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They need to find $24 billion to close their budget deficit.  California Democrats Seek Tax Boost as Battle Looms

Speaker of the Assembly Karen Bass, a Los Angeles Democrat, said higher taxes and fees are needed instead of all $16 billion in cuts proposed by Republican Governor Arnold Schwarzenegger. His proposed reductions would eliminate entire welfare programs and leave 1 million children without health insurance. Democrats yesterday proposed a $15 automobile license fee and said they may consider a 9.9 percent per-barrel levy on oil produced in the state.

The Democrats’ stance sets the stage for a confrontation with Republican lawmakers because California law requires a two- thirds vote to approve tax increases. While Democrats control both chambers, they are six votes short of a supermajority. State Controller John Chiang has warned lawmakers since May that they had until June 15 to fill the gap or the state will find itself unable to pay all its July bills.

“The budget that we will be voting for on the floor will be a balanced approach and it will be a combination of cuts and new revenues,” Bass told reporters in her office yesterday.

The state’s projected cash shortage absent a fix to next year’s budget led Standard & Poor’s late yesterday to place California’s credit rating, already the lowest among U.S. states, under review for a possible cut.

The White House says, solve your own problems:  Calif. Aid Request Spurned By U.S.

The Obama administration has turned back pleas for emergency aid from one of the biggest remaining threats to the economy — the state of California.

Top state officials have gone hat in hand to the administration, armed with dire warnings of a fast-approaching “fiscal meltdown” caused by a budget shortfall. Concern has grown inside the White House in recent weeks as California’s fiscal condition has worsened, leading to high-level administration meetings. But federal officials are worried that a bailout of California would set off a cascade of demands from other states.

With an economy larger than Canada’s or Brazil’s, the state is too big to fail, California officials urge.

Federal taxpayers are not on the hook for their mismanagement,   for now:

…In testimony before Congress, Geithner did not rule out aiding California. But he was far from enthusiastic about such a proposal, instead suggesting that Congress was better positioned to help the states — and that states should balance their budgets.

“A lot of the burden,” Geithner said, “is going to be on them to lay out a path that gets their deficits down to the point where they’re going to be able to fund themselves comfortably.”

It doesn’t help that productive residents are leaving in droves.

I’m not clear on why California went to the White House.  Were they expecting to get TARP money?

So how’s the economy looking today?  Not so hot.

The price of oil is expected to continue to rise for the rest of the year.

The private sector lost over 530,000 jobs last month.

The current unemployment rate is 8.9%, with no end in sight.

The Federal Government is hiring at a good clip.

Benefit spending soars to new high:

The recession is driving the safety net of government benefits to a historic high, as one of every six dollars of Americans’ income is now coming in the form of a federal or state check or voucher.

Benefits, such as Social Security, food stamps, unemployment insurance and health care, accounted for 16.2% of personal income in the first quarter of 2009, the Bureau of Economic Analysis reports. That’s the highest percentage since the government began compiling records in 1929.

In all, government spending on benefits will top $2 trillion in 2009 — an average of $17,000 provided to each U.S. household, federal data show. Benefits rose at a 19% annual rate in the first quarter compared to the last three months of 2008.

The White House says this year’s budget deficit will be nearly $2 trillion.

Today the national debt clocks in  at $ 11,389,630,874,095.46.
The estimated population of the United States is 306,306,828, so each citizen’s share of this debt is $37,183.73.

Deficit spending means government borrowing.  The Foundry warns of a global government debt bubble:

As governments worldwide try to spend their way out of recession, many countries are finding themselves in the same situation as embattled consumers: paying higher interest rates on their rapidly expanding debt.

Increased rates could translate into hundreds of billions of dollars more in government spending for countries like the United States, Britain and Germany.

Even a single percentage point increase could cost the Treasury an additional $50 billion annually over a few years — and, eventually, an additional $170 billion annually.

…The long-term situation is particularly perilous, because the added interest costs will worsen what have become record deficits as Washington has rushed to bail out industries and stimulate the economy.

Making this no surprise: Bernanke Warns Deficits Threaten Financial Stability

Federal Reserve Chairman Ben S. Bernanke said large U.S. budget deficits threaten financial stability and the government can’t continue indefinitely to borrow at the current rate to finance the shortfall.

“Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,” Bernanke said in testimony to lawmakers today. “Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.”

Bernanke’s comments signal that the central bank sees risks of a relapse into financial turmoil even as credit markets show signs of stability. He said the Fed won’t finance government spending over the long term, while warning that the financial industry remains under stress and the credit crunch continues to limit spending.

…“Either cuts in spending or increases in taxes will be necessary to stabilize the fiscal situation,” Bernanke said in response to a question. “The Federal Reserve will not monetize the debt.”

Congress agrees, they say:

House Majority Leader Steny Hoyer told reporters that Bernanke “is absolutely right, we need to be very concerned about incurring additional indebtedness.” The House plans to pass legislation before its July 4 recess to cut spending in one category before increasing it in another, he said. In addition, “we need to address entitlements.”

They can start by scrapping plans for universal healthcare, which would be the mother of all entitlements.  And that legislation he’s talking about sounds like it would just shift spending, not decrease it overall.  No word on Congress’s attitude toward raising taxes in the article.

The Financial Times says he’s on target:

The bottom line is that we should come away from Mr Bernanke’s testimony with at least two conclusions: the chairman seems more cautious about the growth outlook when compared with other recent public statements; and he wants to push fiscal sustainability issues clearly away from the Fed’s domain and back where they belong, with Congress and the administration. He is correct on both counts. He would have been justified on Wednesday in being even more forceful; and he mostly probably will be in the next few months.

Not a good day in the neighborhood.

From WSJ, A Governor and His Veto Pen

If Republicans are looking to get back their conservative groove, they could do worse than study Minnesota’s budget brawl. Mr. Pawlenty deftly (and amusingly) outmaneuvered his Democratic opposition, not only saving his state from huge tax increases but clearing the way to cut government spending. Call it a refreshing break from the financial-crisis norm.

Applying principles:

Throughout this spectacle, Mr. Pawlenty kept voicing three simple principles. “Number one, we must have [because of the constitution] and should have a balanced budget,” he told me. “Number two, the state government needs to live within its means, just like everybody else. Number three, we shouldn’t raise taxes in the worst recession in 60 years.” Minnesota already has one of the highest tax burdens in the nation.

The players were played:

The DFL wasn’t listening. As the clock wound down (the session ended at midnight this past Monday), the legislature sent Mr. Pawlenty one large spending bill after another. The assumption was he’d veto them, be forced to call a special session, and then be negotiated into tax hikes. That’s when the governor got Minnesota nice.

Upon receiving the last spending bill, he announced that he would exercise the power of “unallotment,” which has been on the books since 1939 and which has been used four times. Under it, the governor is allowed to “unallot” (take away) any state spending for which there is no money to pay. Panicked, the DFL passed tax legislation to cover its blowout spending bills, 10 minutes before the session’s end. Too late. The governor said he’d veto the bill and would not be calling back the legislature to do any more mischief.

Mr. Pawlenty is now free to strip $2.7 billion from state spending to balance the budget. Tax hikes are dead. He tells me this will be one of the first times in modern Minnesota history that the state will reduce the size of government in real terms, not just slow its rate of growth. “The correlation in recent history has been between job growth and states that have reasonable government cost structures,” he says. These cuts, he says, will position Minnesota to take advantage of the recovery when it comes.

What a guy.

H/T Commentary

When California politicians wanted voters to agree to higher taxes, they said that services like police and fire departments would be cut.  How would that happen, when those services are funded by city taxes?  Here’s how:  California Cities Irked by Borrowing Plan

California Gov. Arnold Schwarzenegger, in his efforts to find funds to balance the state budget, has proposed borrowing $2 billion from municipal governments over the next fiscal year, a tactic that is rankling local officials up and down the state.

Mr. Schwarzenegger is invoking a 2004 law that lets the state demand loans of 8% of property-tax revenue from cities, counties and special districts. Under the law, the state must repay the municipalities with interest within three years.

Administrators of already cash-strapped cities and counties said the loans would force even deeper cuts in services. Fewer cops and fire engines would be on the streets, they said, and parks and libraries would be closed more often. And some local governments would be forced to lay off workers to keep their budgets out of the red, they said.

It’s not a done deal yet:

The governor’s proposal of borrowing from local governments must still be approved by the legislature. If it does so, municipalities are worried the state won’t be able to repay the loans, given the state’s fiscal plight. “They’re hijacking our dollars,” said Don Knabe, chairman of Los Angeles County Board of Supervisors. “They don’t have money to pay us back. It’s a joke.”

Some counties are resisting:

City and county officials are lobbying the state to reconsider the proposal. Mr. McKenzie said the League of California Cities is considering filing a suit against the state. Mike Reagan, a supervisor for Solano County in Northern California, said officials in numerous counties are strategizing on how to stop the state from borrowing the funds.

Mr. Krauter of Kern County said local officials throughout the Golden State are sending a clear message to Sacramento: “State, you solve your problems. Let us solve ours.”

I’m irked by the fact that the whole country will be expected to solve Sacramento’s problems through the TARP bailout California will likely receive.

Defense spending cuts, and little else.

Via The Foundry

Your community gets stimulus dollars for infrastructure projects only if your community can afford it. In a bizarre variation on pay-for-play, the Associated Press notes, STIMULUS WATCH: Early road aid leaves out neediest

Counties suffering the most from job losses stand to receive the least help from President Barack Obama’s plan to spend billions of stimulus dollars on roads and bridges, an Associated Press analysis has found.

Although the intent of the money is to put people back to work, AP’s review of more than 5,500 planned transportation projects nationwide reveals that states are planning to spend the stimulus in communities where jobless rates are already lower.

One result among many: Elk County, Pa., isn’t receiving any road money despite its 13.8 percent unemployment rate. Yet the military and college community of Riley County, Kan., with its 3.4 percent unemployment, will benefit from about $56 million to build a highway, improve an intersection and restore a historic farmhouse.

Altogether, the government is set to spend 50 percent more per person in areas with the lowest unemployment than it will in communities with the highest.

Why is this happening?

The very promise that Obama made, to spend money quickly and create jobs, is locking out many struggling communities needing those jobs.

The money goes to projects ready to start. But many struggling communities don’t have projects waiting on a shelf. They couldn’t afford the millions of dollars for preparation and plans that often is required.

…The early trend seen in the AP analysis runs counter to expectations raised by Obama, that road and infrastructure money from the historic $787 billion stimulus plan would create jobs in areas most devastated by layoffs and plant closings. Transportation money, he said, would mean paychecks for “folks looking for work” and “folks who want to work.”

Don’t expect to see the employment picture change anytime soon.  White House Forecasts No Job Growth Until 2010

The huge cost of the  stimulus bill is contributing to other problems:  White House: Budget deficit to top $1.8 trillion

With the economy performing worse than hoped, revised White House figures point to deepening budget deficits, with the government borrowing almost 50 cents for every dollar it spends this year.

The deficit for the current budget year will rise by $89 billion to above $1.8 trillion — about four times the record set just last year. The unprecedented red ink flows from the deep recession, the Wall St. bailout, the cost of President Barack Obama’s economic stimulus bill, as well as a structural imbalance between what the government spends and what it takes in.

As the economy performs worse than expected, the deficit for the 2010 budget year beginning in October will worsen by $87 billion to $1.3 trillion, the White House says. The deterioration reflects lower tax revenues and higher costs for bank failures, unemployment benefits and food stamps.

Just so you know, it’s still Bush’s fault.

At the local level.  Keeping his eye on the prize, Kansas’s new Democrat governor approves coal-fired power plant:

TOPEKA-In a stunning reversal from his predecessor, Gov. Mark Parkinson on Monday signed an agreement ending a two-year fight over plans to build coal-fired power plants in western Kansas.

The compromise allows Sunflower Electric Power Corp. to build one 895-megawatt coal-fired power plant near Holcomb, instead of two 700-megawatt plants that were repeatedly blocked by Kathleen Sebelius when she was governor.

In exchange for the go-ahead, Sunflower will build more wind turbines and agree to more pollution controls and a greater investment in energy efficiency.

…Parkinson said he reached out to Sunflower soon after he was sworn in to replace Sebelius a week ago. He explained that he was frustrated by the political stalemate that saw the coal issue derailing efforts to encourage renewable energy. He said a little coal and a lot of environmental legislation was better than nothing.

Political calculation played a part:

O’Neal said Parkinson may have realized that lawmakers were close to overriding Sebelius’ veto of legislation to resurrect the plants.

“We felt like the momentum was finally moving in our direction,” he said.

Good for electricity consumers in Kansas and the environment, too.

Berkeley voters waking up to the costs of going green:

After two years of public outreach and debate on an ambitious and controversial plan to curb global warming, Berkeley’s city council this week was forced to water down the proposal — which initially required an energy audit of every home — after angry homeowners complained the plan could cost them tens of thousands of dollars.

Experts say Berkeley’s retreat may serve as a cautionary lesson to other cities and counties contemplating plans to fight global warming: Even residents of the nation’s most liberal jurisdictions may balk when it comes to paying the price of going green.

“I think we can expect to see episodes like the controversy over mandates in the plan more and more, because environmental and political leaders haven’t been responsible about the costs of climate stabilization,” said Michael O’Hare, professor of public policy at the University of California-Berkeley. ”If you don’t level with the public about the first part, it’s not surprising when people balk at climate policy that requires them to do some heavy lifting.”

Durango, Colorado, decides jobs are more important than using more expensive windpower:

For two years, the city of Durango, Colo., bought electricity for all its government buildings from wind farms. The City Council ended that program this year, reverting to electricity derived from coal-burning plants and saving the cash-strapped city about $45,000.

“It’s very hard for us to lay off an employee to justify green power,” City Manager Ron LeBlanc said. “Those are the tradeoffs you have to face.”

After his election the President called for Americans to support a “new spirit of sacrifice.”  Not everyone is heeding the call.

Obama Administration Sides With Union on California’s Proposed Wage Cuts

In a victory for its labor union friends, the Obama administration has ruled that budget-strapped California cannot cut the wages of in-home care givers since it is accepting federal stimulus funds.

The stimulus money is intended to prevent such cuts, President Barack Obama has said.

This week’s ruling — from Obama’s Health and Human Services Department — involves the 250,000 workers who belong to the Service Employees International Union.

The Federal strings on stimulus money are long and sticky:

The ruling came after the Service Employees International Union and its California affiliates requested an opinion on whether California’s proposed wage cuts for IHSS workers violate the “maintenance of effort clause” in Obama’s stimulus program.

“Maintenance of effort” is a federal requirement that says grant recipients must maintain a certain level of state and local spending to be eligible for full participation in federal grant funding.

The California Legislature – now grappling with a multi-billion budget deficit — voted for a 20-percent reduction in the state’s contribution to homecare workers’ wages as part of the state’s budget package.

State sovereignty or Constitutional Convention sounding better, Californians?


California is between a rock and a hard place.  California could be broke by July, state official warns.

California could run out of money as soon as July, the Legislature’s chief budget analyst warned Thursday, as a new poll showed voters poised to reject five budget-related measures on the May 19 ballot.

If the propositions do not pass, the state could find itself as much as $23 billion short of the money it needs to pay its bills over the next year, according to a new forecast by Legislative Analyst Mac Taylor. The poll, from the Public Policy Institute of California, found that even as voter interest in the ballot measures rises, all are trailing except the sixth one — Proposition 1F, which would bar pay hikes for lawmakers in deficit years.

What’s the problem voters have with the propositions?

The unpopularity of the ballot measures appears to reflect intense voter distrust of Sacramento. Just 16% of likely voters say they trust the state government to do the right thing. Schwarzenegger’s approval rating remains at a near-historic low, 34%. The state Legislature’s, meanwhile, stands at an anemic 12%.

“The voters seem interested in delivering a message,” said Mark Baldassare, Public Policy Institute of California president and survey director. “The measures are very complex and confusing to voters — and they don’t seem to have trust in what the governor and Legislature have put before them.”

…The only measure that voters back widely would do little to help the state budget — but it would send a clear message to Sacramento. The poll found that 73% plan to vote for Proposition 1F, which would freeze the salaries of lawmakers in deficit years.

The President said he’s “cutting” $17 billion from the budget through Federal program terminations and reductions.

Except he’s not reducing spending, he’s redirecting taxpayer wealth. From The Foundry,

Nearly every dollar “saved” would go into new spending. The President already proposed a specific discretionary spending level, and Congress has already approved a budget that would spend $1,086 billion on regular discretionary spending in FY 2010. The discretionary savings proposals affect only the composition of such spending. Thus, even if the entire $12.5 billion in discretionary spending cuts are enacted, the savings would automatically be plowed into other programs to maintain discretionary spending at that level. So this exercise is about reorganizing – not reducing – government.

Even on the entitlement side, $3.6 billion of the $4.6 billion in 2010 savings comes from phasing out the subsidized student loan program – with all savings redirected into expanded Pell Grants. There is virtually no deficit reduction from these reforms.


Graphic via The Foundry

Those programs he’s “cutting” funding for?  Some of them got tons of money through the stimulus bill:

Federal programs deemed ineffective by President Obama and targeted for elimination in his proposed budget include five that stand to get about $500 million in economic stimulus funds, documents show.

In his $3.6 trillion budget released Thursday, Obama identified 121 programs that he wants to eliminate or reduce to save $17 billion. That includes eliminating an Army Corps of Engineers program that funds wastewater treatment projects and a U.S. Department of Agriculture flood control program — two programs that less than three months ago received a combined $490 million in the $787 billion economic stimulus bill.

Guess the economy will survive without them after all.

And one program’s funds on the chopping block, to the tune of $19 million, was part of the President’s omnibus spending bill:

Says the White House:  “The programs in Terminations, Reductions, and Savings are ones that do not accomplish the goals set for them, do not do so efficiently, or do a job already done by another initiative. They include: … Los Alamos Neutron Science Center refurbishment ($19 million). The linear accelerator housed here was built 30 years ago and no longer plays a critical role in weapons research.”

The president actually signed a bill giving $19 million to that very same program when he, behind closed doors, signed the omnibus spending bill in March that contained roughly $8 billion in earmarks, as Sen. Jeff Bingamin, D-NM, heralded in a press release.

The Keystone Kops are running our country.  Want more evidence?  Government Motors will be outsourcing jobs big-time after it restructures.

According to an outline the company has been sharing privately with Washington legislators, the number of cars that GM sells in the United States and builds in Mexico, China and South Korea will roughly double.

Will the President count those jobs as created or saved?  Inquiring minds want to know.