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Friday, February 04, 2011


(CLICKING AT THE TITLE WE ARE REDIRECTED TO  Give States a Way to Go Bankrupt  )
PHOTO SOURCE  the American Enterprise Institute 
WE POST TODAY  three MAIN ARTICLES ,APART FROM THE LINKS (at the title and at the end of the last photograph-diagram  ) ,AS THE THEME IS VERY IMPORTANT FOR THE CITIZENS.
( HERE IS AN EXPLANATION OF THE ABOVE LAID ,FIRST DIAGRAM :  All these debts are expressed as a percentage of state gross domestic product, as a way of showing each state’s ability to service the debt.When combined, the picture is grim. The average state has a combined debt of 104 percent of GDP, with the 10 worst states each having total debts exceeding 128 percent of GDP. That’s around where Greece was when the music stopped.What separates states, and the United States in general, from Greece is that while we clearly have a solvency problem—our total liabilities far exceed our total assets—we don’t yet have a liquidity problem, where we can’t produce the dollars today needed to fund current obligations. But that state of affairs won’t go on forever. As the Times story notes, states like California are speeding up tax collections and delaying payments in order to keep current on their payments. And this won’t necessarily get easier over time. SOURCE  the American Enterprise Institute ,Andrew Biggs ) AS A THIRD ,IT IS PUBLISHED PARTIALLY  ANOTHER  ,ABOUT PENSIONS AND HEALTH IN USA,BEING INFLUENCED BY THE STATE DEBTS.

Tax the Rich! State Budget Crisis Deepens: Humanitarian Crisis Emerges
Social catastrophes are poorly expressed by statistics. A recent study by The Center on Budget and Policy Priorities revealed that 41 states are facing severe budget shortfalls for 2009. Some states are worse off than others, with California ($31.7 billion) and Florida ($5.1 billion) leading the deficit pack. In all, the 41 states are currently facing a $71.9 billion budget shortfall. The key word here is “currently,” since a similar study was conducted by the same group only three months earlier, at which time “only” 29 states were predicted to face shortfalls of a “mere” $48 billion. As the recession deepens, so will the state’s budget problems, turning this “budget crisis” into a humanitarian disaster. Projections have already been made for a $200 billion shortfall by 2010.
These deficits have already transcended the computer screen of the statistician into real suffering of the most vulnerable sections of society. In dozens of states across the country, vital services are being cut to the elderly, disabled, the poor, and recently unemployed. Teachers are being cut from schools and tuitions are rising. Workers from state construction sites are being laid off, while social service employees suffer a similar fate. Non profits are closing their doors.
Most likely, these pains only mark the beginning. Many states have a “rainy day fund” of some kind that they use to plan for such crises. These funds are already depleted, or certain to dry up quickly, with “hard decisions” now having to be made. This is especially troubling when one considers that, in many cases, state cutbacks made from the 2001 recession remained in place. Not to mention that successive presidents have successfully plundered federal social programs. The new, extraordinary state budgets that are being drawn up to address the current deficit crisis will essentially destroy the social safety net for millions of people, including access to daycare, food stamps, welfare, and basic medical services.  The fact that the federal budget is in even worse shape, and will likely choose to follow a similar route of massive cuts, makes future predictions of social calamity all but certain.
The options available to states to respond to budget crises are limited since states are not allowed to run deficits; they must solve their budget problems immediately. Nearly every state government is reacting to the crisis in essentially the same way: by cutting essential services and raising “secondary” taxes (alcohol, cigarettes, gas, etc). In reality, after spending their reserve funds, states have only two viable options: cutting spending and raising taxes.
Raising taxes is counterproductive for two reasons: it can cause social unrest and it takes money out of people’s pockets who would otherwise be “aiding” the economy by purchasing things.
However, there is a class of people whom this does not apply to: the very wealthy. By taxing them instead, money will not be taken out of the economy since it lays idle in banks (especially since they’ve temporarily stopped gambling in the stock market). Also, there can be no fear of social unrest when this group is taxed, since they constitute a very, very small section of society.
Rather than opting for this common sense solution, states are instead raising taxes on gas, alcohol, cigarettes, sales taxes, among other things that affect working and poor people disproportionately more than the rich, at a time when the working class is already financially desperate.
And yet another grim way that states are responding to the crisis is building prisons and focusing on “law and order.” The money spent on building these prisons will likely house many people who have recently had their social services terminated.
Perhaps most disturbing about this crisis is that it could not have been planned for. In a market economy, a state’s budget depends on income generated by “market forces”, determining the ability of corporations to sell their products and employ workers. When there is a crisis in the markets—  as when more goods are produced than can be bought— society as a whole is dragged down; a“glut” in the labor market emerges, followed by mass layoffs. The states cannot plan their budget, including how many services they need to provide, nor how many roads they can build, because the market is completely unpredictable. Every projection the states made about the future was completely off: instead of building towards a better future they are destroying what had already existed.
The first step in addressing the current crisis is to confront those who benefit most from the current social arrangement. It is not by accident that most corporations pay far less taxes than the average worker, while the rich continue to have their taxes lowered. In fact, according to a recent study, two-thirds of all corporations did not pay any taxes during the past year. These same interests sparked the current crisis by not only driving down the wages of workers to the point they were unable to purchase goods, but by creating and profiting from the pyramid scheme that created the housing crisis.
The vast profits made by the rich and corporations in the previous boom must be funneled back to the states and local governments to pay for the current crisis. Because this solution is a threat to the corporate elite who control government, it will not happen merely by request.
To accomplish this, a broad-based coalition is needed of working and poor people affected by the current crisis, led by the organized labor of the teachers, health care workers, and public employees, united around the demands of ending corporate bailout and for a progressive tax policy— one aimed at taxing the rich, not working people.  Such a coalition, because of the vast numbers of people it represented, would have the potential to unite all workers, both in the public and private sectors.  It would therefore have the strength to transform this "request" into a demand:  TAX THE RICH!
Shamus Cooke is a social service worker, trade unionist, and writer for Workers Action (www.workerscompass.org).  He can be reached at shamuscook@yahoo.com
source  Global Research, December 6, 2008

State bankruptcy bill imminent, Gingrich says
Legislation that would allow U.S. states to file for bankruptcy will likely be introduced in Congress within the next month, Newt Gingrich, the former speaker of the House of Representatives and a powerful Republican party figure, told Reuters on Friday.
Although Gingrich, considered responsible for the "Republican Revolution" of the 1990's, is no longer in office, he has deep ties to Congress and is frequently named as a potential presidential contender in 2012.
For months he has championed letting states file for bankruptcy in order to handle their long-term budget problems despite resistance from states and investors in the $2.8 trillion municipal bond market.
"We're faced with the danger that the states are going to try to show up and say to Washington: You have to give us money," Gingrich said. "And I think we have to have an alternative that allows us to say no."
While he declined to comment on who might introduce legislation, Gingrich said there was support in both the House and the Senate. He said lawmakers have been looking into the idea for three or four months.
Gingrich first publicly broached the idea in November, the same month the Republican party won control of the House in mid-term elections, largely on promises of reducing spending.
But the legislation will likely face an uphill battle with Democrats still in control of the Senate and the White House.
Because states are sovereign, they cannot declare bankruptcy as cities can, and most have provisions in their constitutions that make defaulting on debt next to impossible.
And California -- a state which Gingrich said would likely turn to Congress for financial help along with New York and Illinois -- said on Friday it has no interest in using bankruptcy to solve its fiscal problems.
California, the eighth largest economy in the world, would not benefit from the legislation, Treasurer Bill Lockyer said.
"States didn't ask for it. We don't want it. We don't need it," Lockyer said. "Bankruptcy would devastate states' ability to recover from the recession and make the infrastructure investments that create good jobs."
Struggling to close a $25 billion budget gap, California already holds Moody's Investors Service's lowest state credit rating -- a distinction it shares with Illinois.
"Just the availability of a bankruptcy option and the potential bond default could severely damage state credit ratings and destroy the trust of bondholders," said New York State Comptroller Thomas P. DiNapoli.
Last week, the municipal bond market suffered a sharp sell-off on fears of defaults by cities and other issuers.
Representative Xavier Becerra, a member of the House Democratic leadership, said the bankruptcy idea is not new.
"But it has never been taken seriously until now because Republicans are insistent on doing nothing to help the states," he told reporters on Friday. "I don't think that is a realistic solution. I don't believe it is a necessary solution."
Hit hard by the deepest recession since the Great Depression, states' economies remain weak, even though the recession ended in mid-2009. State revenues are well below the levels reached before the recession, and high unemployment has driven up spending on public services.
Lawmakers from both parties are concerned Congress may have to step in again with an expensive fix. There is little appetite on Capitol Hill for a repeat of the $814 billion economic stimulus plan passed in 2009.
But along with the recession states are faced with permanent budget problems, including pension obligations they cannot cover estimated to total at least $700 billion.
Filing for bankruptcy would allow them to renege on their pension promises and other obligations to state employees.
"The very fact of the bill existing... allows governors to sit down with unions and say: 'Look you, negotiate with us or I'm taking the state into bankruptcy,'" Gingrich said.
Under bankruptcy an employer can negate labor contract provisions, and state bankruptcy "may be a way to put additional pressure on public employee service unions to negotiate," said Howard Cure, director of municipal research at Evercore Wealth Management in New York.
Still, said National Governors Association Executive Director Raymond Scheppach, no state is asking for the option of filing for bankruptcy in court.
"The state would be tied up in terms of its own budgeting and running of state government. And who wants to give the responsibility of running state government to the courts?" he said.
By Lisa Lambert
WASHINGTON | Fri Jan 21  2011
(Additional reporting by Thomas Ferraro in Cambridge, Maryland, Jim Christie in San Francisco and Joan Gralla in New York; Editing by Leslie Adler )
SOURCE   Reuters

 Misunderstandings Regarding State Debt, Pensions, and Retiree Health Costs Create Unnecessary Alarm
A spate of recent articles regarding the fiscal situation of states and localities have lumped together their current fiscal problems, stemming largely from the recession, with longer-term issues relating to debt, pension obligations, and retiree health costs, to create the mistaken impression that drastic and immediate measures are needed to avoid an imminent fiscal meltdown.
The large operating deficits that most states are projecting for the 2012 fiscal year, which they have to close before the fiscal year begins (on July 1 in most states), are caused largely by the weak economy.  State revenues have stabilized after record losses but remain 12 percent below pre-recession levels, and localities also are experiencing diminished revenues.  At the same time that revenues have declined, the need for public services has increased due to the rise in poverty and unemployment.  Over the past three years, states and localities have used a combination of reserve funds and federal stimulus funds, along with budget cuts and tax increases, to close these recession-induced deficits.  While these deficits have caused severe problems and states and localities are struggling to maintain needed services, this is a cyclical problem that ultimately will ease as the economy recovers.
Unlike the projected operating deficits for fiscal year 2012, which require near-term solutions to meet states’ and localities’ balanced-budget requirements, longer-term issues related to bond indebtedness, pension obligations, and retiree health insurance — discussed more fully below — can be addressed over the next several decades.  It is not appropriate to add these longer-term costs to projected operating deficits.  Nor should the size and implications of these longer-term costs be exaggerated, as some recent discussions have done.  Such mistakes can lead to inappropriate policy prescriptions.
Basics  for USA ,local policies.
State and local governments are the main source of funding for K-12 education, public colleges and universities, health care, transportation, public safety, and many other services — including services for low-income and other vulnerable residents.  They finance these services mostly through taxes and fees, primarily income and sales taxes.  (Not every state has an income and sales tax.)  Unlike the federal government, states must balance their budgets on an annual basis.

A Path Is Sought for States to Escape Their Debt Burdens




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