Governors Call for Aid to States

The New York Times reports this morning on congressional hearings yesterday when governors David Paterson (NY) and Jon Corzine (NJ) called for aid in a new stimulus package:

"We are cutting all we can," Mr. Paterson told the House Ways and Means Committee. "Therefore, we feel that targeted, sensible actions by the federal government will provide relief for us now."

Speaking to the House Transportation and Infrastructure Committee, Mr. Corzine implored, "We need federal help to get through these tough times."

Their remarks increased the pressure on the federal government to include money for state governments in the next round of economic stimulus legislation, pointedly putting the requests of the executives of two of the nation's most populous states on the record.

I've been beating this horse for a long time. But it has yet to get up and move so I'll keep on flogging.

Congress needs to put federal money to work in the states where it will immediately provide relief to the distressed and kickstart the economy.

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New York Times Recognizes Urgent Need for Aid to States

The New York Times is getting on board the "help the states" bandwagon.

Wall Street's crisis is walloping state finances across the country. The most urgent problems are in states -- like California -- that rely on short-term financing to help pay their bills until tax revenues start coming in later on in the fiscal year. This is about the safest debt on the market. Still, over the past few weeks, states have been shut out of the credit markets like everybody else.

The credit freeze that followed the events on Wall Street and in Washington over the last few weeks has dramatically effected the states. California may need a $7 billion loan from the Federal Government to cover short term cash needs. And last Friday, the New York Times reported that Massachusetts may be in a similar position:

Treasurer Timothy P. Cahill's requests last week to the Treasury Department and the Federal Reserve Bank of Boston were prompted by the state's inability to borrow from the short-term debt markets, The Boston Globe reported on Saturday. The financial turmoil has caused credit markets to stop lending, or to charge prohibitive rates.

And more states are sure to follow. According to a report by the Center on Budget and Policy Priorities:

New gaps have opened up in the budgets of at least 15 states plus the District of Columbia just two months after they struggled to close the largest budget shortfalls seen since the recession of 2001. These 15 states include more than half of the 29 states that have already moved to cut spending, use reserves, or raise revenues in order to adopt a balanced budget for the current fiscal year -- which started July 1 in most states. Now, their budgets have fallen out of balance again

The 15 states on this list are pretty diverse too:

The 15 states facing additional shortfalls are Arizona, Connecticut, Florida, Georgia, Hawaii, Illinois, Maryland, Massachusetts, Nevada , New Hampshire, New York, Ohio, South Carolina, Vermont, and Virginia.

So without short term borrowing on the table, these states are going to have to rely on tax revenue to make up the difference, which goes completely against tax revenue trends during economic downturns. According to the NYT Op Ed, the worst economic downturn since the Great Depression is no different:

As the economy tips deeper into recession, state tax revenues are expected to plummet. Gov. David Paterson of New York has already proposed $2 billion in immediate spending cuts. Even states that are less dependent on Wall Street than New York will have to figure out how to raise new money or reduce services, just when the public needs more help. This will intensify the economic downturn.

The prognosis for states is grim if the Federal Government does not step in the same way they did for Bear Stearns, Fannie and Freddie, AIG, et al. And the solution is one I've been calling for since day one:

Washington must step up. To start, the federal government must help states like California and Massachusetts get past their short-term liquidity squeezes. Congress also must prepare a new stimulus bill, with bolstered aid for food stamps and assistance to states and cities so they can continue to provide health care and finance construction and other projects that provide jobs.

But lets be honest, if Speaker Pelosi and Majority Leader Reid don't lead the charge on getting this done, it is going to lay dormant until it is too late. The cynical nihilists on the GOP side of the aisle in the House, coupled with the debacle that was the Wall Street bailout leads me to believe that Congressional Republicans would be more than happy to throw California and Massachusetts under the bus to avoid going back into session. Especially since their electoral votes are not going to be contested.

I hope I am proven wrong, because aid from the Federal Government has worked before:

In 2003, Washington gave states $20 billion in grants and increased Medicaid contributions to help them dig out of the 2001 recession. We hope this time it will act a lot faster.

So do I.

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The Bush Economic Black Hole Is Pulling California Under

Even as Congress tries again to pass the behemoth $700 billion Wall Street handout bailout news comes from California of a $7 billion problem that has immediate and massive impact on regular working folks.

According to Reuters:

California may need an emergency loan of up to $7 billion from the federal government within weeks, the Los Angeles Times on Friday quoted Gov. Arnold Schwarzenegger as saying in a letter to U.S. Treasury Secretary Henry Paulson.

...

On Wednesday, California Treasurer Bill Lockyer said the most populous U.S. state's cash reserves may be exhausted near the end of October, and various state-funded services are at risk of grinding to a halt.

...

In the letter, Schwarzenegger noted California's plans to issue $7 billion in revenue anticipation notes in the coming days to fund short-tern cash needs -- now put in doubt by the crisis in the credit markets.

Even a broken clock is right twice a day and Governator AHnold may actually understand what a dire situation this economic climate is becoming for the states:

"The economic fallout from this national credit crisis continues to drain state tax coffers, making it even more difficult to weather the continuation of frozen credit markets for any length of time."

Sean-Paul Kelley over at The Agonist spells out the implications:

Look, if the States can't function we're all hosed. And the so-called Congressional bailout does nothing to address these issues. It's not even remotely close to a 'clear resolution.' Even Krugman says as much, "Aid to cash-strapped state and local governments, which are slashing spending at precisely the worst moment, is also a priority."

Remember Jefferson County and the City of Vallejo in California? We mentioned them here, as proverbial canaries in the coal mines and where was our government? Pretty much saying, "it's contained."

Here's a question for Paulson and others: how do you contain Armageddon?

More from Paul Krugman:

How bad is it? Normally sober people are sounding apocalyptic. On Thursday, the bond trader and blogger John Jansen declared that current conditions are "the financial equivalent of the Reign of Terror during the French Revolution," while Joel Prakken of Macroeconomic Advisers says that the economy seems to be on "the edge of the abyss."

As Congress and the President argue over exactly how many zeroes to add to the Wall Street bailout, California teeters on the brink.

If "across the board bailouts" are going to be the safe bet with the current leadership then lets make sure we apply this standard across the board. Because I don't trust Bush and Paulson not to gamble that California can be allowed to fail too. And Paulson's bets have been going bad lately:

The wave of bad news began on Sept. 14. Henry Paulson, the Treasury secretary, thought he could get away with letting Lehman Brothers, the investment bank, fail; he was wrong.

For a fifth of the cost of the Bear Stearns bailout, a tenth of the cost of the Fannie Mae/Freddie Mac bailout, and one one hundredth of the cost of the Wall Street bailout, we can keep California state government from going under.

Bear Stearns, Fannie Mae and Freddie Mac, Lehman Brothers, and now California. The Bush economy is turning into a black hole and threatens to suck us all in.

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Second Stimulus Package: Dead on Arrival

On Friday Reuters reported what many had expected, the second economic stimulus package had failed the Senate.

The 52-42 vote fell short of the 60 votes needed in the 100-member Senate for Democrats to clear a Republican procedural hurdle and move toward passage of the bill, which backers said would give the ailing U.S. economy a needed boost.

Although according to the Associated Press, we probably should have seen this coming:

With most Republicans opposed, however, the Reid-Byrd stimulus plan measure is likely to stall. Democrats are then likely to hold the vote against Republicans in the campaign for control of Congress.

And rightfully so, because blocking the measures that would be taken in this stimulus package is deplorable:

The Senate stimulus measure provides $6 billion to extend unemployment benefits by seven weeks in all states and by 13 weeks in states with high jobless rates. It also contains almost $20 billion to increase federal payments to states for the Medicaid health care program for the poor and disabled. ...the House stimulus measure will be more focused on producing jobs, including $25 billion for infrastructure projects like building new roads and repairing bridges.

Republicans did what they do best, blocked meaningful legislation that would have done wonders for the people on "main street" who they are supposedly working hard for. Instead of thousands of new jobs and the prevention of cuts to critical services, we have nothing. Excellent job Congressional Republicans, you have my vote.

So why did Republicans vote against the bill?

Republicans said they did not have time to review the spending measures properly

Well I can see how that would be difficult amidst an economic crisis that they and President Bush helped to create.

Now lets take a look at the "people of Main Street" that Congressional Republicans decided to leave behind.

In California, according to Capitol Weekly:

An estimated 10,000 state workers who lost their jobs during the fight over the 2008-09 budget are likely to be without state work until next June, although the heads of state agencies have been told privately they will have leeway over rehiring some workers.

The laid-off temporary workers, who include retired annuitants and seasonal workers, lost their jobs following Republican Gov. Arnold Schwarzenegger's July 31 executive order.

In Maryland, according to the Washington Post:

Maryland Gov. Martin O'Malley announced yesterday that he has asked state agencies to identify hundreds of millions of dollars in spending cuts, as much as 5 percent of state government expenditures, to balance the budget as major revenue sources decline in the sour economy.

O'Malley (D) predicted an "extraordinarily difficult budget next year" if his administration does not start to pare spending during the current fiscal year. "While these cuts will not be easy, it is clear that the economic crisis our nation is experiencing will have a dramatic impact on next year's budget," he said in a statement.

In Colorado, according to the Denver Post:

Days after discounting an economic forecast that predicted a $100 million shortfall in the current year's state budget, Gov. Bill Ritter on Thursday announced a partial hiring freeze for state employees and other steps to cut spending.

"These are uncertain times, to say the least," Ritter told reporters at a news conference in which he announced the moves, which also include delaying construction projects on college campuses and for full-day kindergarten.

"We must take steps now to ensure we have options should state revenues begin to dramatically decline," he said.

And finally in Utah, according to the Salk Lake City Tribune:

The Utah Department of Health proposed achieving its 3 percent reduction mainly through a $10 million cut in Medicaid, triggering a $23 million loss in matching federal funds.

Some optional programs such as vision care, physical therapy, and speech and hearing would disappear, and an average 2 percent increase in provider inflation, which took effect in July, would be rolled back.

Qualifying for help also could become tougher. Pregnant women, except for those who are high risk, would see the amount of assets they can have drop to $3,000 from $5,000.

The attempts by Congressional Republicans to make a second economic stimulus package work were mediocre at best, and frankly embarrassing and insulting to those who would have benefited from a second stimulus package done the right way.

So what did we learn about Republicans from this mess? Bailing out Wall Street is always critical, providing aid to the states rarely is. Debating the proper levels of compensation packages for CEOs always takes precedence over debating Medicaid funding and extending unemployment benefits. And most importantly, Republicans talk a tough game about the economy and helping the average American, but rarely put their money where their mouth is.

Pelosi Still Afraid to Take On Bush On the Economy

... Let's face it, we can only have a stimulus package if the President is willing to sign one.  But we can only go as far as the President will sign.

That's House Speaker Nancy Pelosi starting the negotiations on a second stimulus package by giving away the farm.

There's an old story in Texas about a young man whose daddy has sent him to trade horses on his own for the first time. He meets a wise old sharpie and the guy says, "So how much do you want for that horse son?" The kid answers: "Well Daddy told me to ask for $100 but to take $50.""That's great kid, here's $50, give your daddy my regards."

That's what the Congressional Democrats do EVERY TIME.

While every stop is being pulled out to save the Wall Street "Masters of the Universe", state governments across the nation are being pulled into an economic black hole. It's no surprise that President Bush doesn't care, but its very frustrating to see Pelosi being complicit in his indifference.

She's apparently telegraphing her willingness to throw the states over the side. Why not make the most unpopular president in history veto a bill that would be popular just in time for the election?

Not having a vote on a strong economic recovery package is bad politics. Bad terrible awful dumb politics.  What's the point of electing Democratic Members to Congress if they won't stand up for Americans even when the President won't?

Newsflash to the Democrats on Capitol Hill, this is the perfect time to force some Republicans up for re-election to put themselves on the record as opposing a package to save the economy.

But Pelosi doesn't get that concept. Instead she wants to pass something on the first go and she's so eager to please the president that shes pre-gutting a second stimulus package. Even though she's talking a good game to the press:

Pelosi renewed her vow to try to pass a stimulus measure that would combine billions of dollars for jobs-producing infrastructure projects, more food stamps, additional Medicaid aid to states, home heating subsidies and a further extension of unemployment insurance.

Persistent rumors from Capitol Hill indicate that she's telling the White House that she's willing to throw the Medicaid aid to states overboard.

Should we settle for a bill that only goes halfway in addressing the economic crisis? No. We did that once, earlier this year, and the first stimulus package failed.

This has been on the table for a long time. The same experts who said the first economic stimulus package failed also said aid to states needs to be in the next stimulus:

If a second round of stimulus is necessary, other options that should be on the table. These include payments to states that will need to cut spending because of balanced budget provisions as their tax revenue falls.

And in a letter to House Leadership in late January as the first stimulus package was being prepared, a bipartisan group of 39 Governors "requested that state aid be included in the stimulus:

The nation's governors urge you to include state countercyclical funding as part of your legislation to stimulate the economy.

...

In 2003, Congress approved $20 billion in assistance to states, including $10 billion in Medicaid and $10 billion in block grants. The governors' current stimulus proposal is essentially the same, with the exception that it is a total of $12 billion as opposed to $20 billion. This proposal can be enacted quickly, as there is precedent and it is timely, temporary and targeted.

The plan is there, we know what is needed to help dig us out of this economic muck, and potentially shield the states from further dramatic losses if Wall Street keeps acting up. Our mentality shouldn't be "take what we can get" it should be "this is what we need, this is what will pass." If Republicans want to vote against improving the economy, let them explain it to the voters.

It's time to have a clear vote on a real, working economic stimulus package. It's time to show voters there's a real difference between Democrats and Republicans.

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