Monday brought word of another corporate bailout by the Federal Reserve. The "victims" this time around are Fannie Mae and Freddie Mac. Stephen Labaton broke down the plan in yesterday's New York Times:

...the Federal Reserve said it would make one of its short-term lending programs available to the two companies... ...the Fed’s decision to permit the companies to borrow from its so-called discount window was approved at the request of the Treasury but that it was temporary and would probably end once Congress approved Treasury’s plan. Some officials briefed on the plan said Congress could be asked to extend the total line of credit to the institutions to $300 billion.

Fine, saving the nation's two largest mortgage finance companies from peril is an acceptable use of resources. The article cites lawmakers on both sides of the aisle are in agreement with the decision to bail the two companies out. What concerns me however is what this could mean for taxpayers in the future:

...the package, if adopted, would bring the Treasury closer than ever to exposing taxpayers to potentially huge new liabilities. The two companies could face significant new losses this year as the wave of housing foreclosures continues. Officials seemed to suggest, however, that they had little choice but to intervene.

So what does this actually mean? Since the economy is absolutely tanking, more and more foreclosures and defaults on mortgages can be expected, and since Fannie Mae and Freddie Mac are already government sponsored entities, guess who is going to be paying if the two companies continue to lose money. Thats right, you and me.

Meanwhile, while the federal government is busy establishing $300 billion credit lines and potentially exposing tax payers to even more grief, or bailing out Bear Stearns for $30 million, lets see how the states are doing in the face of a federal government that refused to recognize their importance.

In Illinois, the Chicago Tribune just released their version of winners and losers of the budget cuts. Child Welfare and healthcare were two of the biggest losers.

The Department of Children and Family Services saw a decrease of $32 million over last year, a figure the administration said would increase the number of abused children served by each caseworker from 15 to 20. Blagojevich also cut subsidies for student and disabled riders by $37 million, putting pressure on local transit agencies as people seek ways to fight high gas prices.

A Baltimore Sun editorial downplayed the potential $200 million budget shortfall for being less than the previously mentioned $1.7 billion shortfall. The Board is quick to remind us that folks in Maryland are not out of the woods yet:

But that is the short-term view. In fiscal 2010 (the budget year that begins nearly one year from now), the gap could widen to $500 million. And after that, the state's budget health may depend on whether voters approve this fall's slots referendum - or find an alternative source of new revenue.

The Associated Press reported on Sunday that Governor Sanford of South Carolina has set new expectations for his state's budget shortfall:

Gov. Mark Sanford said last week he expects the shortfall at the end of the year to wipe out 1 of the state's rainy day reserve accounts. And he says he won't be surprised if it the state's remaining reserve account takes a hit.

In California fewer and fewer students are able to take summer school courses, at the detriment to struggling and superior students alike. The Associated Press again has the story:

Trying to slash more than $2 million from its budget, (Santa Rosa)...is giving priority this summer to students needing help passing the high school exit exam and to seniors needing five or fewer credits to earn a diploma. That means no enrichment courses in subjects like Mandarin or creative writing — and none of the accelerated classes that in the past had enabled good students to enhance their transcripts.

And the same thing is happening in Florida:

In Florida's Bevard County, home to the Kennedy Space Center, the school district cut all of its free summer enrichment programs In all, more than $1.8 million is being cut from Bevard's summer programs, including subsidies for transportation. With students having to make their own way to school, and facing fees for some programs, there's concern low-income families will suffer disproportionately. "We want to help everybody, but we're handcuffed by the budget," Agapinan said.

It really is a shame that the government doesn't have the same "must save" mentality when it comes to helping states suffering from crippling budget cuts. But thats alright, its not as though states and municipalities represent $1.8 trillion of the $14 trillion economy.

Foreclosures are putting a lot more than Fannie and Freddie at risk. States are seeing their revenues plummet too and that means the shared fate of our communities and common good are also threatened. When state budgets are in a vice grip – quality of life is squeezed too. We share a common interest in having our state and local governments keep our roads safe and water clean, protect our communities, educate our children, provide good stewardship over our parks and public resources, and making sure we all have a fair shot at the American dream.

Federal relief geared towards states isn’t charity. State spending is a massive engine of our economy – about 13% of GDP. By removing much-needed spending and investment from the economy, state and local budget cuts have the potential to cause our economic downturn to nosedive even further.