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Tuesday, January 18, 2011 8:39 PM


Point of No Return; Fiscal Shell Games; Texas to Cut 8,000 Jobs; Deep Layoffs in NJ; Mayor Recall Vote in Miami; Oregon Workers' Comp Bankruptcy


Call it a Day of Reckoning or a Point of No Return. Either way, it has arrived. Cities and states are in forced cutback mode except for Illinois which managed to kick the can down the road with massive increases in taxes. Here is a sampling of some pretty bleak happenings in a number of cities and states.

Texas may Eliminate 8,000 Jobs, Cut Spending on Schools and Social Services by 11 Percent

In Texas, Republicans Make $9 Billion Reserve Off Limits.

The two-year budget plan that the Texas House of Representatives will release today may eliminate more than 8,000 jobs and cut spending on schools, universities and social services by 11 percent. It will not tap $9.4 billion set aside for deep economic stress, Republicans say.

The Rainy Day fund will grow 14 percent by Aug. 31, 2013, bolstered by revenue from levies on oil and gas production, State Comptroller Susan Combs estimated this month. The fund has risen sixfold since 2007 as other states drained reserves to balance total deficits likely to top $190 billion during the next two years, according to the National Conference of State Legislatures.

While Texas is spending $87 billion of general-fund revenue in its current two-year budget, it won’t expend more than $77.3 billion in fiscal 2012 and 2013, Governor Rick Perry said in a Jan. 13 speech. Using the reserve would delay efforts to set the state’s fiscal house in order, he said. Texas voters in November supported Republicans who pledged to cut spending and not raise taxes in one of seven U.S. states without a levy on personal income, he said.

“We don’t have shortfalls in Texas,” Perry told reporters last week. “You prioritize what’s important in this state. We will fund those.”
Deep Police Firefighter Layoffs in Camden, New Jersey

Public unions in Camden, N.J. will be put to the test on Wednesday when they decide whether to kick fellow officers into the street or accept cutbacks. One way or another, the money is not there to support existing contracts at full worker load.

Please consider Deep layoffs begin in Camden, N.J.
The mayor of Camden, N.J., says 168 police officers, 67 firefighters and about 100 non-uniformed city employees were laid off Tuesday.

Mayor Dana Redd says about 100 of the police officers and most of the firefighters could be brought back if their unions agree to concessions. She says the biggest police union is scheduled to vote on a plan Wednesday.

The layoffs come as Camden, a crime-ridden city across the Delaware River from Philadelphia, faces a huge budget deficit and declining state aid.
My take is that there is no need to cut a single job. Wages and pension benefits are untenable. It is up to the police force to accept cutbacks, not up to taxpayers to keep funding public union benefits that most will never see. 100% of the blame for every job lost goes to the police and fire union.

How will they vote? It will be interesting. I expect some token effort by the union to save a couple officers. I also expect the union to whine and scream about incredible sacrifices they are making, even though those sacrifices won't amount to a hill of beans.

As a result expect to see stories like Laid Off Firefighter Panhandles On Street.

Miami Recall Vote Set

Miami Mayor Carlos Alvarez is about to be kicked out on his ass, along with Commissioner Natacha Seijas. Both deserve it. Please consider Miami-Dade Commissioners set March 15 recall date for Alvarez and Seijas
Thursday's county commission meeting offered plenty of political drama, as the county's leaders set a date for a recall election for the mayor and one of their colleagues.

In the end, the commission voted to set one election for a recall vote for both Mayor Carlos Alvarez and Commissioner Natacha Seijas: March 15.

The inauspicious selection of the ides of March election date -- the day Julius Caesar was killed in the Roman Senate -- quickly echoed through the commission chambers. Seijas added to the Shakespearean atmosphere with her own "Et tu, Brute?" cry of betrayal, warning her colleagues: "Today it's me, tomorrow it might be you." After the vote, she told them: "It could come back to you and haunt you one day."

The recall drives erupted amid a public outcry last fall after commissioners adopted a new budget, proposed by the mayor, that raised the property tax rate while handing pay raises to most county employees.

Miami billionaire businessman Norman Braman took the lead in the campaign to oust the mayor. He hired professional consultants who gathered 95,499 petitions, about 43,000 more than the minimum needed to force a recall election.

Miami Voice, a political action committee headed by Vanessa Brito, is heading the effort to oust Seijas. Brito initially targeted five commissioners, but was able to get the needed signatures only in Seijas' case.

In March 2009 the mayor and a majority of commissioners, including Seijas, voted to spend public dollars to build a new Florida Marlins ballpark in Little Havana. That came on the heels of an unsuccessful legal challenge by Braman aimed at barring the use of public funds.

In August 2009, The Miami Herald reported that Alvarez handed out hefty raises to his top staffers after calling for shared sacrifice in his state of the county speech during the depths of the Great Recession six months earlier.

"Everyone has been complaining about the quality of government in this community," Braman said Thursday. "I believe March 15 is an opportunity to come out -- I hope in large numbers -- to do something about it."
If you live in Miami, send them packing and get rid of any other commissioners who voted for tax hikes in the next election.

Portland Workers’ Comp Trust Files Bankruptcy

The Portland Business Journal reports Workers’ comp trust files bankruptcy
A dearth of construction work has triggered a first-of-its-kind bankruptcy involving a trust that provides workers’ compensation insurance to Oregon contractors.

The Oregon Contractors Workers’ Compensation Trust Inc. filed for Chapter 11 in Oregon Bankruptcy Court on Jan. 3. The move is a first step toward disbanding the trust after it lost too many members to stay in business.

The member-funded trust provided workers’ compensation policies to 365 Oregon companies as recently as four years ago. Such policies pay benefits to workers who get injured on the job.
America has ‘reached the point of no return

Reagan's budget director warns America has 'reached the point of no return'
The Obama administration's $78 billion cut to US defense spending is a mere "pin-prick" to a behemoth military-industrial complex that must drastically shrink for the good of the republic, a former Reagan administration budget director recently told Raw Story.

"It amounts to a failed opportunity to recognize that we are now at a historical inflection point at which the time has arrived for a classic post-war demobilization of the entire military establishment," David Stockman said in an exclusive interview.

"The Cold War is long over," he continued. "The wars of occupation are almost over and were complete failures -- Afghanistan and Iraq. The American empire is done. There are no real seriously armed enemies left in the world that can possibly justify an $800 billion national defense and security establishment, including Homeland Security."

Calling today's military spending running at 5.4 percent of GDP "simply an absurd level that begs for radical contraction and surgery," he said that a "reasonable target" to shrink the defense establishment would be 3 percent of GDP by 2015.

What budget cuts?

Republicans, who were elected to a majority in the House of Representatives on promises to cut government spending, promised to cut $100 billion from the budget in their first year. Relatively few have proposed significant decreases in defense spending, and GOP leadership has outright dismissed the possibility.

Some prominent members of the House GOP caucus have even suggested the sum of their austerity measures could fall to only $30 billion, if that.

The 'Ponzi scheme' of 'artificial prosperity'

Stockman, who described himself as a libertarian during a recent interview with Reason.tv, told Raw Story that the economy got into this mess because of the public and private sectors' addiction to "guns and butter Keynesianism," an economic policy that amounts to a Ponzi scheme that has ballooned since 1990.

"If we see what's going on carefully, we've reached the final unmasking of the Keynesian illusion, that Keynesianism is really nothing but borrowing, stealing from the future to induce consumption today," he said. "There are no multipliers. Every one of these programs we've had from 'cash for clunkers' to housing purchase credits have disappeared as soon as they expired and simple shifted activities in time by a few months."

By 2007, before the big collapse and meltdown finally came, $7 of public and private debt was added to the national balance sheet in order to get $1 of GDP growth.

"When you get to the point of $7 of borrowing to get $1 of income, you're obviously on an unsustainable path and pretty close to hitting the wall, which more or less we have," he said. "We've reached a point of no return."
Governor Christie Blasts Illinois in State of State Address

New Jersey.Com has the Full text of Gov. Christie's State of the State address Here a re a few snips.
It is my constitutional duty to report to you each year on the State of our State. And today, it is my privilege to report to you that the State of our State is improving— getting better every day.

Why do I say that?
  • State spending is down 9% in one year.
  • The budget has been balanced.
  • State taxes are lower— for the first time in a decade.
  • The unemployment rate has begun to drop— and today is below, not above, the national average.
  • Companies are beginning to take a second look at New Jersey.

Some were beginning to write off New Jersey, doubting we could change what the newspapers called our “old, hide-bound ways.” Another paper put it simply: “New Jersey must change course.”

The Day of Reckoning had arrived— and arrived with a vengeance.

New Jersey is getting recognized for taking on the tough issues that politicians have refused to touch. We are showing other states that sometimes, to create real change, you’ve got to go all in and show a little Jersey attitude.

And this month, new governors are taking office across the country— Republicans and Democrats— many using New Jersey as the example of how they want to lead.

For example, one state— Illinois— has chosen a very different path. They are in the throes of debating a 75% increase in income tax rates.

Is that what we want for New Jersey?

No. New Jersey intends to remain the leader, not only in turning around the national trend of out-of-control spending and taxes, but in finding the path to growth.
Governor Christie Talks About Pension Reform



Christie says the reform is FOR the teachers and FOR the police officers, otherwise there will be nothing left to pay benefits with.

Here's one quote "Benefits are too rich, contributions too small, and the system is on a path for bankruptcy."

In my opinion he understates the problem and the current liabilities, but he is certainly on target with the need for massive changes.

Illinois Kicks The Can

In Illinois, unlike New Jersey, Governor Quinn and the legislature kicked the can down the road.

For details, please see

Please click on the first link in the above list to volunteer help. Also pass a link to this post to your friends and have them do the same.

Illinois Pension Funding Worst In Entire U.S.

To gain an understanding of the sorry state of Illinois pension funds please see Interactive Map of Public Pension Plans; How Badly Underfunded are the Plans in Your State?

Once the map pops up, click on Illinois.

Taxpayers ought to be scared to death by Illinois pension plan funding with governor Quinn at the helm.

Fiscal Gimmicks, Evasions, and Ploys

Steven Malanga at the City Journal discusses State Budget Bunk
In a 2009 segment on Comedy Central’s The Daily Show, host Jon Stewart told viewers that many recession-hammered states had turned to unusual methods to raise money. “Are any of these ideas actually stupid?” Stewart wondered. Cut to Daily Show correspondent Jason Jones, who described Arizona’s plans to sell its state government buildings for $735 million, lease them back, and keep on using them. Quickly discerning the problem with such a maneuver, Jones confronted Arizona state senator Linda Lopez: “So you’ve got $735 million for this year. What happens next year, when you don’t have that and you’ve got to pay rent?” Lopez’s awkward response: “That’s always the problem, but we gotta get through this year.”

Since late 2008, therefore, states have faced accumulated budget deficits of some $300 billion. Federal stimulus money helped cover about two-thirds of that yawning gap, but legislators have had to close the rest themselves. Many have resorted to methods that New York State’s comptroller calls a “fiscal shell game.”



When Arizona claimed to be selling its government buildings, it was engaging in a far more deceptive kind of borrowing—a gimmick known as “tax-exempt certificates of participation” and even more preposterous than the Daily Show correspondent realized. There was no new owner in this so-called sale. Rather, the state floated more than $1 billion of notes, promising to repay bondholders with the “rent” that it would pay to lease the buildings. Since rent, not tax revenues, technically would repay the certificates, Arizona could borrow the money, even though it exceeded the state’s constitutional debt limit. Yet Arizona will pay the rent on the buildings with tax revenues, so the impact on taxpayers is exactly the same as more borrowing would have been: in this case, $1.5 billion in future taxes. “The Arizona legislature has done everything it can to pretend that life hasn’t changed since the housing market collapsed, and borrowing to close its budget gaps is one good example of that,” says Byron Schlomach, a fiscal analyst with the Goldwater Institute in Phoenix.

States are employing an array of other techniques that amount to borrowing without issuing debt. One strategy is simply to stop paying the bills. In Illinois, unpaid bills have reached a jaw-dropping $4.4 billion, according to the state’s comptroller. California, meanwhile, famously issued nearly 450,000 IOUs, totaling $2.6 billion, in 2009. Creditors kept waiting for months included staffing firms that supplied the state with temp workers and businesses that provided technology services. Even neighboring Nevada got stuck with an IOU (for $33,383) after sending firefighters to battle California wildfires. Nationwide, states’ unpaid bills have soared by nearly $100 billion, or 18 percent, since the end of 2007.

Early-retirement plans have become another vehicle for fiscal trickery. At first, the plans may seem an attractive way to downsize the government workforce. Michigan, for instance, recently passed a retirement plan to provide generous additional benefits for up to 6,400 retirees, who can step down at 59. The plan supposedly will save the state’s general fund about $80 million in its first year.

Or will it? Consider some recent experiences with early retirement. Back in 2003, Connecticut embraced an early-retirement plan to reduce the state workforce by several thousand, booking the savings straightaway. But then the state rehired some 1,000 of its early retirees as temporary workers who collected salaries in addition to their pensions. By 2008, some of those “temporary” employees were still working for the state and collecting pensions, a Hartford Courant investigation discovered.

Or look at Illinois, which launched a massive early-retirement plan during the last recession, in 2002. The state originally estimated that it would cost only about $80,000 extra per retiree, but after legislators added all the union-demanded sweeteners, that price tag ballooned to $200,000. Approximately 10,000 employees rushed to take advantage of the plan, further shaking an already tottering pension system. The system’s payouts to retirees rocketed in one year from $640 million to an estimated $1.6 billion.

Illinois’ dire pension shortfalls didn’t occur overnight, but worsened over years of budget tricks that the state never made right. It has been 20 years since New York, to close a budget deficit, bought Attica Prison from itself with money raised from a bond issue; today, the state is still using current tax dollars to pay off the interest.

Reformers should use the current downturn as a starting point to demand new measures that end many of these abuses. Though reforms will differ from state to state, several sensible principles should govern change. One is for states to switch from yearly budgets to balanced multiyear plans, so that legislators won’t be able to employ tricks one year and ignore their consequences the next. Another is for states to tighten restrictions on borrowing to include debt issued by quasi-governmental entities and authorities. States can also increase the amount of money that their reserve accounts must hold during good economic times, which would both restrain the growth of government during the good times and provide a cushion against severe revenue falloffs in recessions. Such reforms would represent the next stage in taxpayers’ never-ending battle against budget gimmicks.
Steven Malanga is the senior editor of City Journal and a senior fellow at the Manhattan Institute. He is the author of Shakedown: The Continuing Conspiracy Against the American Taxpayer.

Conspiracy Against Taxpayers



Please play that video. Steven Malanga makes a powerful case as to how public unions are destroying cities and states.

I have not yet read the book, but I have read Steven Greenhut's book on the same subject. Please see Book Review: Five Thumbs Up for Steve Greenhut's Plunder!

Buy the books and read them. They will open your eyes on how public unions are systematically destroying the United States.

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