Minnesota Governor Announces Unallotments; California Rebuffed For Federal Aid

Minnesota legislators and the Governor could not agree on ways to balance the budget so Governor Pawlenty made good on his vow to balance the budget himself, announcing $2.7 billion worth of spending cuts, payment deferrals and other savings.

Please consider Pawlenty announces $2.7 billion in cuts, other savings.

Gov. Tim Pawlenty today announced plans to cut $300 million from aid to local governments, $236 million from health and human services programs, $100 million from higher education and to defer nearly $1.8 billion in payments to K-12 schools as he made good his promise to unilaterally slash spending to balance the state's budget.

The alternative, he said, would be to "dramatically raise taxes" on residents and businesses, which he said would limit possibilities for the state's future growth.

"The overall impact of these reductions will be to have state government live on about 96 or 97 percent of what it's living on right now," he said.

Pawlenty and legislators fought the entire session over whether or not to increase taxes. Pawlenty shot down every tax plan DFLers sent him, while they torpedoed his idea to raise about $1 billion by issuing long-term bonds backed by the state's tobacco settlement income. DFLers likened that plan to taking out a second mortgage in order to pay for groceries and many Republicans were also cool to the proposal.

The governor is right to not raise taxes. However, his plan to sell long-term bonds would do nothing but postpone the problem. The legislature was right to knock that proposal down. Moreover, note that the governor did not really balance anything.

$1.8 billion of Pawlenty's so-called budget cuts were nothing more than deferrals which also do nothing but delay the day of reckoning.

Pawlenty is correct about this "The overall impact of these reductions will be to have state government live on about 96 or 97 percent of what it's living on right now."

How tough can it possibly be to cut a mere 3-4% from the budget?

Apparently it's impossible. The legislature could not do it, nor could Pawlenty do it himself. All either want to do is postpone the problem while laying the blame on someone else.

California Aid Request Spurned By U.S.

One wonders how long Obama will stay on the sidelines with California disintegrating in front of the world. For now anyway, California 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.

After a series of meetings, Treasury Secretary Timothy F. Geithner, top White House economists Lawrence Summers and Christina Romer, and other senior officials have decided that California could hold on a little longer and should get its budget in order rather than rely on a federal bailout.

These policymakers continue to watch the situation closely and do not rule out helping the state if its condition significantly deteriorates, a senior administration official said. But in that case, federal help would carry conditions to protect taxpayers and make similar requests for aid unattractive to other states, the official said. The official did not detail those conditions.

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."

Geithner did not rule out bailing out California. We should all hope he doesn't because it is a bottomless hole as evidenced by the Breakdown of the Fed's $13.9 Trillion Commitment already on the table.

Two thing are certain if Obama or Congress does decide to bail out California:

1) Taxpayers will not be protected.
2) All the bailout will do is further postpone California's day of reckoning.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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