. “But the exact timing can be very difficult to guess, and a crisis that seems imminent can sometimes take years to ignite.”
Some economists think the last straw for states and cities will be debt hidden in their pension obligations.
Joshua Rauh, an economist at Northwestern University, and Robert Novy-Marx of the University of Chicago, recently recalculated the value of the 50 states’ pension
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The New York State Treasury Just Came Up $2 Billion Short, And Is Resorting To An Accounting Move To Avoid Insolvency
by ilene - March 18th, 2010 3:42 pm
The New York State Treasury Just Came Up $2 Billion Short, And Is Resorting To An Accounting Move To Avoid Insolvency
Courtesy of Joe Weisenthal at Clusterstock
Ok, we got through the financial crisis. We’re getting through the European crisis. Jobs are coming back. Shippers are bringing boats back onto line because they’re seeing increased trade.
Everything’s great.
BUT there’s one looming crisis, and that is the states.
According to The New York Times, Albany has just learned that state coffers are coming in $2 billion lighter than expected.
As such, in order to avoid default, the state will be delaying $500 million in income tax rebates. Governor Paterson says he "apologizes" for the inconvenience.
A question is: where are the ratings agencies pointing out the obvious, that New York State debt is hardly secure? Are they afraid of the cascade of sales from bullish muni fund managers forced to liquidate non-agency debt? Would they not be downgrading a company that suddently found itself $2 billion in the hole?
Please.
Rep. Suzie Bassi: “Illinois in Utter Crisis, Next to Bankruptcy, $13bn Hole in a $28bn Budget”; Ambrose Evans Pritchard Inflicted with FIV
by ilene - March 1st, 2010 8:59 pm
Rep. Suzie Bassi: "Illinois in Utter Crisis, Next to Bankruptcy, $13bn Hole in a $28bn Budget"; Ambrose Evans Pritchard Inflicted with FIV
Courtesy of Mish
Ambrose Evans-Pritchard has the right facts but the wrong cure in Don’t go wobbly on us now, Ben Bernanke, an article detailing the problems in many US states, notably Illinois.
Barack Obama’s home state of Illinois is near the point of fiscal disintegration. "The state is in utter crisis," said Representative Suzie Bassi. "We are next to bankruptcy. We have a $13bn hole in a $28bn budget."
The state has been paying bills with unfunded vouchers since October. A fifth of buses have stopped. Libraries, owed $400m (£263m), are closing one day a week. Schools are owed $725m. Unable to pay teachers, they are preparing mass lay-offs. "It’s a catastrophe", said the Schools Superintedent.
In Alexander County, the sheriff’s patrol cars have been repossessed; three-quarters of his officers are laid off; the local prison has refused to take county inmates until debts are paid.
Florida, Arizona, Michigan, New Jersey, Pennsylvania and New York are all facing crises. California has cut teachers salaries by 5pc, and imposed a 5pc levy on pension fees.
This is not to pick on America. Belt-tightening is the oppressive fact of 2010-2012 for half the world. Hungary, Ukraine, the Baltics and the Balkans are already under the knife. Latvia’s economy may contract by 30pc from peak to trough as it carries out an "internal devaluation", ie wage cuts, to hold its euro peg.
The eurozone’s fiscal squeeze is well advanced in Ireland. Brussels has told Greece to cut by 10pc of GDP in three years, Spain by 8pc, Portugal by 6pc. Britain must slash soon, or face a gilts strike.
The Bank for International Settlements says Britain needs a primary surplus of 5.8pc of GDP for a decade to stabilise debt at pre-crisis levels, given the ageing crunch as well. The figure is 6.4pc for Japan, 4.3pc for the US and France. It warns of "unstable dynamics", posh talk for a debt spiral. "Action is needed now."
The West risks a slow grind into debt-deflation unless central banks offset fiscal tightening with monetary stimulus – QE, of course – to keep demand alive. Yet the Fed and the European Central Bank are letting credit contract.
So why has Bernanke broken ranks with King and…
New York Sales Tax Receipts In Unprecedented Collapse
by ilene - February 23rd, 2010 8:25 am
New York Sales Tax Receipts In Unprecedented Collapse
Courtesy of Joe Weisenthal at Clusterstock/Business Insider
It’s a good thing Wall Street bonuses rebounded in 2009 because otherwise the State of New York would be totally screwed.
Yesterday the Comptroller released its survey of the state’s sales tax receipts — a proxy for consumer spending that shows a trend opposite to Wall Street.
Counties across New York State, including New York City, saw one of the sharpest declines in sales tax collections on record, according to a report released by State Comptroller Thomas P. DiNapoli. The report, which compares 2009 to 2008 collections, found a 5.9 decrease in collections statewide. Only four counties saw an increase but these numbers were primarily due to administrative and technical adjustments, not better economic performance.
“This is yet another sign that the Great Recession is having a continuing impact on our communities across New York,” said DiNapoli. “These numbers are sobering. Fortunately, many local governments have taken sometimes painful budgetary steps to stave off disaster. It’s a struggle, but all levels of government have to make every taxpayer dime count.”
Among the report’s findings:
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Fifty-three of New York’s 57 counties outside of New York City saw a sales tax decline and many of these counties share sales tax revenues with their municipalities;
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The largest decline occurred in the Lower Hudson Valley, at 8.4 percent;
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In state fiscal year 2009-10, the state’s sales tax base (value of all goods and services subject to the sales tax) shrank by 7.1 percent;
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Among New York’s counties, Westchester saw the steepest drop at 10.3 percent;
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The Mohawk Valley region saw the smallest downturn at 2.5 percent;
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Only Oneida, Chautauqua, Schuyler and Seneca counties saw increases, but this growth was mostly attributable to factors other than economic growth; and
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According to the New York State Association of Counties, most counties prudently budgeted little or no growth in their sales tax revenues for 2010.
A few charts exemplify the trouble the state faced:
Source: http://www.osc.state.ny.us/
And here’s a breakdown by notable region:
Source: http://www.osc.state.ny.us/
At the same trime, Comptroller DiNapoli warned of a $2 billion budget shortfall for the current year.
NY AG Cuomo Announces Fraud Charges Against Bank Of America For Merrill Lynch Merger
by ilene - February 4th, 2010 12:10 pm
NY AG Cuomo Announces Fraud Charges Against Bank Of America For Merrill Lynch Merger (BAC)
Courtesy of Joe Weisenthal and Lawrence Delevingne at Clusterstock
Today, Andrew Cuomo announced fraud charges against Bank of America and top executives over the Merrill Lynch merger debacle.
The charges are civil, but Cuomo says there are pending criminal investigations.
Here’s the full release:
ATTORNEY GENERAL CUOMO FILES FRAUD CHARGES AGAINST BANK OF AMERICA, FORMER CEO KENNETH LEWIS, AND FORMER CFO JOSEPH PRICE
Suit Alleges Bank of America’s Top Management Hid Skyrocketing Losses at Merrill Lynch
Bank of America Management Manipulated Federal Government into Granting Massive Taxpayer Bailout
NEW YORK, NY (February 4, 2010) – Attorney General Andrew M. Cuomo,
joined by Special Inspector General for the Troubled Asset Relief
Program Neil Barofsky, today announced a lawsuit against Bank of
America, its former CEO Kenneth D. Lewis, and its former CFO Joseph L.
Price for duping shareholders and the federal government in order to
complete a merger with Merrill Lynch. According to the lawsuit, Bank of
America’s management intentionally failed to disclose massive losses
at Merrill so that shareholders would vote to approve the merger. Once
the deal was approved, Bank of America’s management manipulated the
federal government into saving the deal with billions in taxpayer funds
by falsely claiming that they would back out of the deal without bailout
funds.
“This merger is a classic example of how the actions of our
nation’s largest financial institutions led to the near-collapse of
our financial system,” said Attorney General Cuomo. “Bank of
America, through its top management, engaged in a concerted effort to
deceive shareholders and American taxpayers at large. This was an
arrogant scheme hatched by the bank’s top executives who believed they
could play by their own set of rules. In the end, they committed an
enormous fraud and American taxpayers ended up paying billions for Bank
of America’s misdeeds.”
“The events surrounding the Bank of America/Merrill Lynch merger and
the United States Government’s investment in Bank of America through
the Troubled Asset Relief Program are an important part of the history
of the financial crisis,” said Special Inspector General Neil
Barofsky. “Attorney General Cuomo and his staff, working hand…
Governor Paterson: “New York Runs Like a Payday Loan Operation”
by ilene - January 7th, 2010 1:18 pm
Governor Paterson: "New York Runs Like a Payday Loan Operation"
Courtesy of Mish
I rarely applaud politicians but I will gladly give New York governor Patterson a standing ovation for his state of the state address on Wednesday.
Please consider Paterson Speech Chastises Lawmakers
In a strikingly blunt State of the State address, Gov. David A. Paterson chastised the lawmakers seated before him on Wednesday, saying they had spent the state into near-ruin and stood by as a plague of political corruption destroyed New Yorkers’ trust in their government.
“You have left me and other governors no choice,” Mr. Paterson, the former State Senate minority leader, said. “Whether it be by vetoes or delayed spending, I will not write bad checks, and we will not mortgage our children’s future.”
The public scolding drew a cold response from lawmakers. Some sat stony-faced during the speech, while others fidgeted with BlackBerrys.
The governor entered the packed chamber with nary a handshake for the hundreds of lawmakers and other officials who had assembled to hear him speak, and did not crack a single smile during his 30-minute address.
Lawmakers, Mr. Paterson charged, had too often bowed to the wishes of powerful special interests, feeding an “addiction to spending, power and approval” and plunging the state into economic catastrophe.
“No longer are we going to run New York like a payday loan operation,” the governor vowed.
Referring to industry and labor lobbyists in the chamber, he declared, “The moneyed interests — many are here today as guests — have got to understand that their days of influence in this town are numbered.”
Recognition Time
I am glad to see one governor stand up and unequivocally state there is an enormous problem regarding corruption and wasteful spending.
Typically the only time you hear speeches like that is before someone is elected. After election it is business as usual. President Obama is the classic example of "Yes we can" turned into "business as usual".
State by state, business as usual is going to stop. Everything needs to be on the table especially union salaries and defined public benefit pension plans.
Others will follow Paterson, not because they will be willing participants, but because the market will force their hand.
New York Takes a Bite Out of Pensions?
by Zero Hedge - December 2nd, 2009 9:39 pm
Courtesy of Leo Kolivakis
Submitted by Leo Kolivakis, publisher of Pension Pulse.
Quelle surprise! Bloomberg reports that N.Y. Raises Pension Requirements to Save $48 Billion:
New York state’s pension program will raise the retirement age and financial contributions for new workers to save the state and local governments about $48 billion over 30 years.The change, affecting workers hired Jan. 1 or after, was approved by legislators today and is supported by Governor David Paterson. The two biggest public employee unions backed the change after Paterson agreed to drop proposals to eliminate a 3 percent pay increase this year and cut 8,700 state jobs.
“Savings will be achieved not only in state spending, but at the local level, which will help to reduce property taxes,” Paterson, 55, said in a statement. The state constitution bars reductions in pension benefits for existing workers.
New York’s pension fund, the third-largest in the U.S., covers 1 million current and retired workers, and had $126 billion in assets on Sept. 30, according to Comptroller Thomas DiNapoli, the sole trustee.
For new workers, the bill raises the age for retirement without penalty to 62 from 55, imposes a 38 percent penalty on non-uniformed workers who retire before 62 and increases the minimum years of service to draw a pension to 10 from 5, according to Paterson’s office.
Overtime payments included in calculating pension benefits will be capped at $15,000 a year for civilian workers, and 15 percent of wages for police and firefighters.
Savings Estimates
The Division of Budget estimated in December 2009 that a similar package of pension changes would save $30 million in its first year. In June, Paterson, a Democrat, said savings would be at least $48 billion over 30 years. Assembly Speaker Sheldon Silver, a Democrat from Manhattan, said today the changes would save state and local governments $48.5 billion.
For teachers outside New York City, whose pension fund covers 420,000 current and retired workers, the bill raises the minimum retirement age to 57 from 55 without penalty, and increases their pension contribution to 3.5 percent from 3 percent.
The bill changes New York City teacher pensions to save the city $19.1 million this year, rising to $64.1 million in 2019, according to a news release from the governor’s office.
…
Manhattan Institute Says “New York must declare a financial emergency”
by ilene - November 15th, 2009 11:31 am
Manhattan Institute Says "New York must declare a financial emergency"
Courtesy of Mish
E.J. McMahon, director at the Manhattan Institute says New York deficits amount to financial emergency.
New York state’s huge and growing budget gap requires government to take drastic actions to correct it, said E.J. McMahon, director of the Empire Center for New York State Policy at the Manhattan Institute.
McMahon spoke to the Council of Industry, a regional trade group, Friday at the Powelton Club.
He charted flat revenues against expected spending if nothing is changed and showed a $20 billion gap looming by 2012-13.
McMahon said the state must declare a financial emergency and enact a statutory freeze on public-sector wages for at least three years. State law allows this and enables contracts to be voided, he said. It would save at the rate of $2 billion a year for state, local and school taxpayers.
McMahon also called for shutting down the state’s pension systems to new entrants and giving them instead a plan similar to one of the alternatives for the State University system, in which a stable amount is contributed by the state and employees can add their own.
He said some parts of the state’s Taylor Law, governing labor relations with public employees, should be repealed, including compulsory arbitration for police and fire unions. Other laws should also be targeted for repeal because they’re costly, including the rule requiring that on most public work the "prevailing wage" be paid, usually the union scale.
State spending should be capped by changing the state constitution, he said, recommending the "tax expenditure limitation" approach exemplified by Colorado.
He laid blame on politicians."It’s their failure to stop the growth in spending that is the underlying problem," he said. "New Yorkers are voting with their feet and heading for the exits."
Tax Expenditure Limitation Analysis
There is surprisingly little in the way of current analysis of TEL analysis. I did find this TEL Impact Study by the Cato Institute that seems to predate 2000.
The existence of a TEL may not be sufficient to influence the size of government. The way a TEL is written can have an important impact on its effectiveness. Hidden loopholes may make it easy for a state legislature to work around the law.
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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